# Selling a Queensland rental property: working out the capital gain
How the gain on a rental sale is counted: what goes into the cost base, why past deductions reduce it, the 12-month discount, the contract date, losses, and the 2027 changes.
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When an investment property is sold, the sale price is only half of the calculation. The tax owed depends just as much on the other half: what the property cost, in the precise sense the tax law gives that word. Two owners who sell identical units for the same price can report very different gains, simply because one kept every invoice and adjusted for the deductions already claimed, and the other did not.
The question is also more pressing than usual. The rules investors have relied on are about to change. Parliament has passed a reform that replaces the 50 per cent discount for gains arising from 1 July 2027, while keeping it for gains made before that date. A rental sold under a contract signed this financial year is still taxed under the current rules, but anyone holding property across that date will need a value for it on 1 July 2027.
This guide follows one rental property from purchase to sale. It sets out what the Australian Taxation Office (ATO) counts in the cost base, why capital works and depreciation deductions come back off it, how the 12-month discount works today, why the contract date rather than settlement decides the tax year, how losses are used, which records to keep, and what the 2027 rules change. It does not cover a home that was once lived in, the foreign-resident clearance certificate, transfers within a family or on separation, or GST: each raises separate questions.
50%discount on gains arising before 1 July 2027
12 monthsminimum ownership to claim it
5 yearsto keep records after the sale
ATO pages on the CGT discount and on keeping records for property, both updated in June 2026, and Budget Paper No. 2 for 2026-27.
## The gain is the sale price minus the cost base
Capital gains tax is not a separate tax. A net capital gain is added to the owner's other income for the year and taxed at their marginal rate, as the ATO explains in its step-by-step guide to calculating CGT. What matters is how the gain itself is measured.
For a rental property, the ATO's page on selling a rental sets out the logic in one line: the capital gain or loss is the difference between the cost base and what is received on disposal. The amount received, which the ATO calls the capital proceeds, is normally the sale price in the contract. The cost base is everything that can lawfully be counted as the cost of the property, less some amounts that have already reduced tax along the way.
Where the property is owned with someone else, each owner reports their share of the gain. The ATO's own example has two owners: as joint tenants they each report half, and as tenants in common, holding 10 and 90 per cent, they report 10 and 90 per cent of the same gain.
A property bought before 20 September 1985 sits largely outside the system. According to the ATO, CGT then applies only to certain capital improvements made after that date. Everything below concerns property bought after that date.
## The five parts of the cost base
The ATO divides the cost base into five elements. Each has a practical meaning for a rental.
1. **What was paid for the property.** The purchase price in the contract.
2. **Incidental costs** of buying and of selling. The ATO's list includes fees paid to conveyancers, lawyers, valuers, surveyors and agents, stamp duty, transfer costs, title search fees, advertising to find a buyer, and borrowing costs such as loan application and mortgage discharge fees. In Queensland, the stamp duty on a purchase is the transfer duty assessed by the Queensland Revenue Office, so it belongs here. On the selling side, the agent's commission, marketing and conveyancing fees all count.
3. **Costs of owning the property**: interest, council rates, land tax, insurance and repairs. For a rental this element is usually empty, because the ATO adds these costs only when they could not be deducted. A tenanted property's interest, rates and land tax are claimed against the rent each year, so they cannot be counted a second time. The element matters mostly for periods when no deduction was available, and the ATO gives vacant land as the typical case.
4. **Capital spending to increase or preserve the property's value**, such as an extension, a new fence or a rezoning application, whether or not the application succeeds.
5. **Capital spending to preserve or defend the title** to the property.
The ATO adds one rule that often surprises owners. Work done to make a newly bought property fit to rent is capital, not a deductible repair. The ATO's example lists repainting, new light fittings, door repairs and a termite treatment carried out before the first tenants moved in, and says all of them go into the cost base rather than the tax return for the year.
