Show download pdf controls
  • 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 or acquiring, holding and selling or 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.

    Example

    Karl and Louisa bought a residential rental property in November 2012 for a purchase price of $750,000.

    They incur costs of purchase, including stamp duty and legal fees of $30,000.

    After purchase they improved the property by constructing a fence for $6,000.

    Over the five years of ownership of the property, they claimed $25,000 (average $5,000 per year) in decline in value deductions and $35,000 (average $7,000 per year) in capital works deductions.

    In November 2017 they sold the property for $900,000. Their costs of sale, including legal fees, were $10,000.

    The capital gains outcomes are:

    • Proceeds $900,000
    • Less CGT cost base, comprising
      $750,000 + $30,000 + $6,000 – $25,000 – $35,000 + $10,000 = $736,000
    • Capital gain = $164,000.

    As the property has been owned for more than a year, the discount capital gain rules reduce the capital gain to $82,000.

    Karl and Louisa owned the property jointly. This means that they each have a capital gain of $41,000 which they will need to put in their tax return for the year in which the contract to sell the property was made, being the 2018 year.

    End of example

    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 or acquiring and selling or 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
     

     

    Goods and services tax

    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.

    However, 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 also:

    Last modified: 02 Aug 2018QC 23637