Capital Gains Tax on Shares in Australia (Plain-English Guide)
How does capital gains tax on shares work in Australia? Learn the 50% discount, cost base, capital losses and record-keeping, all in plain English.
By Timothy Hirou GaschereauPublished 11 min read
If you have sold shares and wondered what the tax bill looks like, you are not alone. Capital gains tax on shares in Australia trips up a lot of investors, mainly because the rules are more nuanced than a flat percentage. The short version: when you sell shares at a profit, that profit gets added to your taxable income for the year.
The longer version involves holding periods, cost bases, discount rules and a fair bit of record-keeping. None of it is rocket science, but getting the details wrong can cost you real money. This guide walks through the mechanics with a worked example. It is general information only, not tax advice.
🎯 The essential: CGT is not a separate tax: your net capital gain is added to your income and taxed at your marginal rate. Hold shares more than 12 months as an individual and the 50% discount halves the taxable gain. Your cost base includes brokerage on the buy and sell. Capital losses offset capital gains (and carry forward), but never your salary. Dividends are taxed separately. You pay nothing until you sell.
What CGT on shares actually is
Capital gains tax (CGT) is not a standalone tax in Australia: it is part of your income tax. When you dispose of shares at a profit, the net capital gain is added to your assessable income and taxed at your marginal rate, just like salary. A CGT event happens at the point of disposal: selling is the common trigger, but gifting or transferring shares also counts. Crucially, you do not pay CGT on unrealised gains: if your shares double while you hold them, no tax is owed. The clock only starts when you actually sell.
The 50% CGT discount: the 12-month rule
This is the rule that makes long-term investing so tax-efficient. If you are an Australian resident individual (or a trust) and you held the shares for more than 12 months before selling, you can reduce your capital gain by 50% before adding it to your income. Only half the profit is taxable. Held for 12 months or less, the full gain is taxable, no discount.
Structures differ: companies get no CGT discount, and super funds get a 33.3% discount (not 50%) on assets held over 12 months. If you invest through anything other than your own name, get advice before you set it up.
Working out your gain: cost base and brokerage
The capital gain is not simply “sell price minus buy price”. Your cost base is the purchase price plus incidental costs like brokerage on the buy. When you sell, you subtract selling costs (brokerage on the sell) from your proceeds.
Worked example. You buy $10,000 of shares and pay $15 brokerage (cost base $10,015). You later sell for $15,000 and pay $15 brokerage (net proceeds $14,985). Your gain is $4,970. Held 12 months or less, the full $4,970 is taxed (about $1,491 at a 30% marginal rate). Held more than 12 months, only $2,485 is taxed (about $745 at 30%). Same trade, half the tax.
| Sold within 12 months | Held over 12 months | |
|---|---|---|
| CGT discount | None (0%) | 50% |
| Taxable gain | $5,000 | $2,500 |
| Tax at 30% | $1,500 | $750 |
| Lesson | Patience is worth money | Hold longer, pay less |
Capital losses: how they work
A capital loss happens when you sell shares for less than your cost base. It is not fun, but it has a silver lining:
- Capital losses first offset any capital gains in the same year.
- Leftover losses carry forward indefinitely to offset future gains.
- Losses cannot offset ordinary income (salary, wages, rent, interest).
- Order matters: you must apply losses to the gross gain before the 50% discount.
Dividends vs capital gains: don't confuse the two
These are two separate things, taxed differently. Dividends are payments from company profits, taxed as ordinary income in the year you receive them, whether or not you sell. Australian-listed companies often attach franking credits to dividends, passing on the company tax already paid so you are not taxed twice. Capital gains, by contrast, only arise when you sell. A share can pay dividends for a decade with no CGT event until you dispose of it.
Managing CGT legitimately, plus records and DRPs
A few general approaches investors use (not personal advice):
- Hold past 12 months where it makes sense: selling a few weeks early can cost you the 50% discount on a meaningful gain.
- Use capital losses to offset gains (sometimes called tax-loss selling).
- Consider timing: realising a gain in a lower-income year can mean a lower marginal rate.
Wash-sale warning: if you sell to crystallise a loss and immediately rebuy the same (or substantially identical) asset just to keep your position, the ATO may treat it as a wash sale and deny the loss. This area is not black and white, so get advice from a registered tax agent before doing it.
Keep every buy and sell contract note, the dates and the brokerage: the ATO can ask you to substantiate your cost base years later. And for dividend reinvestment plans (DRPs), each reinvestment is a separate parcel with its own cost base and 12-month clock, so the record-keeping adds up fast. If you are new to shares, our guide on what an ETF is is a good companion read.
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❓ Frequently asked questions
How much capital gains tax will I pay on shares?
+
There is no flat CGT rate. Your net capital gain is added to your other income and taxed at your marginal rate. For example, income between $45,001 and $135,000 sits at a 30% marginal rate (plus the 2% Medicare levy) under the Stage 3 brackets. The 50% discount can halve the taxable portion if you held for more than 12 months. Check the ATO or a registered tax agent for your numbers.
Do I pay CGT if I don't sell?
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No. CGT only applies when a CGT event occurs, and for shares the main event is disposal (selling). If your shares have risen in value but you are still holding them, no tax is owed on that unrealised gain.
How does the 50% CGT discount work?
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If you are an Australian resident individual and held the shares for more than 12 months before selling, you can reduce your gross capital gain by 50% before adding it to your taxable income. So a $10,000 gain becomes a $5,000 taxable gain. You must apply any capital losses before taking the discount.
Can I use capital losses to reduce my tax?
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Capital losses can only offset capital gains, not ordinary income like wages or salary. If your losses exceed your gains in a year, the excess carries forward indefinitely to offset future capital gains. There is no time limit on how long a loss can be carried forward.
Is CGT separate from tax on dividends?
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Yes, completely. Dividends are taxed as ordinary income in the year you receive them, often with franking credits attached. Capital gains arise only when you sell shares. The two are calculated and reported separately in your tax return.
Do I pay CGT on ETFs?
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Yes, the same CGT rules that apply to shares apply to ETF units. Sell units at a profit and the gain is added to your income; held more than 12 months, the 50% discount applies for individuals. Note that some ETFs also distribute capital gains internally, which can create a tax event even without you selling, so check the annual tax statement.
Keep reading
📚 Recommended reading
The Barefoot Investor
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Making Money Made Simple
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Motivated Money
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Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
This article is general information only, not tax or financial advice. CGT rules, the discount and tax rates are set by the ATO and can change. Check the ATO or a registered tax agent for guidance specific to your situation.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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