Selling an Investment Property Before Retirement: 7 Tax, Super and Age Pension Traps (2026)

The stakes went up in 2026. Legislation passed in June 2026 means that from 1 July 2027 the 50% CGT discount is being replaced by cost base indexation and a 30% minimum tax on capital gains for individuals, trusts and partnerships. These rules apply only to gains that accrue from that date. Add Age Pension means testing, super contribution caps and the new Division 296 tax, and a simple property sale is now a retirement planning decision.

This guide covers the seven traps we see most often when people sell an investment property in the years before (or just after) they retire, plus what to check before you sign.

Before or after retirement? Why the year you sell matters

People most often search for “should I sell my investment property before or after I retire?” There’s no single answer, but the logic goes like this:

• Before retirement, the capital gain sits on top of your salary, so more of it is often taxed at 37% or 45% (plus the 2% Medicare levy). In return, you may still have concessional contribution room and work income to cover deductible super contributions.
• After retirement, super pension income from age 60 is generally tax-free and doesn’t count towards taxable income. That means the gain may be taxed at lower marginal rates. But from 1 July 2027 the post-2027 part of the gain may face the 30% minimum tax, and deductible super contributions after age 67 need a work test.

The best year depends on your income in each year, your super balance, how much of the gain accrued before 1 July 2027 and whether you expect to get the Age Pension. The seven traps below are where plans usually go wrong.

Trap 1: Selling in your highest-income year (and getting the contract date wrong)

The ATO treats the CGT event for a property sale as happening when you enter into the contract, not when it settles (ATO: CGT on the sale of property). A contract signed on 28 June and one signed on 3 July can fall in different financial years, with very different tax results.

Illustrative example (not personal advice): Sarah is 63 and earns a $150,000 salary. She has held an investment property since 2012 and her capital gain after costs is $300,000. She has owned it for more than 12 months, so the 50% discount applies and her taxable gain is $150,000.

Assumptions: 2026–27 resident rates (15% bracket) for A and 2027–28 rates (14% bracket) for B; 2% Medicare levy; employer contributions of $18,000; no offsets. In B we assume virtually all of the gain accrued before 1 July 2027, so the 50% discount applies to it. Figures are rounded.

In this example, waiting a few weeks saves about $28,000–$30,000. The trade-offs are market risk, holding costs and the need to be genuinely retired. The longer a sale is pushed past 1 July 2027, the more of the gain falls under the new rules (see Trap 2).

What to check: your expected taxable income in each candidate year, the planned contract date (not the settlement date), any carried-forward capital losses, and whether selling in stages or in your spouse’s name (if they’re on the title) changes the result.

Trap 2: Misreading the 1 July 2027 CGT changes

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. According to the ATO and Treasury, from 1 July 2027:

• The 50% CGT discount is replaced by CPI-based cost base indexation for individuals, trusts and partnerships.
• A 30% minimum tax rate applies to real capital gains that accrue from 1 July 2027. The Budget explainer says recipients of means-tested payments such as the Age Pension are exempt if they receive any payment in the financial year the gain is realised.
• Gains that accrued before 1 July 2027 keep the 50% discount. For an asset held across the change, the gain is split. The pre-2027 part uses the old rules. The post-2027 part uses indexation, with the 1 July 2027 value as the new cost base.
• You can set the 1 July 2027 value with a valuation, or with an ATO apportionment formula based on the asset’s growth over the period you held it.
• Negative gearing: properties held before 7:30pm AEST on 12 May 2026 stay grandfathered until sold. Established properties bought after that time lose negative gearing against other income from 1 July 2027. New builds keep it.
• The main residence exemption is unchanged.

The trap: some people rush to sell before 1 July 2027 to “lock in” the discount. That isn’t needed for past gains, because gains to 1 July 2027 keep the discount whenever you sell. Treasury itself says there is “no incentive to buy or sell assets before this date”. The more costly mistakes run the other way:

1. Retiring after 2027 and assuming a low-income sale year will still help as much. The minimum tax is designed to limit that benefit for post-2027 gains, unless you receive the Age Pension that year.
2. Not getting a valuation near 1 July 2027. If the property has grown strongly in recent years, a formula based on average growth may split the gain less favourably than a contemporaneous valuation would. Even if you don’t plan to sell for years, ask whether a valuation around 1 July 2027 makes sense.
3. Selling a grandfathered property and buying another established one, then expecting to negatively gear it against your salary or pension income.

Official illustration: In the Government’s own example, Jane buys an asset for $800,000 on 1 July 2022 and sells it for $1.6 million on 1 July 2032. Her taxable gain is about $485,600 under the transitional rules, compared with $400,000 under a full 50% discount. At a 47% rate that is roughly $228,300 in tax instead of $188,000 (Budget explainer).

The ATO says the first stage of the legislation is law and further stages may follow. Check current ATO guidance before relying on any detail of the valuation method or the minimum tax.

Trap 3: Not using concessional contributions to offset the gain

Deductible super contributions are one of the few tools that directly reduce the tax on a capital gain in the year of sale.

