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Tomk(I'm new)I'm new
25 Feb 2026

I have received conflicting information on this so hopefully I can get the correct info here.

I have an investment property which has been tennanted from purchase to now. I intend to demolish the old existing house and build a new one with the intention of moving in myself and making it my main residence. My main residence will be sold to finance the knock down / rebuild.

My question how would the ATO determine the CGT payable if the new house were sold in the future.

I guess in other words are the demolition and construction costs of the new house included in the cost base of the dwelling together with the initial purchase price etc.?


Does the ATO look at the capital gain at the time of ceasing the property as a rental or at the time of sale should it be sold?

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6 replies
306 views
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TaxTalk1234(Master)Master
26 Feb 2026

As Taxduck has indicated, these costs go into the 4th element of your cost base and the gain is not determined until you ultimately sell the property.


When you do sell, the gain is calculated as the difference between proceeds and cost base, apportioned for the number of days it was your main residence vs the number of days it was not.


But one thing many people are not aware of is that costs while the property is your main residence can go into the cost base for the purpose of determining the ultimate gain. So I would setup a really good tracking system now if you can, so that you can have all the data when you ultimately sell. So in addition to your purchase price, capital repairs etc.. on the old house, demolition costs you can also add the construction costs of the new home and holding costs such as mortgage interest, rates, repairs, insurance etc...... so that your ultimate gain on sale is reduced significantly.

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