Selling for more than your tax cost base can create a capital gain. The gain is not the same thing as the tax bill.
- Sale proceeds
- $600,000
- Assumed tax cost base
- $450,000
- Capital gain before adjustments
- $150,000
This simple example assumes the cost base is already correctly worked out. It excludes losses, exemptions, discounts and tax rates.
What is a cost base?
It is a tax figure, not simply your remaining mortgage. It can include eligible purchase and selling costs, with adjustments under the rules. Keep the purchase contract, improvement records and sale documents.
Is the home you live in exempt?
A main-residence exemption may apply, but living in a property at some point does not settle the answer. Rental or business use, ownership periods and tax residency can change the result.
Dates matter, especially for future sales
Do not apply a remembered “50% discount” to every sale. Holding period, ownership type, losses and the applicable law matter. The reform note above separates the future rules from a simple explanation of what a capital gain means.
Separate sale proceeds, debt and gain
Suppose an asset sells for $460,000 and its correctly established tax cost base is $410,000. The initial gain is $50,000. If an outstanding loan of $200,000 is repaid at settlement, that changes the cash you receive, not that subtraction. Loan balances and tax cost bases answer different questions. In a worksheet, keep sale proceeds and eligible cost-base items in one calculation, then show debt repayment and other cash movements separately. This avoids treating the cash left in the bank as the taxable gain.
Apply adjustments in the right order
For an eligible Australian-resident individual under the rules applying before the future reform begins, imagine that the $50,000 gain can use $10,000 of capital losses. That leaves $40,000. If the remaining gain qualifies for a 50% discount, the net amount is $20,000. This is an illustration of the order, not a $20,000 tax bill or confirmation of eligibility. Do not carry this example into a sale under the rules starting from 1 July 2027; read the dated reform note above for that change.
Make a record trail for the cost base
Start a folder with the acquisition contract, settlement statement, eligible transaction costs, improvement records and sale paperwork. Label what each expense was for instead of merging all property spending into one total. A repaired tap, an extension and a loan repayment are different transactions; paying for something does not automatically make it a cost-base addition. Record periods of private and rental use and any changes in ownership or residency. The source guidance, rather than the mortgage statement, determines the tax treatment of each item.
Use the correct event date and tax year
For a disposal under a contract, the CGT event is generally tied to the contract date, rather than the day all sale money arrives. Keep both dates and check the ATO guidance for the particular event. With jointly owned assets, a main residence used to earn income, inherited property or overseas periods, the simple example may not describe the calculation. Write down the uncertain point and gather the relevant records before completing a return. A remembered discount percentage cannot answer those questions by itself.
A $150,000 capital gain means you owe $150,000 tax. True?
Sources & update record
Expanded with original worked examples, practical checks and common mistakes. Current rule notes remain separate from illustrative arithmetic.
Published 18 Sept 2026 · Updated 18 Sept 2026. These dates do not guarantee rules are unchanged.
Published by Howloop. AI assists preparation. This lesson has not been reviewed by a licensed financial adviser. How we check our content →