• Selling a rental property

    You're likely to make a capital gain or capital loss when you sell or otherwise dispose of a rental property. If you make a net capital gain in an income year, you'll generally be liable for capital gains tax (CGT). If you make a net capital loss you can carry it forward and deduct it from your capital gains in later years.

    A capital gain, or capital loss, is the difference between what it cost you to obtain and improve the property (the cost base), and what you receive when you dispose of it. Amounts that you've claimed as a tax deduction, or that you can claim, are excluded from the property's cost base. The cost base of a capital gains tax (CGT) asset is generally the cost of the asset when you bought it. It also includes certain other costs associated with purchasing/acquiring, holding and selling/disposing of the asset.

    If you acquired the property before CGT came into effect on 20 September 1985, you disregard any capital gain or capital loss. However, you may make a capital gain or capital loss from capital improvements made since 20 September 1985, even if you acquired the property before that date.

    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. Expenses you incur when purchasing/acquiring or selling/disposing of your rental property are capital expenses.

    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.

    Example

    Stephen needed to do some repairs to a rental property he recently purchased before the first tenants moved in. He paid tradespeople to repaint dirty walls, replace broken light fittings and repair doors on two bedrooms. He also had to have the house treated for damage by white ants.

    Because Stephen incurred these expenses to make the property suitable for rental, not while he was using the property to generate rental income, the expenses are capital expenses.

    End of example
     

    Duration 2m:47s. A transcript of Selling your rental property is also available.

     

    Duration 3m:18s. A transcript of Selling a rental property that was your home is also available.

    Goods and services tax (GST)

    You're not liable for goods and services tax (GST) when you sell a rental property and you can't claim GST credits on any costs associated with buying or selling it, as the sale of existing residential premises is generally input taxed.

    But if you build new residential premises for sale, you may be liable for GST on the sale and entitled to GST credits on construction and sale costs, even if the premises have been rented for a period before being sold – see Building and construction - residential premises.

    Last modified: 01 Nov 2016QC 23637