How to Reduce Capital Gains Tax on Property: Seven Legal Strategies

Updated 26 July 2026

First, how property CGT actually works

CGT is not a separate tax. Your net capital gain is added to your taxable income in the year the contract is signed (not settlement) and taxed at your marginal rate. The gain is broadly sale proceeds minus cost base, and the cost base is more than the purchase price: it includes stamp duty, legal fees on the way in and out, agent's commission, and capital improvements over the years.

Losses offset gains, current-year or carried forward, before the discount is applied.

Strategy 1: the main residence exemption

Your home is fully exempt from CGT if it has been your main residence for the entire ownership period, sits on two hectares or less, and has not been used to produce income. Move-in matters: the exemption runs from when the property actually becomes your home, so a property rented out first and lived in later gets only a partial exemption apportioned by time.

Two extensions worth knowing:

• Building or renovating: you can treat vacant land or a construction site as your main residence for up to four years before moving in, provided you move in as soon as practicable and stay at least three months.
• Moving between homes: both the old and new home can be exempt for up to six months of overlap when you buy before selling.

The exemption is generally unavailable to foreign residents at the time of sale, a rule that has caught many expats since 2020.

Strategy 2: the six-year absence rule

If you move out of your main residence and rent it out, you can continue treating it as your main residence for up to six years and still sell CGT-free, provided you do not treat another property as your main residence for the same period.

The mechanics people miss:

• The clock resets. Move back in genuinely, then move out again, and a fresh six-year period begins.
• Indefinite if not rented. If the property produces no income while you are away (left vacant, holiday use), the exemption continues without any time limit.
• One main residence at a time. Electing the old home for six years means the new home you live in accrues CGT exposure for that overlap. You choose at sale time, with hindsight; run the numbers both ways before electing.
• The home-first valuation rule. If your home first produces income after 20 August 1996, your cost base resets to market value on the day it first earned income. That valuation, often needed years later, is exactly what a retrospective CGT valuation establishes. Our related practice at cgtvaluation.com.au prepares these, including back-dated valuations for properties first rented years ago.

The partial exemption maths, since most cases are partial

Full exemption or full taxation are the easy ends. Most real files sit in between, and the apportionment is done in days:

Taxable portion = total gain x (non-main-residence days / total ownership days), with the six-year rule converting absence days into exempt days where elected, and the home-first-used-to-produce-income rule swapping the original cost base for market value at the date income production began.

• Because it was a rental first, no market-value reset applies; cost base stays at $400,000 plus incidentals, say $430,000 after stamp duty and selling costs
• Total ownership: ~4,383 days. Rental days: ~1,795
• Gross gain: $350,000. Taxable portion: $350,000 x 1,795 / 4,383 = $143,300
• Less 50% discount: $71,650 added to Dana's income in the contract year

Had Dana lived there first and rented later, the market-value reset plus the six-year rule could have exempted the entire gain. Same property, same dollars, order of use decides the tax. This is why "should I move in or rent it out first" is a question to ask before settlement, not at sale.

Inherited property: the rules estates run on

Death does not trigger CGT; the liability passes with the asset. What the beneficiary inherits depends on the deceased's use:

• Deceased's main residence, sold within two years of death: generally fully exempt, regardless of what the beneficiary does with it in that window. The two years can be extended in limited circumstances such as delayed probate.
• Deceased's main residence, kept longer: cost base resets to market value at the date of death, and the clock runs from there on the beneficiary's own use.
• Pre-CGT property (acquired before 20 September 1985): the beneficiary takes it at market value at death; the pre-CGT status itself does not transfer.
• Investment property: the beneficiary inherits the deceased's original cost base and holding period, discount eligibility included.

A date-of-death valuation is the document every one of these outcomes hangs on, and it is routinely obtained years later as a retrospective valuation when the estate finally sells.

Subdividing or building? Different tax, worse tax

Splitting the backyard off and selling the block is not automatically a capital gain at all. Where there is a profit-making intention or the activity looks like a development business (plans, finance, marketing, repetition), the ATO taxes the profit as ordinary income: no 50% discount, no main residence exemption on the sold lot, and GST can apply to the sale under the margin scheme or in full. Subdividing your own home's land also never carries the main residence exemption on the vacant lot, because the exemption attaches to a dwelling. The difference between a discounted capital gain and fully taxed ordinary income plus GST is routinely six figures on a single project; characterise the project with advice before the first plan is lodged.

Strategy 3: the 50% CGT discount

Hold any CGT asset for more than 12 months (contract date to contract date) and individuals and trusts halve the taxable gain. A $300,000 gain becomes $150,000 assessable.

• Companies get no discount. One of the main reasons growth property is rarely bought in a company; see our structuring guide.
• Super funds get one-third, an effective 10% rate in accumulation; see property inside an SMSF for how that interacts with the borrowing rules.
• Settlement dates do not count. Selling at month 12 by contract date, settling at month 14, still fails the test.

Strategy 4: build the cost base properly

Every dollar of cost base is a dollar of gain removed. Commonly missed inclusions:

Two adjustments cut the other way: capital works deductions claimed (Division 43) reduce the cost base, and depreciation claimed on plant reduces it via balancing adjustments. Keep every invoice for the life of the property; reconstructing a 15-year renovation history at sale is expensive and partial.

Strategy 5: time the sale year

Because the gain lands in the contract year:

• Sign after 30 June in a year your income is already high; the gain shifts into a year where you may be on a lower bracket (retirement, sabbatical, business dip)
• Match losses. Realise underperforming assets in the same year, current-year losses apply before the discount
• Mind instalment effects. A large gain flows into next year's PAYG instalments; plan the cash, or vary the instalments with evidence

Selling and rebuying loss assets purely to manufacture the offset is a wash sale, which the ATO treats as a scheme. The loss must reflect a genuine change of position.

Strategy 6: super contributions against the gain

A deductible personal concessional contribution in the sale year reduces taxable income, partially absorbing the gain at the cost of accessing the money later. The concessional cap is $30,000 for 2025-26, and unused cap amounts from the previous five years can be carried forward where your total super balance was under $500,000 at the prior 30 June, which can make this a very large lever. Downsizer contributions add a further option from age 55: up to $300,000 per person ($600,000 per couple) of home sale proceeds contributed outside the normal caps, where the home was owned 10+ years.

Strategy 7: small business CGT concessions

Where the property was an active business asset (your business premises, not a passive rental), the small business CGT concessions can reduce the gain far below what any strategy above achieves: the 15-year exemption can eliminate it entirely, the active asset reduction halves it again after the general discount, and the retirement exemption shelters up to a lifetime limit. Eligibility is technical (turnover or net asset tests, active asset test) and the interactions with super are where the value hides. If your sale involves business premises, get advice before the contract, not after.

What does not work

• Gifting the property to family. CGT applies at market value on transfer; you trigger the tax without receiving the money.
• Selling "off the books". Data matching covers every land titles office transfer.
• Moving in for a fortnight before sale. The exemption apportions across the whole ownership period; a token residency at the end exempts a token fraction.
• Waiting for death. Death itself does not trigger CGT, but beneficiaries inherit the liability via cost base rules; it defers, not erases, and pre-CGT status and main residence concessions have their own clocks in the estate.

This article provides general information only, current at the date of publication, and does not constitute personal tax, legal or financial advice. Consider your circumstances or speak with us before acting. Liability limited by a scheme approved under Professional Standards Legislation.