CGT on Gifting Property to Family in Australia 2026-27

Here is the short answer: when you gift property to family in Australia, the ATO treats you as if you sold it at its full market value. You can hand your daughter the keys for nothing and still cop a capital gains tax bill calculated on hundreds of thousands of dollars you never received. This catches out more families than any other CGT rule I write about — because it feels like it should be tax-free, and it isn’t.

The mechanism is called the market value substitution rule, and it applies to gifts of houses, units, vacant land, shares, crypto — any CGT asset you transfer to someone you’re not dealing with at arm’s length. In this guide I’ll show you exactly how it works, walk through a full worked example at real 2026-27 tax rates, cover the traps (stamp duty, the $1-sale myth, “natural love and affection”), the charity exception that actually works in your favour, and the gift-now-versus-will-later maths most families never see.

Why a gift counts as a sale

Capital gains tax is triggered by a CGT event — and giving an asset away is CGT event A1, a disposal, just like selling it. The price on the transfer paperwork is almost irrelevant. Under section 116-30 of the tax law, if two conditions are met, your capital proceeds are replaced with the asset’s market value:

1. what you received was more or less than the market value of the property, and
2. you and the new owner were not dealing with each other at arm’s length.

A gift to your child, your sibling, your best mate — that ticks both boxes every time. The ATO’s own example makes it concrete: a father sells a rental property to his son for $120,000 (the mortgage balance), but a professional valuation puts it at $450,000. His capital proceeds for CGT purposes are $450,000, not $120,000. The same applies when the price is $1 or literally zero.

Dealing at “arm’s length” means each party acts independently, with neither exercising influence or control over the other. The ATO looks at the relationship and the quality of the bargaining. Family transfers essentially never qualify.

How to calculate CGT on a gift: the 5 steps

1. Work out the market value of the property on the day you gift it. Get a qualified valuer — a guess from a real estate agent’s appraisal is better than nothing, but the ATO can substitute its own valuation if it thinks yours is off.
2. Work out your cost base — what you paid plus buying costs (stamp duty, legal fees, buyer’s agent fees) plus capital improvements and certain holding costs. Our CGT cost base guide walks through the five elements most people undercount.
3. Subtract: market value minus cost base = your capital gain (or loss).
4. Apply the 50% CGT discount if you owned the asset for more than 12 months. Yes — the discount still applies to gifts. (From 1 July 2027 this changes to an indexation system with a 30% minimum tax; see our CGT reform guide.)
5. Add the net gain to your taxable income for the year and tax it at your marginal rate, plus the 2% Medicare levy.

Run the numbers first on our CGT calculator before you sign anything — the bill below surprises most people.

Worked example: the $64,800 gift

Robyn bought an investment unit in Brisbane in March 2015 for $380,000. With stamp duty and legal fees her cost base is $400,000. In October 2026 she gifts the unit to her daughter Emma, who is renting and struggling to save a deposit. A valuer puts the market value at $720,000. Emma pays nothing.

Item	Amount
Capital proceeds (market value substitution)	$720,000
Less: cost base	($400,000)
Capital gain	$320,000
Less: 50% CGT discount (owned > 12 months)	($160,000)
Net capital gain added to Robyn’s income	$160,000

Robyn earns a $95,000 salary, so her taxable income jumps to $255,000. Using 2026-27 rates:

• $18,201–$45,000 at 15% = $4,020
• $45,001–$135,000 at 30% = $27,000
• $135,001–$190,000 at 37% = $20,350
• $190,001–$255,000 at 45% = $29,250
• Total income tax: $80,620 (versus $19,020 without the gift)
• Extra income tax: $61,600
• Extra Medicare levy (2% of the extra $160,000): $3,200

The gift costs Robyn about $64,800 in tax — and she received $0 for the property. That is the number to sit with before gifting an investment property. It doesn’t mean gifting is wrong; it means you plan for it with eyes open, ideally with cash set aside to pay the bill.

