Sell shares, crypto or an investment property for more than you paid, and the profit is taxed. That's capital gains tax — CGT. But it isn't a separate tax with its own rate: your net capital gain is simply added to your taxable income and taxed at your marginal rate. This guide walks through the whole machine — what triggers CGT, how the gain is measured, how losses help, and the 50% discount that can halve the bill.
What counts as a CGT event
CGT is triggered by a CGT event — the moment you make a capital gain or loss. The most common event is simply selling an asset, but giving an asset away, swapping it, losing it, or having it destroyed can also be CGT events. If an asset is lost or destroyed, the event generally happens when you first receive an insurance payout or other compensation.
One timing rule trips a lot of people up: if there's a contract of sale, the CGT event happens on the contract date — not at settlement. Property sales usually work this way. Sign a contract in June and settle in August, and the gain belongs to the financial year you signed, not the year you got the money.
CGT applies to assets acquired on or after 20 September 1985, when the tax began. Assets you already owned before that date — "pre-CGT" assets — stay outside the net.
The cost base: what you're measured against
Your capital gain is the difference between what you received for the asset (the capital proceeds) and its cost base. The cost base is more generous than just the purchase price — it also includes most of the incidental costs of buying, holding and selling:
- What you paid for the asset.
- Incidental costs — stamp duty, legal and conveyancing fees, brokerage, agent's commission on the sale, valuation fees.
- Capital improvement costs — for example, a renovation on an investment property (but not repairs you've already claimed as deductions).
Every dollar you can legitimately add to the cost base is a dollar taken off the taxable gain, which is why good records matter so much. Keep them for the whole life of the asset, plus five years after you sell.
Capital gains vs capital losses
If the proceeds are less than the cost base, you've made a capital loss. Losses aren't deductible against your salary — they can only be used against capital gains. But they're far from worthless:
- Losses are subtracted from your gains first, before any discount is applied.
- Unused losses carry forward indefinitely to offset gains in future years.
The ordering rule matters. Because losses come off the gross gain before the 50% discount, a $10,000 loss wipes out $10,000 of gain — not $5,000 of discounted gain. If you have a choice, applying losses against non-discounted gains first usually produces the better result.
The 50% discount: the 12-month rule
Here's the big one. If you're an Australian resident individual and you've owned the asset for at least 12 months before the CGT event, you only pay tax on half the remaining gain. Hold for 11 months and the whole gain is taxable; hold for 12 months and a day, and half of it vanishes from your return.
The fine print, straight from the ATO's rules:
- You exclude both the day you acquired the asset and the day of the CGT event when counting the 12 months.
- For property, the clock runs contract date to contract date — not settlement to settlement.
- Trusts can also discount gains by 50%; complying super funds get 33.33%; companies get no discount at all.
- Foreign and temporary residents can't use the full discount for gains accrued after 8 May 2012.
- For assets owned since before 21 September 1999, you can choose to index the cost base for inflation instead — though the discount usually wins.
How the gain lands on your tax return
After losses and the discount, what's left is your net capital gain. It's added to your assessable income for the year and taxed at your marginal rate — there is no separate "CGT rate" in Australia. Here's the full sequence for someone on a 30% marginal rate (plus 2% Medicare levy) who sells shares held for three years:
On a $24,000 profit, the actual tax is $3,200 — an effective rate of about 13%. The same sale without the 12-month discount would cost roughly twice as much, which is why timing a sale around the 12-month mark can be worth thousands.
One more wrinkle: because the gain stacks on top of your other income, a large gain can push part of itself into a higher bracket, and can affect income-tested items like the Medicare levy surcharge.
What's exempt from CGT
Some assets sit outside CGT entirely:
- Your main residence — the family home is generally fully exempt, no matter how large the gain (with carve-outs if you've rented it out or used it for business).
- Pre-CGT assets — anything acquired before 20 September 1985.
- Cars and motorcycles — exempt regardless of any gain.
- Personal use assets bought for $10,000 or less, and collectables bought for $500 or less.
Crypto, it's worth stressing, is not on this list — the ATO treats it as a CGT asset, and every disposal is a CGT event.
The bottom line
CGT in Australia comes down to four steps: work out the gain against the full cost base, subtract any capital losses, halve what's left if you've held the asset for more than 12 months, then add the result to your taxable income. The 12-month discount is the single biggest lever most investors have — and the contract-date rule is the trap that catches the most people. Run your own numbers through the capital gains tax calculator before you sell, not after.