What a rental's cost base takes in, and what it leaves outSummary of ATO guidance for property bought after 20 September 1985
Cost
Treatment
In the cost base
Purchase price
The price in the contract
Yes
Transfer duty, conveyancing, searches
Incidental costs of buying
Yes
Repairs before the first tenant
Treated as capital, not deducted
Yes
Extensions, decks, fences
Capital improvements
Yes, less capital works deductions
Agent commission, marketing on sale
Incidental costs of selling
Yes
Interest, rates, land tax while tenanted
Deducted against the rent each year
No
Repairs during the tenancy
Deducted against the rent
No
ATO pages on the cost base of an asset and on CGT when selling a rental property, updated June 2026.
The rule running through the table is simple: an amount that was claimed, or could have been claimed, as a deduction does not also go into the cost base. The ATO states it in those terms, and the words "could have been" matter. An owner who never claimed a deduction they were entitled to cannot add the amount to the cost base instead.
## Why past deductions come back off the cost base
Rental owners usually claim two kinds of deduction for the building and its contents, and both return at sale.
**Capital works deductions** spread the cost of building work over many years: the structure itself, extensions and structural improvements. The ATO's worked example on capital works applies a rate of 2.5 per cent a year. Over the years of ownership these deductions lower taxable income; at sale, the ATO requires the total claimed to be taken off the cost base. The ATO's guidance on cost base adjustments allows only narrow exceptions, such as property acquired on or before 13 May 1997 with the capital works expense incurred by 30 June 1999, or a deduction that could not be claimed because the full amount or exact nature of the expense was not known.
**Decline in value deductions**, the depreciation of the fittings and appliances in a rental, are also subtracted from the cost base according to the ATO's page on selling a rental. The same page notes that for property bought after 9 May 2017, no decline in value deductions are available for second-hand depreciating assets already in the property when it was bought.
The ATO writes the whole calculation as a single formula: purchase price, plus purchase costs, plus improvements, plus selling costs, minus capital works deductions, minus decline in value deductions. The practical effect is that tax saved year by year through these deductions is partly paid back as a larger capital gain at the end. For an owner entitled to the discount, only half of that extra gain is taxed under the current rules. Forgetting the adjustment at sale, however, understates the gain, and that is an error rather than a saving.
## A worked example from purchase to sale
The figures below are illustrative. They are not market data and do not describe any real property or owner.
An investor, an Australian resident for tax purposes, buys a unit in Queensland for $520,000 and pays $24,000 in purchase costs, made up of transfer duty, conveyancing and searches. Before the first tenant moves in, $6,000 goes on repainting and light fittings. Some years later a deck is added for $15,000. Over the years of ownership the investor claims $9,000 in capital works deductions on the building and the deck, and $3,000 in decline in value deductions on the fittings. The unit is sold, well over 12 months after purchase and under a contract signed before 1 July 2027, for $760,000, with $22,000 in agent commission, marketing and conveyancing. The investor also carries forward a $5,000 capital loss from the sale of shares in an earlier year.
The cost base and the gain, line by lineAustralian dollars
Line
Amount
Running total
Purchase price
$520,000
$520,000
Purchase costs
+ $24,000
$544,000
Repairs before the first tenant
+ $6,000
$550,000
Deck
+ $15,000
$565,000
Selling costs
+ $22,000
$587,000
Capital works deductions claimed
− $9,000
$578,000
Decline in value deductions claimed
− $3,000
$575,000
Capital gain on a $760,000 sale
$760,000 − $575,000
$185,000
Less carried-forward capital loss
− $5,000
$180,000
Net capital gain after 50% discount
$180,000 × 50%
$90,000
Illustrative figures. Method from the ATO pages on CGT when selling a rental property and on how to calculate CGT.
The $90,000 is added to the investor's assessable income for the year in which the contract was signed, and taxed at their marginal rate along with salary and rent. Three details in the table carry the main lessons.
First, the order. The ATO's calculation steps take capital losses off the gain before the discount is applied, never after. Halving first and then subtracting the loss would have produced $87,500 instead of $90,000.
Second, the adjustment. Had the $12,000 of capital works and decline in value deductions been left in, the cost base would have been $587,000 and the gain $173,000: $12,000 lower than the law allows.
