Australian Capital Gains Tax (CGT) Explained: 50% Discount, Main Residence Exemption, the 6-Year Rule & the 2027 Reform (2026)

Key Takeaway (as of June 2026): CGT is not a separate tax — capital gains are added to your income and taxed at your marginal rate. Australian tax residents who hold an asset for at least 12 months get a 50% discount, and your main residence is usually fully exempt. Claims that "CGT has already gone up" are false: the reform is now law but only applies to gains accruing after 1 July 2027, with protection for existing assets.

All answers are sourced from the ATO; the reform section is cross-checked against ATO / Treasury / Parliament. This is general information, not personal tax advice — use the ATO's calculators or consult a registered tax agent.

1. CGT is part of your income tax, not a separate tax

Many people assume CGT (Capital Gains Tax) is a standalone tax like GST. It isn't. The ATO is explicit: a capital gain is included in your assessable income and taxed at your marginal rate — the profit from selling an asset is added to your income for that year.

ATO: "Although it is referred to as 'capital gains tax', it's part of your income tax. It's not a separate tax."

2. When CGT is triggered (a CGT event)

A CGT event happens when you dispose of an asset — most commonly a sale, but also gifting, or an asset being destroyed with an insurance payout. Common CGT assets: investment property (your home is usually exempt), shares / ETFs, crypto, business assets and land.

3. How it's calculated: proceeds − cost base = capital gain

Capital gain = capital proceeds − cost base

The ATO cost base has 5 elements — the area where people most often understate and end up overpaying:

#	Cost base element	Typical examples
1	Purchase price	Money / property given for the asset
2	Incidental costs	Stamp duty, agent fees, legal / conveyancing
3	Ownership costs	Costs of owning the asset
4	Capital improvement costs	Renovations, extensions that add / preserve value
5	Title-preservation costs	Capital costs of preserving or defending title

⚠️ Costs already claimed as a tax deduction cannot be included in the cost base again. A capital loss can't offset your salary but can be carried forward against future capital gains.

4. Two key concessions (currently in force)

4.1 The 50% CGT discount: hold 12+ months, halve the gain

The ATO: Australian resident individuals who hold an asset for at least 12 months include only half the net gain. Key points:

The 12 months excludes the purchase and sale days
Companies cannot use the discount
Apply capital losses first, then the 50% discount
Foreign / temporary residents can't use it for gains after 8 May 2012 (see section 5)

ATO worked example: Rhi buys an investment property for \$500,000 and sells 5 years later for \$600,000. Cost base = \$530,000 (\$500,000 + \$15,000 stamp duty + \$1,200 purchase conveyancing + \$1,300 sale conveyancing + \$12,500 agent commission). Capital gain = \$70,000; after the 50% discount, the net taxable gain is \$35,000, taxed at her marginal rate.

4.2 Main residence exemption: your home is usually fully exempt

The ATO: your home is fully exempt if you're an Australian resident and the dwelling was your (and your family's) home for the whole ownership period, wasn't used to produce income, and sits on 2 hectares or less. Otherwise you may get a partial exemption.

Two common traps:

Acreage: the exemption only covers land up to 2 hectares — the excess is apportioned for CGT.
Using your home to earn income: renting a room, running a business from home, or registering the home as an ABN business address reduces you to a partial exemption, apportioned by floor area × time.

4.3 The 6-year rule: move out, rent it, sell within 6 years and it can still be exempt

The ATO: after moving out, you can keep treating a former home as your main residence for up to 6 years while it's rented (indefinitely if it isn't producing income).

[Most common misconception] The 6-year rule only applies if the property was your home first. A property rented from day one and never lived in cannot use the 6-year rule retrospectively.

Also: each absence resets its own 6 years; you generally can't treat another dwelling as your main residence during the chosen period (6-month move overlap aside). If a single absence is rented for more than 6 years, the excess is apportioned for CGT. A separate "home first used to produce income" rule can re-set your cost base to the market value on the day it was first used to produce income, materially changing the taxable gain.

5. Foreign / temporary residents: two major disadvantages

If you're a foreign or temporary tax resident when you sell, the rules are much harsher:

Item	Rule
50% discount	Not available for gains after 8 May 2012 (apportioned if you had a period of Australian residency)
Main residence exemption	Foreign residents cannot claim it for property sold after 30 June 2020 (limited life-events exception)
Temporary residents	Taxed only on taxable Australian property (Australian real estate, business assets, etc.)

Residency status (resident vs foreign / temporary) directly determines how much CGT you pay — confirm it before selling, or consult a registered tax agent.

6. Policy update: the CGT reform is real — but not yet

This is the source of the recent social-media noise. The official position:

ATO: "Recent changes to capital gains tax (CGT) announced in the 2026–27 Federal Budget don't apply to Tax Time 2026."

There is a real reform (verified against ATO / Treasury):

Status: announced as part of the 2026–27 Federal Budget on 12 May 2026 (7:30pm AEST); now law.
Content: the 50% CGT discount for individuals / trusts / partnerships is replaced with cost-base indexation + a 30% minimum tax rate; negative gearing is limited to new builds.
Effective date (crucial): from 1 July 2027; the CGT rules apply only to gains that accrue after 1 July 2027.
Grandfathering: properties held at announcement (7:30pm AEST 12 May 2026) are exempt from the negative gearing changes.
New-build election: investors who buy new builds can choose either the existing 50% CGT discount or the indexation-plus-minimum-tax arrangement when they sell.

Myth vs fact:

Claim online	Official fact
"The 50% discount is gone"	It's still law today
"Sell now and you're taxed under the new rules"	New rules apply only from 1 July 2027
"Tax went up in 2026"	Not applicable for FY2026
"Negative gearing is abolished"	Unchanged now; reform has an effective date + grandfathering

In one line: the reform is coming, but not now, and your existing assets are protected. Ignore anyone telling you to "dump the property before the new rules" — check the current status on the ATO site first.

FAQ

Is CGT a separate tax? What's the rate? No — gains are added to your income and taxed at your marginal rate, so the "rate" is your personal income tax bracket.

How long to get the 50% discount? At least 12 months (excluding the buy and sell days), for Australian resident individuals.

Is my home taxed when I sell? Usually fully exempt, provided it was your home for the whole period and wasn't used to produce income; renting or running a business from it may reduce you to a partial exemption.

Does the 6-year rule apply to a rental I later move into? Only if it was your home first. A property rented from purchase and never lived in can't use it retrospectively.

I'm a foreign / temporary resident selling Australian property — what happens? No 50% discount (post-8 May 2012 portion); foreign residents lost the main residence exemption for sales after 30 June 2020 (limited life-events exception). Confirm your residency status before selling.

Acreage home — is it all exempt? The exemption only covers up to 2 hectares; the excess is apportioned for CGT.

Is the "CGT overhaul, tax up now" talk true? The reform is coming but not now. The 50% discount and negative gearing are unchanged today; the new CGT rules apply only to gains accruing after 1 July 2027, with protection for existing assets. Rely on the latest ATO / Treasury status.

How MPFG can help

CGT affects sell / refinance decisions for self-employed borrowers, property investors and Chinese-Australian buyers. MPFG Capital is a non-bank lender serving these groups with Mandarin-speaking support across refinance, bridging finance, investment and commercial property lending.

Disclaimer: This is general educational information, not personal tax or financial advice, and does not guarantee any loan outcome. For CGT calculations use the ATO's tools or a registered tax agent; for lending, speak to a licensed credit adviser.