What is Capital Gains Tax?

What capital gains tax actually is

Capital gains tax (CGT) isn't a separate tax with its own rate, it's part of your income tax. When you sell or dispose of an asset for more than it cost you, the profit, your capital gain, gets added to your assessable income for the year and taxed at your marginal rate, same as your salary. Sell for less than your cost base and you get a capital loss instead, which can only be used to offset capital gains, not your wages or other income, though it carries forward indefinitely if you don't use it straight away.

How it's calculated

The basic formula is sale proceeds minus cost base. Cost base isn't just what you paid, it includes incidental costs like stamp duty, brokerage and legal fees, plus capital improvements, as long as you haven't already claimed them as a tax deduction elsewhere.

Hold the asset for more than 12 months and, under current rules, individuals and trusts get a 50% discount, only half the gain is added to your taxable income. Super funds get a 33.33% discount, and companies get none at all. One quirk worth knowing: for assets sold under a contract, like shares or property, the CGT event happens on the contract date, not settlement, which matters for both the 12-month test and which financial year the gain falls into.

What triggers CGT, and what's exempt

Selling shares or an investment property are the obvious triggers, but CGT also applies to disposing of cryptocurrency, including swapping one coin for another, selling a business asset, or even gifting something valuable, where you're treated as if you sold it at market value. Your main residence is generally fully exempt, provided it's been your home for the whole ownership period, and a 6-year rule lets you keep the exemption on a former home you've since rented out. Personal use assets like furniture or a boat are exempt if they cost $10,000 or less.

Major reform: what changes from 1 July 2027

This is the part anyone researching CGT right now needs to know. The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 passed both houses of Parliament on 25 June 2026, and it's the biggest change to CGT since the discount was introduced in 1999.

From 1 July 2027, the 50% CGT discount is being replaced for individuals, trusts and partners in a partnership. In its place: cost base indexation, which adjusts what you paid for the asset in line with inflation so you're only taxed on the real gain above CPI, and a 30% minimum tax rate applied to the resulting capital gain, regardless of your marginal rate. That minimum rate is a floor, so it can actually work against people whose marginal rate would otherwise be under 30%, though income support recipients, including pensioners, are carved out of it.

It also sweeps up assets bought before 20 September 1985 that have been CGT-exempt for decades. These "pre-CGT" assets are treated as sold and immediately reacquired at market value on 1 July 2027, so from that date, pre-CGT status stops meaning anything.

Gains that have already accrued before 1 July 2027 keep the old 50% discount treatment, this isn't retrospective. It's specifically gains and disposals from that date onward that fall under the new rules. See our negative gearing glossary page for how this connects to property investment, since the two reforms were legislated together and are meant to work as a pair.

Worked example

Priya buys shares for $15,000 plus $20 brokerage in March 2024, so her cost base is $15,020. She sells in October 2025 for $22,000, less $20 brokerage, for a gross gain of $6,960. She's held them over 12 months, so under current rules the 50% discount applies, and $3,480 gets added to her taxable income. Had this sale happened after 1 July 2027 instead, she'd use cost base indexation and a 30% minimum tax rate on the result rather than the 50% discount, a materially different, and for most people less favourable, outcome.