What the recipient gets (and owes)

The good news sits on the other side of the transfer:

• Emma pays no tax when she receives the unit. Gifts aren’t income, and Australia has no gift tax.
• Emma’s cost base is $720,000 — the market value on the day of the gift. Only growth after that date will ever be taxed in her hands.
• Her 12-month discount clock starts fresh on the gift date. If she sells within 12 months, no 50% discount.
• If Emma moves in and makes it her main residence, she can claim the main residence exemption on growth from the date she moved in.

One more wrinkle: if Emma takes over Robyn’s mortgage as part of the deal, that does not reduce Robyn’s capital proceeds. In the ATO’s example above, the son paid the $120,000 mortgage balance and the father’s proceeds were still the full $450,000 market value.

Common scenarios at a glance

Scenario	CGT for the giver	Other taxes
Investment property to your child	Yes — gain at market value, 50% discount if held >12 months	Stamp duty on market value
Your own home to your child	Exempt if it was your main residence the whole time; partial exemption if it was rented or income-producing for part of the period	Stamp duty usually still applies
Shares or crypto to your child	Yes — gain at market value, discount if held >12 months	No stamp duty
Property bought before 20 September 1985	Exempt — pre-CGT asset	Stamp duty still applies at market value
Property to a registered charity (DGR)	Gain still arises at market value — but you also get a tax deduction (see below)	Valuation rules apply
Property to a former spouse on relationship breakdown	CGT rollover may defer the gain — different rules apply	See our CGT and divorce guide

The 6 traps that catch families

1. “I’ll sell it to my son for $1”

You can — the contract is legal. It changes nothing for tax. The ATO substitutes market value, and the state revenue office assesses stamp duty on market value too. A $1 sale is taxed identically to a straight gift.

2. “Natural love and affection” doesn’t stop the tax

That phrase appears on transfer forms and in Queensland duty law, where it gives a narrow exemption — but only for a principal place of residence transferred between spouses or de facto partners. It does not exempt gifts to children, siblings or parents from duty, and it has zero effect on CGT anywhere in Australia.

3. Gifting to “avoid” CGT backfires — dying defers it

This is the big strategic one. A lifetime gift crystallises the gain now, payable by you, with no cash to fund it. If Robyn instead holds the unit until death, no CGT is triggered at all on her death — Emma inherits Robyn’s ~$400,000 cost base and the gain is deferred until Emma eventually sells. Gift now: ~$64,800 tax bill today. Die holding it: $0 today, gain deferred to Emma later (and taxed at her rates, possibly lower). Our inherited property guide works through the death-side rules in full.

When does gifting now make sense? When the embedded gain is small (cost base close to market value), when you have capital losses to soak it up, when the recipient is in a much lower tax bracket and you want future growth in their hands, or when you simply want them to have the asset while you’re alive to see it. When doesn’t it? Large embedded gains with no offsetting losses — the classic “help the kids with the investment property” that manufactures a six-figure tax bill.

4. Forgetting the recipient also pays stamp duty

Emma pays transfer duty on $720,000 in the example above — in most states that’s tens of thousands of dollars, on a property she received for free. First-home concessions generally don’t apply because she’s not buying. Factor this into the family conversation before the transfer.

5. Gifting a loser without using the loss

Gifts crystallise losses too. If Dad gifts shares worth $40,000 that cost him $60,000, he banks a $20,000 capital loss. Used against his other gains — say a $50,000 gain elsewhere, reduced to $30,000, then discounted to $15,000 — that loss is worth roughly $3,900 in tax saved at the 37% bracket plus Medicare. Don’t gift loss-making assets and forget to claim the loss in the same return (losses carry forward indefinitely if unused).

6. No valuation, no records

The ATO can substitute its own market value if it considers yours unreasonable — and state revenue offices routinely do their own assessments. A qualified independent valuation at the transfer date is cheap insurance against a reassessment years later. Keep it with your tax records.