• The concessional contributions cap is $32,500 for 2026–27 (ATO). It includes employer and salary-sacrifice contributions.
• If your total super balance was under $500,000 at 30 June of the previous year, you can also use unused cap amounts from the previous five years (carry-forward contributions). In 2026–27 that means unused amounts from 2021–22 to 2025–26. Unused 2021–22 amounts expire after 30 June 2027.
• Contributions are generally taxed at 15% in the fund instead of at your marginal rate. If you’d otherwise pay 47% on that slice of income, each $10,000 contributed saves about $3,200 in tax. If Division 293 applies, the saving is about $1,700.

Common mistakes: missing the notice of intent to claim a deduction, which your fund must acknowledge before you lodge, roll over or start a pension; forgetting that from age 67 to 74 a work test (or work test exemption) applies to personal deductible contributions; and going over the cap because employer contributions weren’t counted.

Trap 4: Assuming you can put all the proceeds into super

Many sellers plan to “put it all in super”. In practice, how much you can contribute depends on the caps:

• Non-concessional (after-tax) cap: $130,000 in 2026–27. Under the bring-forward rule you may contribute up to $390,000 if your total super balance at 30 June 2026 was under $1.84 million (ATO). The cap is nil if your balance was $2.1 million or more. Couples each have their own cap.
• Transfer balance cap: $2.1 million from 1 July 2026. This limits how much you can move into a tax-free retirement-phase pension.
• The downsizer contribution (up to $300,000 each, from age 55) generally isn’t available for a pure investment property. The ATO requires that you owned the home for at least 10 years and that it qualifies wholly or partly for the main residence exemption (ATO: downsizer contributions). A former home that you later rented out may partly qualify. A property you only ever rented out won’t. Contributions must be made within 90 days of settlement, with the ATO form.

Planning point: Bring-forward periods, the timing of 30 June balances and each spouse’s caps can be coordinated over two financial years. That only works if the sale timing is planned with the contribution strategy, not after it. Our superannuation and SMSF advice service can map this out with you.

Trap 5: Forgetting Division 293 and Division 296

Two “extra” super taxes can catch property sellers by surprise.

Division 293. If your income for Division 293 purposes, including your net capital gain, plus your low-tax concessional contributions exceeds $250,000, an extra 15% tax applies to some or all of those contributions (ATO). One large gain can trigger it for a single year, as in Sarah’s Scenario A.

Division 296. From 1 July 2026, an additional 15% tax applies to the share of realised super earnings linked to a total super balance above $3 million, plus a further 10% above $10 million (ATO). For 2026–27, it’s tested on your balance at 30 June 2027. Two things to watch:

• Putting large sale proceeds into super could push a household’s balances over $3 million.
• If the property is held in an SMSF, the realised gain on sale counts as fund earnings for Division 296 purposes.

Estimate your exposure with our Division 296 super tax calculator.

Trap 6: Overlooking the Age Pension

The Age Pension (from age 67) is means-tested, and selling a property changes the type of asset you hold, not just the amount:

• Before sale, the investment property is assessed at its net market value, and net rent counts as income.
• After sale, the cash is a financial asset and is deemed to earn income. From 20 September 2026 the deeming rates are 1.75% on the first $66,800 (single) or $110,600 (couple), and 3.75% above that (Services Australia). For example, $600,000 held by a pensioner couple would be deemed to earn about $20,300 a year.
• Assets test (from 20 September 2026): a full pension is available up to $333,000 (single homeowner) or $499,000 (homeowner couple combined). Part pensions stop at $745,750 and $1,121,000 (Services Australia). Above the lower limit, the pension falls by $3 a fortnight for every $1,000 of assets.
• Gifting limits: you can give away up to $10,000 a financial year and $30,000 over five financial years. Gifts above that are treated as deprived assets and still assessed for five years (Services Australia).
• Money spent on your home (renovations or reducing your mortgage) is generally exempt. Super in accumulation phase held by a spouse under Age Pension age isn’t assessed. Both can change the result, and both should be modelled before you commit. Our guide on whether to pay off your mortgage before retirement covers this trade-off in detail.

There’s also a CGT link. Because Age Pension recipients are exempt from the new 30% minimum tax, a sale in a year when you receive even a small part pension may be taxed differently from a sale the year before.

Trap 7: Getting the main residence, cost base or residency rules wrong

Former home rules. If the property was once your home, you may be able to treat it as your main residence for up to six years while it’s rented out (the “six-year rule”), as long as you don’t claim another home as your main residence for the same period (ATO). If you first rented it out after 20 August 1996, a market value at that date may become your cost base. These rules can turn a large taxable gain into a small one, but only with the right records and elections.

Cost base records. Stamp duty, legal fees, agent commissions and capital improvements generally add to your cost base. Capital works (Division 43) deductions you’ve claimed generally reduce it. Rebuilding 20 years of records in a hurry is stressful and costly, so start early.

Retiring overseas. If you’re a foreign resident for tax purposes when you sign the contract, you generally can’t claim the main residence exemption (apart from limited life-event exceptions), and the CGT discount is restricted for periods of foreign residency (ATO). If you plan to retire to the UK or elsewhere, the order of “sell, then move” matters. See our UK expat property sale checklist.

If you’re still working out your overall number, read how much super you need to retire in Australia and our retirement readiness guide.