Downsizing your home and realising a capital gain can trigger Capital Gains Tax (CGT) in Victoria. CGT is the tax on the profit made from selling an asset, like property, that you’ve owned for more than 12 months. As of December 2025, understanding these implications is crucial for a smooth transition.
In Melbourne, particularly within the Eastern Suburbs where we operate, many homeowners are considering downsizing as their families grow or their lifestyles change. The CGT calculation involves subtracting the original purchase price (plus allowable costs like stamp duty and legal fees) from the sale price. Currently in Melbourne, with median dwelling values around $823,495, even moderate growth over several years can result in a significant capital gain. The good news is that the main residence exemption often applies, meaning you won’t pay CGT if the property was your primary residence for the entire ownership period. However, if the property has been rented out at any time, or used for business purposes, only the portion of the gain attributable to the period it *wasn’t* your main residence is taxable. The 50% CGT discount applies if you’ve owned the property for more than 12 months. Fletchers’ experience shows that careful preparation of records relating to purchase costs and any improvements made (like renovations costing $400-$800 per room for painting) is vital for accurate calculations. We often see clients benefit from seeking professional tax advice well before commencing the selling process.
Navigating CGT requires careful consideration, and understanding your individual circumstances is key to a successful downsizing strategy.