Capital Gains Tax on Commercial Property in Australia Explained

Updated: 21 August 2025

Capital Gains Tax (CGT) can be one of the most frustrating parts of property investing. After years of managing tenants, mitigating risks and growing your asset, a portion of your hard-earned profit is sent straight to the Australian Tax Office (ATO).

For commercial property investors, understanding how CGT works – and how to legally minimise it – is critical. In this article, we’ll explain how CGT applies to commercial property, provide a worked example, and show strategies like the CGT discount and cost base adjustments that can put more money back in your pocket.

Capital Gains Tax example: How much will I pay on a commercial property investment?

Here’s a simplified example, based on a unit trust structure:

• Investor type: Individual (marginal tax rate 37%)

• Purchase price: $10,000,000

• Sale price: $13,000,000

• Cost base: $10,400,000 (includes $400,000 in costs)

• Capital gain: $2,600,000

• Investment lifetime: 3 years

• Share of investment: 1% (100,000 units / $100,000)

In this case, the investor’s share of the capital gain is $26,000. Applying their marginal tax rate (37%), the CGT liability would be $9,620.

However, because the property was held for more than 12 months and the investor is not considered to be in the business of trading property, they may be eligible for the CGT discount. This would halve their taxable gain, reducing the payable CGT to $4,810.

(Note: This is a general example only and not financial advice. Always seek guidance from your accountant or tax adviser.)

CGT discount method

The CGT discount allows eligible investors to reduce their taxable capital gain. For Australian resident individuals and trusts, the discount is 50%. For complying superannuation funds, it is 33.3%.

In the example above, the investor’s CGT liability drops from $9,620 to $4,810 after applying the 50% discount.

Most commercial property syndicate investors qualify for this discount because their strategy involves long-term ownership and yield generation, rather than short-term trading.

Indexation method (if purchased before 21 September 1999)

Indexation method (for assets purchased before 21 September 1999)

If your commercial property was purchased before 21 September 1999, you may be eligible to use the indexation method instead of the discount method. This approach adjusts the cost base of the property in line with inflation, which can reduce the taxable gain.

Full details are available on the ATO website.

Want to reduce your CGT? Increase your cost base

Your property’s cost base is crucial in determining your CGT liability. The higher the cost base, the lower the capital gain.

Keep detailed records of all expenses associated with buying, holding and selling your commercial property – such as stamp duty, legal fees, valuations, maintenance, upgrades, and selling costs. These expenses can often be added to the cost base, directly reducing the CGT you owe.

Capital Gains Tax can significantly impact your commercial property returns, but smart strategies like cost base tracking and long-term ownership can reduce your liability.

Our team of property and finance professionals has decades of experience helping investors structure their portfolios for success. To learn more about commercial property investment – or to get updates straight from professional investors – get in touch with us today or subscribe to our monthly newsletter.