Capital Gains Tax

Capital Gains Tax - CGT - is not a separate tax in Australia. It is the tax on a capital gain: the profit from selling or otherwise disposing of an asset for more than it cost you. Shares, investment property, managed funds and crypto are all CGT assets, and the taxable gain lands in your tax return as assessable income at your marginal rate. A disposal does not have to be a sale: gifting, transferring and even giving an asset away count as CGT events.

The Australian feature is the discount. Hold the asset for longer than twelve months and the ATO halves the taxable gain for individuals and trusts - the 50 percent discount. Your family home is generally exempt as your main residence, companies get no discount at all, and super funds receive a third off in the accumulation phase. The rules have applied to assets acquired since 20 September 1985, and each disposal carries its own date and records.

The arithmetic starts with the cost base. A parcel of shares bought for $10,000, with $100 of brokerage, has a $10,100 cost base; sold three years later for $18,000, the gain is $7,900. Held over twelve months, the 50 percent discount halves it to $3,950, which is added to your taxable income. At a 32 percent marginal rate the CGT bill is $1,264 - an effective 16 percent of the raw gain. The Australian CGT calculator runs the same arithmetic on any asset, holding period and marginal rate.

The holding period is the lever with the biggest payout. The clock runs from the date you acquire the asset to the date of the CGT event - the day you sign the contract, not the day settlement lands on property. Sell an asset at 11 months and 29 days and the entire gain is taxed; cross the twelve-month line and half of it is discounted. Crypto is the trap here: the ATO treats each trade or disposal of crypto as its own CGT event, and frequent traders rack up dozens of full-rate disposals a year without noticing.

Capital losses run their own mechanics. A realised loss offsets capital gains in the same year - shares against property, crypto against managed funds - but never against salary or dividend income. Unused losses carry forward indefinitely until the gains arrive. The order of operations matters: losses first offset the gains with no discount, then the discounted gains, which is the sequence that preserves the most tax. The ATO capital gains guide covers the ordering, and it is worth the read before a year with both.

For an Australian reader, CGT is the exit cost on every investment decision this site covers. The negative gearing entry prices the strategy against the capital gains tax waiting at the end of it. The 50 percent discount is the reason long-term holding beats short-term trading on the after-tax numbers. MoneySmart guidance treats capital gains as part of the total return alongside income. The ATO record-keeping rules are blunt: keep records of every acquisition and improvement for at least five years after the disposal, because the cost base is the part that reduces the bill.

A colleague named Brent (yes, that Brent) sold a six-figure share parcel at 11 months and three weeks because the market felt heavy. He locked in the profit and paid his full 39 percent marginal rate on the entire gain; the 50 percent discount was a week away. The wait was worth roughly $12,000 of tax on his numbers. The highest-leverage thing most Australians can do is check the acquisition date before any sale. Keep the records that build the cost base, and run the exit through the marginal tax rate entry before the market makes the decision for free.