The charity angle: the one gift that pays you back

Donating property or shares to a registered charity with deductible gift recipient (DGR) status is the exception that proves the rule — and most articles get it wrong by calling it “CGT-free”. Here’s what actually happens on a lifetime gift to a DGR, confirmed in the ATO’s own guidance:

• A CGT event still happens at market value — the capital gain is assessable.
• But you also get a tax deduction for the gift’s value.
• Because the gain gets the 50% discount while the deduction doesn’t, donating long-held appreciated assets is structurally tax-positive.

Example: you donate listed shares bought in 2021 for $25,000, now worth $85,000, to a DGR. Capital gain $60,000 → 50% discount → $30,000 added to assessable income. Deduction: $85,000 (listed-share valuation rules met). Net change to taxable income: minus $55,000 — worth about $21,450 at the 37% bracket plus Medicare. You gave away $85,000 of shares and the tax system handed you back over $21,000.

Valuation rules matter here: if you bought the property within the 12 months before donating, your deduction is the lesser of market value and what you paid (an anti-flipping rule). Otherwise the property needs a Commissioner valuation above $5,000. Listed shares have their own parcel rules. And note: the full CGT disregard for charitable gifts applies to testamentary gifts (in your will), not lifetime ones — another reason to get advice before choosing the timing.

Tips if you’re going ahead

• Time the financial year. A $160,000 net gain hurts far less in a year your other income is low. If retirement or a career break is coming, the gift can wait.
• Split the gain across years. Gifting a half-share now (as tenants in common) and the other half next financial year spreads the gain — at the cost of two rounds of duty and legal fees. Do the maths both ways.
• Use up capital losses first. A gift is the perfect moment to crystallise losses you’ve been carrying forward.
• Check the 1 July 2027 boundary. Your recipient’s cost base locks in at the gift-date market value, so all future growth sits in their hands under the new indexation/30%-floor regime — our reform guide models what that means.
• Get the valuation in writing from a qualified valuer, and keep every record: purchase contract, improvement receipts, duty assessments, the transfer documents.

FAQ

Can I sell my property to my son for $1 to avoid tax?

No. The market value substitution rule means the ATO taxes you as if you received full market value, and the state revenue office assesses stamp duty on market value as well. The $1 on the contract changes nothing except the paperwork.

Does my child pay tax when I gift them property?

No tax on receipt — gifts aren’t income and Australia has no gift tax. But their cost base becomes the market value on the gift date, so when they eventually sell, any growth after that date is taxable in their hands.

I gifted my investment property and received nothing — how do I pay a $64,800 tax bill?

That’s exactly the cash-flow trap. CGT is payable even with zero proceeds, due with your tax return for the year of the gift. Plan before you transfer: set cash aside, time the gift for a low-income year, or reconsider whether holding until death (which defers the gain entirely) suits your family better.

Can I gift my main home to my kids tax-free?

If it was your main residence for the entire ownership period, the main residence exemption means no CGT on the gift. But if it was rented out or used to produce income for part of the time, a partial gain is taxable — and stamp duty generally still applies regardless.

What if the property has dropped in value since I bought it?

The gift still triggers CGT event A1, and the capital loss is real: market value minus reduced cost base. Claim it against your other capital gains in the same year, or carry it forward indefinitely. Don’t leave it unclaimed.

Is it better to gift property now or leave it in my will?

For tax alone, the will usually wins: death defers the gain to the beneficiary’s inherited cost base, while a lifetime gift crystallises it now in your hands. Gifting now makes sense when the embedded gain is small, you have losses to offset it, or non-tax reasons (helping with housing today) outweigh the bill. Run both scenarios with real numbers before deciding.

The bottom line

Gifting property to family is generous — and taxable. The ATO deems you to have sold at market value, the 50% discount still applies if you’ve held the asset over 12 months, the recipient inherits market value as their cost base, and stamp duty lands on market value too. The families who get stung are the ones who discover the ~$64,800 bill in our example after signing the transfer. Get a valuation, run the numbers at your actual marginal rate, compare against simply holding the asset, and only then hand over the keys.

Sources: ATO — Transferring property to family or friends; ATO — Other income tax consequences of deductible gifts. General information only — get personal advice for large transfers.