Finance

Capital Gains Tax on Commercial Property in Australia

30 April 2026 7 min read Bold acquisition desk

Capital Gains Tax (CGT) is the largest single-event tax cost most commercial property investors will face, and the structure of the buying entity, the cost base composition, and the holding period all materially affect the post-tax outcome. For most private investors, the CGT decision sits in the structural choices made before purchase, not in tax planning at the time of sale.

The levers that move the number are the 50% discount open to individuals and trusts, the small business CGT concessions that can wipe out the tax on an eligible sale, and the entity you buy through. Each one is decided, or lost, at the point of purchase.

CGT is a structure question more than a sale question. Whether you buy as an individual, company, trust, or SMSF sets the tax outcome years before you sell, and it is very hard to fix after settlement.

How CGT Works

There is no standalone capital gains tax in Australia; CGT runs through the income tax system. A capital gain on the sale of a CGT asset, and commercial property is one, is added to the seller's assessable income in the year of disposal and taxed at the seller's applicable income tax rate.

The number that matters is the cost base. The capital gain is the disposal price less the cost base, and the cost base is more than the purchase price alone: it takes in stamp duty, legal fees, agent commissions, capital improvements, and certain holding costs not previously deducted.

1 The 50% Discount

Hold the asset for at least 12 months and, as an Australian resident individual or trust (other than certain unit trusts), you claim a 50% CGT discount on the gain. It halves the assessable capital gain, which effectively halves the CGT rate for individuals.

Who gets the discount

Individuals. 50% discount on eligible gains held 12+ months.
Trusts (most discretionary and unit trusts). 50% discount flows through to beneficiaries.
Self-managed superannuation funds. 1/3 discount (effectively 33.3%), reducing the SMSF's 15% headline rate to 10% on eligible gains.
Companies. NO discount. Companies pay full 25% or 30% corporate rate on gains.

No discount for companies is a big part of why direct corporate ownership of investment property is uncommon. Most investors buy as individuals, through family trusts (often with a company beneficiary for income distribution flexibility), or through unit trusts.

2 Cost Base Composition

A higher cost base reduces the capital gain. Cost base items include:

Purchase price (excluding GST input tax credits claimed).
Stamp duty on acquisition.
Legal fees on acquisition.
Title searches, building inspections, and other DD costs incidental to acquisition.
Capital improvements (extensions, upgrades, major fit-outs).
Holding costs not previously deducted (some interest, insurance, rates, where the property has not been used to produce assessable income).
Disposal costs (agent commissions, legal fees on sale).

Capital expenses already depreciated under Division 40 of the Income Tax Assessment Act 1997 are excluded from the cost base, since they have already produced tax deductions during the holding period.

3 The Small Business CGT Concessions

Division 152 of the Income Tax Assessment Act 1997 gives small business taxpayers four CGT concessions on the sale of active assets used in the business. For an owner who trades from their own commercial premises, they can be worth a great deal.

Eligibility

Small business entity test. Aggregated turnover under $2 million (with related entities).
OR maximum net asset value test. Net assets under $6 million (with related entities).
Active asset test. The property must be used in the business for the majority of the ownership period (with specific rules for the active asset percentage test).

The four concessions

15-year exemption. Full exemption if the asset was held for at least 15 years and the seller is over 55 and retiring (or permanently incapacitated).
50% active asset reduction. A further 50% reduction of the gain after the standard 50% individual discount.
Retirement exemption. Up to $500,000 lifetime exemption per individual, with restrictions (under 55 must contribute to superannuation).
Small business rollover. Defers tax by rolling the gain into a replacement active asset.

These concessions stack in intricate ways. A well-structured sale by an eligible small business owner can eliminate CGT entirely on a substantial gain.

4 Foreign Resident CGT Withholding

From 1 July 2025, a foreign resident selling Australian real estate, commercial property included, faces a 15% non-final withholding tax on the disposal proceeds. The buyer withholds the amount and remits it to the ATO at settlement.

The seller can apply to vary the rate, and because the withholding is non-final, the actual CGT liability is calculated at year end and the withheld amount is credited against it.

An Australian resident seller avoids the withholding by producing an ATO Clearance Certificate before settlement. It is administratively straightforward for a clear Australian resident but slow to issue, so request it well before settlement.

5 CGT Events and Timing

A CGT event triggers the tax. For property the usual one is CGT event A1, a disposal, and its date is the contract date, not the settlement date.

Practical timing considerations

Contract date determines the tax year of the gain. A contract signed in June settles in July but the gain falls in the June tax year.
The 12-month holding period for the 50% discount is calculated from the contract acquisition date to the contract disposal date.
Subdivisions and certain other CGT events have their own timing rules.

6 Structure Choices and CGT

Individual ownership

Eligible for the 50% discount, with the gain taxed at your marginal income tax rate. It is the simplest structure for a first-time investor, though it offers no asset protection and little succession flexibility.

Discretionary trust

Eligible for the 50% discount, which flows to beneficiaries, and the gain can be distributed to beneficiaries on lower marginal rates. Strong asset protection. Some states apply a land tax surcharge to trusts without specified beneficiary exclusions.

Unit trust

Eligible for the 50% discount, which flows to unit holders. The defined beneficial interest gives land tax pass-through in some states, which is why unit trusts are common in property syndicate structures.

Company

Not eligible for the 50% discount; the gain is taxed at the corporate rate (25% small business or 30% standard). A company works well as a beneficiary of a discretionary trust for income smoothing, but rarely as the direct property owner.

SMSF

A 1/3 discount (effectively 33.3%) reduces the 15% accumulation-phase tax rate to 10% on eligible gains, and gains derived in pension phase, where the fund is paying account-based pensions, are taxed at 0%. A powerful structure for long-term commercial property holds.

7 Practical Buyer-Side Considerations

Structure before contract

The CGT outcome is set by the structure at acquisition. Changing the ownership structure after purchase typically triggers CGT in its own right, plus stamp duty in most states. Get the structure right before you sign.

Documentation

Cost base evidence has to be kept from acquisition. File and hold stamp duty receipts, legal invoices, capital improvement invoices, and depreciation schedules for at least 5 years after disposal.

The small business test

Where the buyer's own business will occupy the property, the small business CGT concessions may be available at eventual sale. Preserving that eligibility, for instance by not co-mingling the premises with passive investment assets, belongs in the upfront design.

Frequently Asked Questions

Can I avoid CGT on a commercial property sale?

Generally no. Specific concessions, the 15-year small business exemption and the retirement exemption, can eliminate CGT for eligible sellers. For most investors, CGT applies on disposal at the seller's applicable rate after discounts.

How is the 12-month holding period calculated?

From contract date of acquisition to contract date of disposal. A property contracted on 1 March 2024 and sold under a contract dated 2 March 2025 qualifies; a contract dated 28 February 2025 does not.

What happens at death?

The transfer of a CGT asset to a beneficiary on death is not generally a CGT event for the deceased. The beneficiary takes the asset at the deceased's cost base (or market value at date of death, depending on the asset). CGT applies when the beneficiary later disposes of the asset.

Can I roll over a gain into a new property?

The small business rollover lets eligible small business owners defer a gain into a replacement active asset. For passive investors, no general rollover relief is available; the like-kind exchanges common in US tax do not exist in the Australian CGT system.