Third, the paperwork. Every line of the table except the sale price relies on a document from years earlier: the purchase contract, the settlement statement, the transfer duty assessment, the invoices for the repairs and the deck, and the tax returns or depreciation schedule recording what was claimed.
## The 12-month discount as it stands today
For a sale contracted before 1 July 2027, the current rules apply. According to the ATO, individuals and Australian trusts can reduce a capital gain by 50 per cent if they have owned the asset for at least 12 months. Complying superannuation funds receive a one-third discount, and companies receive none.
The 12 months are counted carefully. The ATO excludes both the day the property was acquired and the day of the CGT event from the count, so the margin around the first anniversary of a purchase is tight. The owner must also be an Australian resident for tax purposes; the ATO notes that foreign and temporary residents have generally been unable to claim the full discount for gains after 8 May 2012, with a partial discount possible for periods of Australian residency.
Two refinements apply to particular owners. An Australian resident individual who rents a property as affordable housing to tenants on low to moderate incomes, under the conditions the ATO sets, may receive an extra discount of up to 10 per cent, for a total of up to 60 per cent. And an asset bought before 21 September 1999 can instead have its cost base indexed for inflation up to that date, although the ATO observes that the discount usually gives the smaller gain.
The ATO's pages on the discount and on calculating CGT, both updated on 29 June 2026, state plainly that the changes announced in the 2026-27 Federal Budget do not apply to Tax Time 2026.
## The contract date, not settlement, sets the tax year
Timing rule
The gain belongs to the year the contract is signed
According to the ATO, a capital gain or loss on a property sale is made when the contract is entered into, not at settlement. A contract signed in June and settled in the following financial year is reported in the year of the contract.
This rule has practical consequences in Queensland, where weeks or months can pass between signing and settlement. A contract signed in late June puts the gain into the income year that ends a few days later, even though the money arrives months afterwards. The ATO's example on selling a rental uses a contract signed in June 2026 and settled in November 2026: the gain goes into the 2025-26 tax return.
The same date controls the 12-month test, since the ATO counts ownership up to the CGT event. An owner close to the first anniversary of a purchase gains nothing by settling later if the contract is signed too early.
The date matters even more as 1 July 2027 approaches. Under the new rules, the 50 per cent discount continues for gains arising before that date, and the timing of a gain on a contracted sale follows the contract. On the ATO's contract-date rule, a sale contract signed before 1 July 2027 produces a gain that arises before that date.
## Capital losses and how they are used
A sale can also produce a capital loss. For losses, the ATO uses the reduced cost base: the same elements as the cost base, except that the costs of owning are left out and replaced by balancing adjustment amounts, and indexation never applies. Capital works deductions also come off it. The ATO's example: an asset bought for $100,000, with $7,500 of capital works deductions claimed, has a reduced cost base of $92,500. Sold for $90,000, it produces a capital loss of $2,500, not $10,000.
How a capital loss can be used is set out on the ATO's page on capital losses:
- It reduces capital gains only. The ATO says capital losses and net capital losses cannot be deducted from other assessable income.
- It is applied to gains in the same year first, and any unused balance becomes a net capital loss carried forward to later years.
- There is no time limit on carrying forward a net capital loss, and carried-forward losses are used in the order they were made.
- The owner chooses which gains to reduce. The ATO advises using losses against gains that do not qualify for the discount first, since this gives the lowest tax.
A capital loss on the sale is different from a rental loss during ownership, which arises when deductible expenses exceed the rent. Rental losses are part of the negative gearing rules, which Parliament changed alongside capital gains this year, with separate start dates.
## What the 2027 rules change
The reform was announced in the Budget on 12 May 2026. The ATO's page on the measure, updated on 29 June 2026, says it is now law, under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and a companion rates Act. Budget Paper No. 2 and the Budget's tax explainer on negative gearing and capital gains set out how it works.
