Capital Gains Tax in Australia: How It Actually Works

🧾 What is capital gains tax?🔗

🎯 The essential: CGT isn't a separate tax with its own rate. It's the profit from selling an asset, added to your income, taxed at your normal marginal rate.

The trigger is called a CGT event, most commonly selling or disposing of an asset, but it also includes transferring an asset, giving it away, or having it destroyed.

Assets subject to CGT: shares, ETFs and managed fund units, investment properties, holiday homes, vacant land, crypto assets, and business assets.

Assets NOT subject to CGT: your main home (with conditions, covered below), personal use assets that cost under $10,000, cars and motorcycles, and assets acquired before 20 September 1985.

🔢 How CGT is calculated🔗

The core formula: Capital gain = Capital proceeds − Cost base

Capital proceeds is what you received when you sold the asset, usually the sale price. If you gave it away or sold below market value, the ATO uses market value instead.

Cost base is what the asset cost you, plus the expenses of acquiring, holding and disposing of it: purchase price, brokerage or agent commissions, stamp duty, legal and conveyancing fees, and capital improvement costs for property. Ongoing costs like council rates or repairs can only be added to the cost base if you haven't already claimed them as a tax deduction, you can't double-count them.

🏷️ The 50% CGT discount🔗

Hold a CGT asset for more than 12 months before selling, and you can reduce your capital gain by 50% before it's added to your income. It's the single biggest legal CGT reduction available to individual investors.

Who gets it: Australian resident individuals and trusts get a 50% discount, complying super funds get 33.33%, companies get none.

The 12-month clock starts the day after you acquire the asset and ends on the day of the CGT event, which for property is the date you sign the contract, not settlement.

One thing to get right: the discount applies to the gain, not the tax. You halve the gain first, then pay your marginal rate on the reduced amount, you don't halve your tax bill directly.

📉 Capital losses🔗

Sold something at a loss? That capital loss can offset your capital gains.

• Losses offset gains in the same year first.
• Unused losses carry forward indefinitely to future years.
• You cannot offset capital losses against ordinary income like salary or rent, only against capital gains.
• You can choose which gains to apply losses against, generally best applied to gains that aren't discount-eligible first.

Wash sale warning: the ATO actively watches for selling an asset to crystallise a loss and immediately buying it back. That's treated as tax avoidance, and the ATO can deny the loss.

📈 CGT on shares🔗

Every time you sell shares, ETF units, or managed fund units, it's a CGT event.

• Cost base includes the purchase price plus brokerage on both the buy and the sell, keep every contract note.
• Multiple parcels: shares bought at different times each have their own cost base and their own 12-month clock. You can choose which parcel to sell, giving you some flexibility to manage your position.
• Dividends aren't capital gains, they're income, taxed separately. CGT only applies when you actually sell.
• Dividend reinvestment plans create a new parcel with a new cost base and clock every time. Keep good records or it'll be a headache later.

🏠 CGT on property🔗

Investment properties, holiday homes and vacant land are all subject to CGT. The principle is the same as for shares, but the numbers are bigger and the cost base is more complex.

Cost base for property typically includes purchase price, stamp duty, legal and conveyancing fees on both buy and sell, agent commission on sale, and capital improvements like a new kitchen. You can't include repairs already claimed as a tax deduction against rental income.

🏡 The main residence exemption🔗

Your main home is generally fully exempt from CGT, one of the most valuable tax concessions in Australia.

To get the full exemption: it's been your main residence for the entire time you've owned it, the land is 2 hectares or less, and you haven't used it to produce income.

If you've rented out part of the property or used it for business, only the proportion of time and floor area used privately is exempt.

The 6-year absence rule: move out and rent the property out, and you can still treat it as your main residence for up to 6 years, provided you don't nominate another property as your main residence in the meantime.

📅 When you actually pay🔗

CGT is reported in your annual tax return for the financial year the CGT event occurred. For property, that's the contract date, not settlement, which matters a lot for sales that straddle 30 June. For shares, it's the trade date.

If you're expecting a large CGT bill, a voluntary PAYG instalment during the year can avoid a surprise at tax time and prevent interest charges on an underpayment.

🔄 What's changing from 2027🔗

🎯 The essential: This is now legislated law, not a proposal, but it doesn't take effect until 1 July 2027 and doesn't apply to Tax Time 2026.

As part of the 2026-27 Federal Budget, the government legislated a change to how CGT works for individuals, trusts and partnerships. From 1 July 2027, the 50% CGT discount will be replaced with cost base indexation (adjusting for inflation using CPI), combined with a minimum 30% tax rate on real capital gains. The idea is you're only taxed on your genuine, inflation-adjusted gain, but the 30% floor stops very low marginal rates from paying almost nothing on CGT.

Transitional rules apply to assets you already own:

• Assets bought and sold before 1 July 2027: unaffected, existing rules apply.
• Assets bought after 1 July 2027: fully under the new rules.
• Assets you own now and sell after 1 July 2027: your gain is split, the portion accrued before the change keeps the 50% discount, the portion after gets the new treatment.

There's also a carve-out for investors who buy qualifying new residential builds, they can choose between the old 50% discount or the new indexation method when they eventually sell. The main residence exemption is unchanged, your home stays CGT-free either way.

Check ato.gov.au for the latest implementation guidance as the details are finalised.

❓ Frequently asked questions🔗