Capital gains
Capital gains tax (CGT)
Capital gains tax is not a separate tax but the income tax payable on the profit made when you sell or otherwise dispose of a CGT asset such as property or shares.
Capital gains tax is the name given to the part of the income tax system that deals with profits from selling assets. There is no separate CGT return or separate rate. Instead, any net capital gain is added to your assessable income for the year and taxed at your marginal rates, or at the company rate if a company made the gain. The label simply tells you which set of rules applies.
CGT applies when a CGT event happens to a CGT asset. The most common event is disposing of the asset by selling it, but gifting, destroying or losing an asset can also trigger the rules. The gain is generally the capital proceeds you receive less the cost base of the asset. If the proceeds are lower than the reduced cost base, you make a capital loss instead, which can only be used against capital gains.
Many people think CGT only affects property investors, but it reaches shares, cryptocurrency, business goodwill, collectables, units in trusts and many other assets. Some assets are exempt or partly exempt. Your main residence is the best-known exemption, and assets acquired before the start of the CGT regime in September 1985 are generally outside it. Cars and most personal-use assets with a small cost also have special treatment.
The timing of the gain matters. A capital gain is generally recognised in the income year in which the CGT event occurs, which for a sale is normally the date of the contract rather than the date of settlement. This can push a gain into a different financial year from the one you expected. The Australian financial year runs from 1 July to 30 June, and gains are reported in the tax return for that year.
Individuals and trusts that hold an asset for at least 12 months before the CGT event may be able to reduce the gain by the 50% CGT discount. Small business owners may also access the small business CGT concessions if they meet the eligibility tests. These can reduce or even eliminate the gain on active business assets. Rollover relief can defer the gain in particular circumstances.
CGT and GST are separate. A sale of a business asset or property may have GST consequences, such as GST on a taxable sale or a GST-free going concern, in addition to any CGT. Both must be dealt with correctly and in the right reporting channel, with GST on the BAS and CGT in the income tax return. Keep purchase records for as long as you own the asset and for the required period afterwards. Everything here is general information, so check your own circumstances with the ATO or a registered tax professional.
Worked example
Priya buys shares in January 2019 for $20,000, paying $50 brokerage. She sells them in March 2025 for $32,000, paying $50 brokerage. Cost base is $20,000 + $50 + $50 = $20,100 (selling costs count too). Capital gain is $32,000 - $20,100 = $11,900. Because she held the shares more than 12 months, the 50% discount reduces the gain to $5,950, which is added to her assessable income.
Practical tips
- Keep records of what you paid for each asset, including brokerage, legal fees and stamp duty, because they reduce your gain.
- Check the date of the contract, not settlement, when working out which income year a gain belongs to.
- Do not forget that GST on a business sale and CGT on the gain are two different issues reported in different places.