What is Capital Gains Tax (CGT)?

Capital Gains Tax is not a separate tax but part of your income tax. When you sell an asset (like shares) for more than you paid, the profit (capital gain) is added to your taxable income and taxed at your marginal rate.

The 50% CGT Discount

If you hold an asset for more than 12 months before selling, you're entitled to a 50% discount on your capital gain. This is one of the most valuable tax concessions for Australian investors.

CGT on Different Investment Types

Australian Shares (ASX)

Shares in Australian companies are subject to CGT when sold. Dividends are taxed separately as income (with franking credits if applicable).

Exchange-Traded Funds (ETFs)

ETFs are treated similarly to shares for CGT. However, many ETFs distribute capital gains annually which may include "CGT concession" components that affect your tax.

International Shares

Foreign shares are subject to Australian CGT. You may also face foreign withholding tax on dividends, but Australian tax treaties often allow credits.

Cryptocurrency

Crypto is treated as a CGT asset by the ATO. Every disposal (selling, trading, or using crypto to buy goods) triggers a CGT event. The 50% discount applies if held for 12+ months.

Calculating Your Cost Base

Your cost base includes more than just the purchase price. You can add these costs:

• Purchase price: What you paid for the shares
• Brokerage fees: Both buying and selling
• Stamp duty: If applicable (rare for shares)
• Legal fees: Related to the acquisition
• DRP shares: Dividend reinvestment shares have their own cost base

DRP (Dividend Reinvestment Plan) Shares

When dividends are reinvested through a DRP, each reinvestment creates a new parcel of shares with its own purchase date and cost base. This can make record-keeping complex.

CGT When You Sell Partial Holdings

When selling only some of your shares, you can choose which parcels to sell using different methods:

FIFO (First In, First Out)

The ATO's default method. Shares purchased first are treated as sold first. This usually maximizes the 50% discount but may not always minimize tax.

Specific Identification

You can specifically identify which parcels you're selling. This allows you to choose parcels that:

• Have the highest cost base (minimizing gains)
• Qualify for the 50% discount
• Result in a capital loss (to offset other gains)

Capital Losses

If you sell shares for less than their cost base, you have a capital loss. Capital losses can:

• Offset capital gains in the same year
• Be carried forward indefinitely to offset future gains
• NOT be offset against ordinary income (salary, interest, etc.)

Wash Sale Rules

Australia doesn't have strict wash sale rules like the US. However, the ATO may apply the anti-avoidance provisions if you:

• Sell shares at a loss
• Buy back the same or substantially similar shares shortly after
• Have no real purpose other than creating a tax loss

CGT Strategies for Investors

1. Hold for 12+ Months

The simplest strategy: always wait until you qualify for the 50% CGT discount before selling. A few extra days can save thousands in tax.

2. Harvest Losses Before June 30

If you have unrealized losses, consider selling before the end of the financial year to offset gains. You can reinvest in similar (not identical) assets.

3. Time Sales with Low Income Years

If you're expecting a low-income year (career break, parental leave, sabbatical), consider realizing capital gains then when your marginal rate is lower.

4. Use Super for Long-Term Investments

Capital gains within super are taxed at just 15% (10% with the discount), versus up to 45% outside super. For long-term holdings, super is very tax-effective.

5. Small Business CGT Concessions

If you sell shares in a small business, you may qualify for generous concessions including 50% active asset reduction, 15-year exemption, and retirement exemption.

Record Keeping Requirements

The ATO requires you to keep records for 5 years after you sell. Essential records include:

• Contract notes (buy and sell confirmations)
• Dividend statements (especially for DRP)
• Cost base calculations
• Records of corporate actions (splits, mergers)
• Foreign exchange rates (for international shares)

Tools for Tracking CGT

• Share Sight: Automatic portfolio tracking with CGT reports
• Navexa: Australian-focused portfolio tracker
• Koinly/CoinTracker: For cryptocurrency CGT
• Spreadsheets: Manual tracking (time-consuming but free)

Reporting CGT on Your Tax Return

Capital gains are reported in your tax return at Item 18 (Capital gains). You'll need:

1. Total capital gains for the year
2. Capital losses applied
3. CGT discount applied (if eligible)
4. Net capital gain (added to taxable income)

ETF distributions often include "CGT concession" amounts already. These appear on your annual tax statement and may include discounted and non-discounted components.

CGT Examples

Related Calculators