Capital gains before and after 1 July 2027Individuals, trusts and partnerships
Situation
How the gain is reduced
Minimum tax
Gain arising before 1 July 2027
50% discount after 12 months
None
Gain arising from 1 July 2027
Cost base indexed to inflation after 12 months
30% on net capital gains
Property held across 1 July 2027
Gain split at its value on that date
On the later part only
Eligible new build, original investor
Choice of the 50% discount or indexation
Only if indexation is chosen
Budget Paper No. 2 and the Budget tax explainer for 2026-27; ATO page on the measure, updated 29 June 2026.
Indexation, according to the tax explainer, uses the consumer price index in a way similar to the system that applied between 1985 and 1999. It runs from the purchase date for assets bought after 1 July 2027, and from the 1 July 2027 value for assets already held. Only the real gain, above inflation, is then taxed. The 30 per cent minimum tax tops up the tax on that real gain where the owner's own rate on it would be lower; it changes nothing for someone already paying 30 per cent or more, and recipients of means-tested income support, such as the Age Pension, are exempt in a year in which they receive a payment.
For a rental held across the date, the explainer splits the gain in two. The part up to 1 July 2027, measured from the cost base to the property's value on that date, keeps the 50 per cent discount. The part after it is measured from that value and indexed. The value can come from a valuation at 1 July 2027, or from an apportionment formula that estimates it from the property's growth over the whole holding period, with tools to be supplied by the ATO. The choice is made in the tax return for the year of sale.
The explainer's own illustration shows the later part of the calculation. A property valued at $500,000 on 1 July 2027 and sold two years later for $560,000, with inflation assumed at 2.5 per cent a year, has an indexed cost base of about $525,313 and a taxable gain of $34,688, against $30,000 under a 50 per cent discount. Taxed at 47 per cent, the rate the explainer uses, the tax on that gain is $16,303 instead of $14,100.
> The cost base is built from documents that are years old by the time the property sells. Next July adds one more to the file: a record of what the property was worth on the day the rules changed.
New builds are treated differently. Budget Paper No. 2 says investors in eligible new residential properties may choose either the 50 per cent discount or indexation with the minimum tax. The explainer limits eligible new builds to dwellings that add to supply, such as a home on vacant land, an off-the-plan apartment, or a single house replaced by more dwellings; a knock-down rebuild of one house for one house, an extension or a renovation does not qualify. It adds that the choice belongs to the original investor, and later buyers of the same dwelling cannot use the 50 per cent discount.
## The records to keep and for how long
The ATO's page on keeping records for property lists what an owner needs to work out the gain:
- **Buying:** the contract of sale, the transfer duty, legal fees, the settlement statement, and survey and valuation fees.
- **Owning:** interest, council rates, land tax, insurance and repairs, which for a rental also support the yearly deductions.
- **Improving:** the cost of extensions, additions and other capital work.
- **Selling:** the contract, the settlement statement, legal fees and the agent's commission.
These are kept for at least five years after the property is sold, which for a long-held rental can mean records going back decades. Two additional documents matter for rentals. One is the record of capital works and decline in value deductions claimed each year, usually a depreciation schedule and past tax returns, since the total must come off the cost base. The other, for anyone still holding a rental on 1 July 2027, is evidence of its value on that date, whether a valuation or the inputs for the apportionment formula the ATO is to provide.
The Queensland settlement statement deserves particular care. It records the price and the adjustments between buyer and seller on the day. Keeping it with the transfer duty assessment and the conveyancer's account gives most of the purchase side of the calculation in one place.
## How the calculation comes together
The ATO's steps for a single property sale reduce to five moves under the current rules.
From sale contract to tax return
Fix the dateThe date of the sale contract sets the income year and the 12-month test.
Build the cost basePrice, buying and selling costs, capital improvements, less capital works and decline in value deductions.
Measure the gain or lossSale price minus the cost base, or the reduced cost base for a loss.
Apply lossesTake off current and carried-forward capital losses before any discount.
Apply the discountHalve what remains if the property was owned at least 12 months and the gain arises before 1 July 2027.
These steps describe the general rules. Each owner's position depends on details such as residency, the way the property is held, any period of private use and the exact dates involved, and a registered tax agent or the ATO can confirm how they apply. What does not depend on the case is the logic: a gain is only as accurate as the cost base behind it, and the cost base is only as accurate as the records kept.