How CGT applies to your rental property and what expenses you can include in your costs.

How capital gains or losses apply

When you sell or dispose of a rental property you may make a capital gain or loss.

A capital gain or loss is the difference between what it cost you to obtain and improve the property (the cost base) and the amount you receive when you dispose of it.

If you make a:

• net capital gain in an income year, you’ll generally be liable for capital gains tax (CGT)
• net capital loss, you can carry it forward and deduct it from your capital gains in later years.

You may be entitled to a part of full main residence exemption if you lived in the property before renting it out (see Treating your former home as main residence).

You will be entitled to a part main residence exemption if you rented out part of your home.

For a summary fact sheet with common scenarios about CGT and eligibility for the main residence exemption that you can download as a PDF, see Capital gains tax and the main residence exemption.

If you are a co-owner of the property, you’ll make a capital gain or loss in accordance with your ownership interest in the property.

The application of a capital gain or loss depends on when you acquired the property:

• If you acquired the property before 20 September 1985 then it will only apply to certain capital improvements made after that date.
• If you acquired the property after 20 September 1985, then it will apply to the entire property.

Working out your costs

The cost base and reduced cost base of a property include the amount you paid for it together with some incidental costs associated with acquiring, holding and disposing of it (such as legal fees, stamp duty and real estate agent’s commissions).

It does not include amounts that you have claimed or could claim as a tax deduction.

When you sell your rental property, the time of the event (the time at which you make a capital gain or loss) is when you enter into the contract, not when you settle.

Capital expenses

Expenses you incur when purchasing, acquiring, selling, or disposing of your rental property are capital expenses. You may be able to include capital expenses when calculating the ‘cost base’ of your property. This can help you reduce the amount of CGT you pay when you sell your property.

Capital expenses include:

• conveyancing costs paid to a conveyancer or solicitor
• title search fees
• valuation fees (when it is a private valuation conducted by your solicitor)
• stamp duty on the transfer of the property.

GST on rental properties

Generally, the sale of existing residential premises is input taxed. This means:

• you cannot claim GST credits on any costs associated with buying or selling
• GST does not apply to the rental payments you receive.

However, if you build new residential premises for sale, you may:

• be liable for GST on the sale (at settlement)
• need to register for GST depending on your turnover.

If you do need to register for GST, you may also be entitled to GST credits on construction and sale costs, even if the premises have been rented for a period before being sold.

Foreign resident capital gains withholding

Foreign resident capital gains withholding (FRCGW) may apply when selling your rental property to a foreign resident.

If you have any questions, feel free to ask them in the comment section. We will be happy to answer all your queries.