Selling a Property: Is It a Capital Gain or Business Income?

This is something that occasionally catches people off guard when selling a property. While many property sales do qualify for the 50% Capital Gains Tax (CGT) discount, that’s not always the case.

In some situations, the sale might instead be treated as business income, and the tax outcome can be quite different, often attracting more tax.

1. Capital Gains Tax (CGT) – For Long-Term Investments

In most cases, when you sell a property that you’ve held as an investment, it’s treated as a capital asset.

This means:

• You’re likely subject to Capital Gains Tax.

• If you’ve owned the property for more than 12 months, you may be entitled to the 50% CGT discount.

• The profit is reported as a capital gain in your tax return, not as ordinary income.

This applies if:

• You bought the property to hold, not flip.

• You weren’t actively developing, subdividing, or improving it for resale.

• You’re not in the business of buying and selling property.

Example: Taxpayer A buys a residential unit in 2014 and rents it out. In 2025, he sells it at a profit. Since it was held for over 12 months as a passive investment, the gain qualifies for the CGT discount.

2. Profit-Making Activity – For Business or Commercial Intent

On the other hand, if you bought the property with a plan to make a profit, for example by renovating, developing, or flipping it, the ATO may treat the sale as part of a profit-making scheme or business venture.

In that case:

• The profit is taxed as ordinary income (no CGT discount).

• You may also need to register for GST if you're developing property for sale.

• Even a one-off transaction can fall into this category if the intention was clear.

Example: Taxpayer B buys a run-down house, spends 6 months renovating it, then sells it for a profit. Even though it is her only project, she bought it to profit from the upgrade, so the sale may be taxed as a business income, not a capital gain.

How Does the ATO Decide?

The ATO looks at why you did it.

Here are some factors that may tip a sale into profit-making territory:

• You bought the property with the intention to sell at a profit.

• You had a business plan or clear project goals.

• You renovated, developed or subdivided.

• You sold shortly after buying.

• You’ve done this before, or plan to do it again.

No single factor is conclusive, but together they paint a picture of your intent and activity.

The tax treatment affects:

• Whether you qualify for the 50% CGT discount.

• Whether you need to pay GST on the sale.

• How the profit is reported in your return (capital gain or income).

• Your overall tax bill.

To Sum It Up

Selling a property can be a profitable move, but the tax implication can vary depending on how the ATO views your intentions.

Before you sell (or buy with plans to renovate and resell), speak to your accountant. A little planning can go a long way.

General Advice Disclaimer

The information provided on this website is intended for general informational purposes only and should not be construed as professional advice. The advice and recommendations on this site are not intended to replace individual consultations with a qualified professional.

The application of tax, accounting, and business advice varies depending on personal circumstances, and the laws, rules, and regulations are subject to change. Therefore, readers should not rely solely on the content provided, and should always seek professional guidance tailored to their specific needs before making any decision.

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