What is a capital gain?
A capital gain arises when you sell an asset for more than you paid for it. The gain is the difference between your sale proceeds and the asset's cost base (broadly, what you paid including incidental acquisition costs such as brokerage, legal fees, and stamp duty).
CGT applies to assets acquired after 19 September 1985. Common assets include shares, ETFs, managed funds, investment property, and some personal-use items above a threshold. Your main home is generally exempt.
CGT is not a separate tax
Despite the name, there is no standalone capital gains tax in Australia. Capital gains are added to your assessable income and taxed at your marginal income tax rate along with your other earnings.
If you earn $80,000 in wages and realise a $20,000 capital gain in the same year, your assessable income is $100,000 (before any applicable discount). The $20,000 gain is taxed at whatever rate applies to income in the $80,001 to $100,000 range.
The 50% CGT discount
If you hold an asset for more than 12 months before selling it, only half the capital gain is included in your assessable income. This is the CGT discount.
For example: you buy shares and sell them 18 months later, realising a $40,000 gain. With the discount, only $20,000 is added to your assessable income. At a 30% marginal rate, the tax is $6,000 rather than $12,000.
The 50% discount is available to individuals and certain trusts. Companies do not receive the discount; they pay tax on the full gain. This makes the structure of who holds an investment asset relevant for long-term tax planning.
Capital losses
A capital loss arises when you sell an asset for less than its cost base. Capital losses can only offset capital gains. They cannot be deducted against ordinary income like wages or rental income.
Unused capital losses carry forward indefinitely and are applied against capital gains in the year they arise. When applying losses to discountable gains, the ATO requires losses to be applied to the full gain before the 50% discount is calculated, not after. This order of operations matters for working out the actual tax.
The main residence exemption
Your primary home is generally exempt from CGT. If you own and live in a property as your main residence for the entire period of ownership, any capital gain on sale is not assessable.
The exemption can be partial if the property was used to produce income at any point — for example, renting it out or running a business from a dedicated home office. It can also be affected if the property was not your main residence from the date of purchase. The six-year absence rule provides some flexibility for temporary rentals, subject to conditions.
CGT inside superannuation
Assets held in a super fund are subject to CGT, but at more favourable rates than outside super:
- Accumulation phase: gains taxed at 15%, or 10% for assets held more than 12 months
- Retirement (pension) phase: no CGT on assets backing a retirement pension
This is one reason super is considered a highly tax-effective vehicle for long-term investing, particularly once assets are moved into the pension phase.
Timing and taxable income
Because capital gains are taxed at your marginal rate in the year of sale, the timing of a sale can meaningfully affect the tax outcome.
Selling in a lower-income year (after taking parental leave, reducing hours, or in early retirement) can reduce the marginal rate applied to the gain. Conversely, realising a large gain in a year with already high income pushes more of it into higher brackets.
The 12-month holding threshold is also worth planning around. Selling an asset at the 11-month mark means the full gain is assessable at your marginal rate. Holding for more than 12 months qualifies the gain for the 50% discount.
Common mistakes
Not tracking the cost base accurately
The cost base includes the purchase price plus allowable incidental costs: brokerage, conveyancing, and stamp duty. For shares bought over many years through a platform, keeping individual parcel records from the time of purchase is much easier than reconstructing them at tax time.
Overlooking distribution reinvestment plans
When an ETF or managed fund automatically reinvests distributions, each reinvestment is a new acquisition with its own cost base and holding period. Selling units later requires identifying which parcels have been held more than 12 months to apply the discount correctly.
Assuming the family home is always CGT-free
The main residence exemption can be partial or fully lost in situations such as renting out the property, running a genuine business from home, or not having the property as your main residence from the date of purchase. Checking the specific rules before sale avoids surprises.
Frequently asked questions
Does CGT apply to cryptocurrency?
The ATO treats most cryptocurrency as a CGT asset. Selling, swapping, or using crypto to buy goods or services can all trigger a CGT event. The 50% discount applies where the asset has been held for more than 12 months, subject to other conditions.
Can I use capital losses from previous years?
Yes. Capital losses carry forward indefinitely and must be applied against capital gains in the year they arise, before the 50% discount is applied. A loss from three years ago can offset a gain this year, with any remaining balance carried forward again.
Does CGT apply to savings account interest?
No. Interest from savings accounts and term deposits is ordinary income, taxable in the year it is earned. CGT applies to gains on disposed assets (shares, property, ETFs), not to interest on cash.
What records do I need to keep?
The ATO requires records sufficient to calculate cost base and any gains or losses. For shares and ETFs this means purchase and sale confirmations with dates, amounts, and fees. Records should generally be kept for at least five years after lodging the return in which the gain or loss is reported.
Estimate the tax on an investment sale with the Capital Gains Tax Calculator. To project long-term growth and understand how gains accumulate over time, see the ETF Growth Calculator or read ETF Investing In Australia Explained.