How to Save on Capital Gains Tax When Selling Property

If you're like me, thinking about selling that sun-drenched villa abroad or parting with your seaside holiday home, the shock often comes after the sale. And that shock is tax. Specifically, Capital Gains Tax.

As an Australian resident, the Australian Taxation Office (ATO) expects you to report and, if necessary, pay CGT on any gains made from the sale of overseas property.

But here's what I've learned, there are ways to legally reduce or even avoid paying CGT. I've spent time researching and speaking with professionals to figure out what works and what traps to avoid. Working with a tax accountant was one of the best decisions I made to navigate the rules confidently.

Let me walk you through how I saved on CGT and how you might be able to as well.

What Is Capital Gains Tax on Foreign Property?

Capital Gains Tax (CGT) is the tax you pay on the profit when you sell an asset, such as a property. You are only taxed on the capital gain, not the full sale price. The capital gain is calculated by subtracting your cost base (what you paid for the property, plus eligible costs) from the final sale price.

When it comes to foreign property, the rule is the same. If you're an Australian resident for tax purposes, the ATO treats you as liable for CGT on global assets, not just those held in Australia.

So yes, whether it's a holiday home in Bali, a Paris apartment, or a flat in New York, once it's sold for a profit, that gain becomes subject to CGT in Australia.

If you've already paid tax in the country where the property is located, you might be eligible for a foreign income tax offset. This can reduce your CGT in Australia. However, the gain still needs to be reported on your Australian tax return for the year the sale occurred.

Who Has to Pay CGT? Understanding Australian Tax Residency

I used to think it all came down to whether I had an Aussie passport or visa. But that's not really how it works.

The ATO generally considers you a tax resident of Australia if:

• Your permanent home is in Australia
• You spend more than 183 days in Australia in a financial year
• You maintain close family or financial ties in Australia
• You work for the Australian Government overseas while contributing to a super fund

If you meet any of these conditions, then CGT applies to your worldwide income, including profits from selling foreign property.

To keep track of my property expenses and capital improvements across countries, I rely on The Property Accountant's software, which makes reporting at tax time far less stressful.

For more clarification on your status, the ATO's general CGT page is a helpful resource.

How Do You Calculate CGT on Foreign Property?

Everything must be calculated in Australian dollars, no matter where the property is located. Here's how I typically break it down:

• Cost Base: What I paid for the property, plus legal fees, stamp duty, and any major improvements, converted to AUD using the exchange rate at the time of payment
• Capital Proceeds: Sale price converted to AUD using the exchange rate on the date of sale
• Capital Gain or Loss: The difference between proceeds and cost base

This gain is then added to my taxable income for the year. If it were a loss, it could be used to offset other capital gains.

For rental properties, the ATO outlines specific CGT rules, including depreciation and improvements.

What Are the Legal Ways to Reduce or Avoid CGT?

1. Use Foreign Income Tax Offsets

If you've paid tax on the property overseas, you may be entitled to a foreign income tax offset through a Double Taxation Agreement (DTA). Australia has DTAs with many countries to prevent being taxed twice on the same gain.

For one of my properties in France, the local tax paid was used to reduce my CGT obligation in Australia, provided I kept evidence such as receipts and local tax returns.

2. Claim Deductible Expenses

Certain expenses can be added to your cost base, including:

• Legal and conveyancing fees
• Stamp duty
• Real estate commissions
• Advertising and marketing
• Substantial renovations

I learned early on to keep every invoice, including those from renovation work, tracked inside my accounting system.

Routine repairs like plumbing or repainting don't count, only capital improvements do.

3. Use the 50% CGT Discount

This one saved me thousands. If I've held the property for more than 12 months and I'm an Australian resident, I can typically claim a 50% CGT discount. This means only half the gain is added to my assessable income.

The discount doesn't apply if the property is owned by a company, or if I was a non-resident when I acquired it after 8 May 2012.

Can I Claim the Main Residence Exemption or Use the 6-Year Rule?

If the property was your home before being rented out, the main residence exemption might allow you to reduce or eliminate CGT. The 6-year rule lets you treat the property as your main residence for CGT purposes while it's rented, for up to six years.

Are CGT Rules Different for SMSFs, Trusts, and Companies?

