CGT on your first investment property

Selling an investment property is one of the bigger financial moments most people go through, and the tax side of it often only gets thought about after the contract's already signed, which is a shame, because a couple of the rules below only help if you know about them in advance.

The basics: gain, discount, and what counts as your cost base

When you sell an investment property for more than it cost you, the difference is a capital gain. Like shares, your cost base isn't just the purchase price, it includes stamp duty, legal fees, agent's commission on the sale, and certain capital improvements you've made over the years (a new kitchen, an added room, but not routine repairs, which are usually claimed differently). Keeping receipts for improvements as you go is far easier than reconstructing them years later.

If you've owned the property for more than 12 months, the same 50% CGT discount that applies to shares and crypto applies here too. A substantial reduction on the taxable portion of the gain.

The 6-year rule for a property that used to be your home

This is the one that catches people out the most, and it's worth knowing well before you sell. If a property was genuinely your main residence before you moved out and started renting it, you can generally continue to treat it as CGT-exempt for up to six years after you move out and start earning rental income from it, as long as you don't nominate a different property as your main residence in the meantime.

A few conditions worth knowing:

• If you move out and don't rent the property (leave it vacant), the exemption can continue indefinitely, not just for six years.
• The six-year clock resets if you move back in and then move out again.
• Beyond six years of renting, CGT applies proportionally for the period beyond the exemption, not to the whole gain, just the excess.

This rule can be worth a genuinely significant amount of tax, so if you've ever lived in a property you're now renting out (or thinking about selling), it's worth checking exactly where you stand before the contract goes unconditional, not after.

What to bring when you sell

• Purchase and sale contracts, including all associated costs
• Records of any capital improvements over the life of the property
• Dates you lived in it, if it was ever your home
• Rates notices or valuations from when it changed from home to rental (if the 6-year rule might apply)