Capital Gains Tax on Investment Property in Queensland

Capital gains tax is not a tax of its own with its own rate. A net capital gain is added to your taxable income for the year and taxed at your marginal rate like any other income.

Which has a consequence people rarely plan for: a large gain can push you into a higher bracket in the year you sell, so the rate that applies to the gain is not necessarily the rate you paid last year.

There is no Queensland capital gains tax. It is a Commonwealth tax and the rules are the same whether the property is in Maroochydore or Melbourne. What Queensland charges is transfer duty on the way in and land tax while you hold, both of which are dealt with separately.

The CGT event happens when you enter into the contract to sell, not when the money arrives.

So a contract signed in late June with settlement in August falls into the earlier financial year. The tax is payable on a gain you have not yet been paid for.

Two practical consequences. If you are selling near the end of a financial year, the signing date is a decision with a tax consequence attached, and it is worth raising with your accountant before you accept an offer rather than after. And you may need the cash for the tax before the sale proceeds are in hand, depending on when your return falls due.

The same principle applies at the buying end: the acquisition date for CGT purposes is the contract date, which is what the twelve-month discount test is measured from.

An individual who has owned the asset for at least twelve months before the CGT event generally gets a 50% discount on the gain. Own it for eleven months and you get none of it.

That is the single largest lever in this whole calculation, and it turns on a date rather than on anything you do.

The discount is not available in the same form to companies. Complying superannuation funds get a smaller one. So the entity that owns the property changes the answer, which is another reason ownership structure is a question for before you buy.

Measure the twelve months from contract date to contract date, not from settlement to settlement, and do not cut it fine. A sale contract signed a week early can cost half the discount.

The cost base is what the gain is measured against, and it is more than the purchase price.

It includes what you paid, plus incidental costs of buying and selling: transfer duty, conveyancing, agent's commission on the sale, and advertising. It also includes capital improvements, which is the other half of the repair-versus-improvement distinction.

The engine's default purchase gives a concrete version. A property at $801,058, transfer duty of $9,642 on the land contract, and $1,500 of legal fees, is a cost base of $812,201 before anything else is added.

This is why the purchase paperwork is worth keeping permanently rather than for the usual five years. The documents that establish a cost base may be needed decades later, and reconstructing them after the fact is difficult and sometimes impossible.

This is the part that surprises people, and it is the reason this page exists alongside our depreciation page rather than inside it.

Capital works deductions claimed while you own the property generally reduce the cost base. So every year you claim the 2.5% building write-off, the number your future gain is measured against gets smaller.

Work it through on the engine's own scenario. Capital works on a $480,635 build is $12,015.88 a year. Held for twenty years, that is $240,318 of deductions claimed, and the cost base falls from $812,201 to $571,883.

The deduction was still worth having. It reduced taxable income every year at your marginal rate while you held the property, and the gain it eventually adds back is discounted by 50% if you have held for twelve months. Taking the deduction and paying more CGT later is usually the better order.

But it does mean a projection that counts depreciation as a pure saving is overstating the position, and it is worth knowing that before you sell rather than when the assessment arrives.

Every figure below comes from the engine's shipped defaults and the published rates already cited. It is an illustration of the mechanism, not a forecast, and the growth assumption is the weakest part of it.

The engine projects twenty years at 5% growth a year. On $801,058 that gives a sale value of about $2,125,445. Whether Queensland property does 5% a year for twenty years is exactly the kind of assumption nobody should take on trust, ours included.

Against an adjusted cost base of $571,883, the gross gain is about $1,553,562. After the 50% discount, about $776,781 is added to taxable income in the year of the contract.

Look at what moved that number. The purchase price moved it least. The growth rate moved it most, and after that the twenty years of capital works deductions.

Selling costs are not in the illustration and they belong in the cost base too. Agent's commission on a sale of that size is a substantial figure and will reduce the gain.

A capital loss cannot be offset against ordinary income. It can only be offset against capital gains, and it can be carried forward indefinitely until there is a gain to use it against.

So a loss on one property does not reduce the tax on your salary. It sits waiting.

The main residence exemption is the other side of this, and it is why most people never meet CGT on a home. Where a property has been both a home and a rental, the exemption is apportioned, and there are rules about a period of absence that can extend it.

That apportionment is genuinely intricate and depends on dates and use in a way no web page can resolve. If your property was ever your home, that is the first thing to raise with your accountant, because it can change the answer completely.