Yes, and understanding this could influence how you structure your investments.

• SMSFs - pay 15% CGT or potentially 0% in pension phase
• Trusts - don't pay CGT but distribute gains to beneficiaries who pay tax individually
• Companies - pay the corporate tax rate and don't qualify for the 50% CGT discount

Can I Time the Sale to Pay Less CGT?

Timing matters. CGT is added to your income, so I try to sell when I know I'll have lower earnings, for example, during a sabbatical or gap between jobs.

I also use capital losses from shares or crypto to offset gains. One year, I had a $25,000 share loss that substantially reduced the CGT from my property sale.

Do Inherited or Gifted Properties Trigger CGT?

Yes, and the rules differ.

If I inherit a property, CGT applies only when I sell it. The cost base is the market value on the date of death, not what the deceased originally paid.

If I gift a property, the ATO considers it a sale at market value, even though no money changed hands.

Can I Avoid CGT by Moving Overseas?

I even considered moving overseas as a way of avoiding CGT. But it's not quite that easy. To be a non-resident for tax purposes, I'd have to sever most of my connections with Australia. That involves:

• Selling my Australian residence
• Relocating my family permanently
• Creating a permanent residence elsewhere

Only then could I escape Australian CGT. A few nations, such as Singapore, New Zealand, and Monaco, do not charge CGT whatsoever. But if I remain an Australian tax resident, CGT comes with me, even if I'm relaxing on a beach in Portugal.

How Do I Report CGT on My Tax Return?

You can report CGT via myTax or a tax agent. You'll need:

• Dates of purchase and sale
• Sale proceeds and cost base (in AUD)
• Any foreign tax paid
• Whether you qualify for the 50% discount

I store receipts, exchange rate records, and renovation documents in one place so nothing gets missed.

What Happens If I Don't Report Capital Gains Tax?

CGT is complex, and I found out the hard way that making a mistake could cost me thousands. Reporting incorrectly, missing deductions, or overlooking tax obligations in another country can result in penalties, interest, or even an audit by the ATO.

Australia is part of the OECD Common Reporting Standard. This means financial institutions overseas can share property sale information with the ATO. Even if the property is located abroad, the ATO may still find out about the transaction.

This is why I eventually turned to tax experts. They helped clarify my obligations, ensured everything was reported properly, and saved me from losing money unnecessarily. It was one of the best decisions I made.

If you realise you've made a mistake, it's better to fix it early. Making a voluntary disclosure is far safer than waiting to be contacted by the ATO.

Common CGT Mistakes to Avoid

Getting CGT right isn't always straightforward. Small errors can lead to penalties, missed deductions, or overpaid tax.

The checklist below highlights the most common CGT mistakes and what you should do instead.

Mistakes	What To Do Instead
Didn't claim all deductible expenses	Track Claim legal fees, stamp duty, agent costs, and capital improvements
Missed the 50% CGT discount due to residency status	Ensure you're an Australian tax resident and held the property for 12+ months
Ignored available capital losses	Offset losses from shares, crypto, or other property against your capital gains
Assumed inherited or gifted property was CGT-free	Confirm whether CGT applies and know the cost base (usually market value at transfer Or date Of death)
Didn't keep receipts or supporting docs	Maintain records for renovations, sale contracts, valuations, and tax paid overseas

For more, I found this article helpful on mistakes property investors should avoid.

My Summary Tips for Reducing CGT on Foreign Property

• CGT applies globally if you're a resident for tax purposes
• Always use correct exchange rates
• Double Tax Agreements can reduce your tax bill
• Deduct everything you legally can
• The 50% CGT discount is worth planning for
• The 6-year rule can protect your former home from CGT
• SMSFs and trusts offer different tax outcomes
• Timing the sale around your income or losses can save you
• Inherited and gifted properties are not automatically tax-free
• Keep full documentation and declare everything correctly

If you're not sure where you stand, check out this capital gains tax calculator for property.

FAQs About CGT on Foreign Property

Final Thoughts

Learning how to reduce or avoid CGT on foreign property has saved me more than just money, it's saved me a lot of stress too.

Don't leave it until the last minute. Plan ahead. And if it becomes too complex, reach out to a property tax accountant who understands international rules.

With the right support, CGT doesn't have to cost you more than it should.