Capital Gains Tax
Capital Gains Tax (CGT) is a key component of Australia’s tax system, applying to the profit made from selling capital assets such as property, shares, cryptocurrency, or business interests. CGT is not a separate tax; it forms part of your income tax and is calculated based on the difference between the asset’s purchase price and selling price.
Understanding how CGT works, how it’s calculated, and when it’s paid is essential for managing your tax obligations and making informed financial decisions.
What is Capital Gains Tax?
Capital Gains Tax in Australia is the tax you pay on the profit (capital gain) when you sell a capital asset. This gain is added to your assessable income and taxed at your marginal tax rate. CGT applies to a wide range of assets, although some exemptions may apply, such as your main residence or certain personal-use items.
How Does Capital Gains Tax Work?
CGT is triggered by a CGT event, usually when you sell or dispose of an asset. The capital gain is calculated as:
Capital Gain = Sale Price − Cost Base
The cost base includes:
- Purchase price
- Legal fees
- Stamp duty
- Agent commissions
- Renovation or improvement costs
If you’ve held the asset for more than 12 months, you may qualify for a 50% CGT discount (for individuals and trusts). Superannuation funds may receive a one-third discount, reducing the taxable portion of the gain.
If you incur a capital loss, it can’t be used to offset regular income, but it can be applied against capital gains in the same or future financial years.
How to calculate Capital Gains Tax?
Investment Property Scenario:
James bought an investment property in March 2015 for $400,000. He spent:
- $20,000 on stamp duty and legal fees
- $30,000 on renovations
In May 2024, he sold the property for $600,000 and paid $15,000 in agent fees.
Calculation:
- Cost Base: $450,000
- Net Sale Amount: $585,000
- Capital Gain: $135,000
- Taxable Capital Gain (after 50% discount): $67,500
James will report $67,500 in his 2023-24 income tax return, taxed at his marginal rate.
CGT Assets and Exemptions
Common CGT Assets
- Investment properties and vacant land
- Shares, stocks, and managed funds
- Cryptocurrency and digital assets
- Business goodwill and licences
- Collectables and personal use assets over certain thresholds
- Intellectual property and contractual rights
CGT Exemptions
- Main residence
- Personal use assets under $10,000
- Collectables under $500
- Vehicles and household items
- Compensation for personal injury
- Assets acquired before 20 September 1985
- Certain life insurance policies
- Assets used by charities or not-for-profits
How to avoid Capital Gains Tax?
While you cannot entirely avoid CGT in Australia, there are legal strategies to reduce or defer it:
Hold Assets for Over 12 Months
Qualify for the 50% CGT discount if you’re an individual or trust.Sell Your Main Residence
Your primary home is generally exempt from CGT under the main residence exemption, provided it hasn’t been used to generate income.Use Small Business CGT Concessions
Eligible small businesses can access:- 15-year exemption
- 50% active asset reduction
- Retirement exemption
- Rollover concession
Time Your Asset Sales
Offset gains with capital losses in the same financial year to reduce taxable income.Contribute to Superannuation
Under certain conditions, contributing part of your capital gain to your super fund may reduce your CGT liability.
Tip: Always consult a qualified accountant or tax advisor to ensure compliance with ATO rules and to maximise your tax benefits.
When do you pay Capital Gains Tax?
CGT is not paid immediately when you sell an asset. Instead, the capital gain is reported in your annual income tax return for the financial year in which the sale occurred.
For example, if you sell an asset in October, the gain is included in your tax return for that financial year (ending 30 June), and the tax is paid when you lodge your return—typically between July and October of the following year.