Capital Gains Tax

What CGT actually is

Capital Gains Tax in Australia is not a separate tax — it's a component of income tax. When you sell (or otherwise "dispose of") a CGT asset for more than its cost base, the net capital gain is added to your taxable income in the year of the disposal. Your marginal income-tax rate then applies to the included gain. The exact mechanics depend on the type of asset, how long you held it, your residency status, and whether the asset is your main residence.

CGT applies to most assets acquired after 20 September 1985 — the date Treasurer Paul Keating introduced the regime. Pre-CGT assets (acquired before that date) are generally exempt, with limited exceptions for major capital improvements. Common CGT assets are: investment property, shares, units in managed funds, cryptocurrency, collectibles above $500, business goodwill, and rights/options. Your principal place of residence is generally exempt — see below.

What goes into the cost base

The cost base is everything you spent acquiring, holding and disposing of the asset. There are five components:

• Money paid or required to be paid for the acquisition — purchase price.
• Incidental costs of acquisition and disposal — stamp duty, legal fees, conveyancing, agent commission, brokerage, marketing.
• Non-capital costs of ownership — interest on borrowings, rates, land tax, repairs and maintenance (for assets acquired after 21 August 1991, where these weren't deductible against income). For an investment property where these costs were deducted against rental income each year, they don't go in the cost base.
• Capital expenditure to increase or preserve the asset's value — renovations, extensions, structural improvements, fencing of vacant land.
• Capital expenditure to establish, preserve or defend title — legal fees to defend ownership, easement payments.

Keep receipts. The ATO's record-keeping requirement is five years after the disposal, but for long-held assets that means receipts going back decades. Cost-base accuracy is the difference between a correctly-calculated gain and an overpayment of CGT.

The 50% individual discount

If you've held a CGT asset for more than 12 months, individuals and trusts can apply a 50% discount to the capital gain before including it in assessable income. Companies do not get the discount; super funds get a 33⅓% discount (10% effective CGT rate in accumulation phase).

The discount is one of the most valuable concessions in the Australian tax system. On a $200,000 gain at a 37% marginal rate, the discount halves the tax bill from about $74,000 to about $37,000. For investments held over the long term, the after-tax return on equities or property changes materially because of this concession.

The 12-month rule is the only distinction the discount makes. Hold for 364 days: full gain. Hold for 366 days: half gain. Day counting is from acquisition date to contract date of disposal (not settlement) — important for property and any other contract-based transactions.

Worked example — investment property sale

Sara bought an investment property in 2014 for $650,000, paid $25,000 of stamp duty, $2,000 of legal fees, and $1,500 of building & pest. She spent $30,000 on a kitchen renovation in 2017. She sells in 2026 for $1,180,000, paying $28,000 agent commission and $2,500 legal fees on disposal. Her taxable income that year (excluding the gain) is $110,000.

The $220,500 gain pushes Sara into the 45% bracket (above $190,000). Additional tax on the gain works out to approximately $82,000. Effective rate on the gross gain is about 18.6% — well below her marginal rate, thanks to the 50% discount. Without the discount, the gain would attract about $165,000 of tax.

Main residence exemption

Your principal place of residence is generally fully exempt from CGT. The home you actually live in, while you live in it, is not a CGT asset for these purposes. If you owned and lived in the property for the entire ownership period, no CGT applies when you sell.

Eligibility for the full main-residence exemption requires:

• The property has been the home of you, your spouse and your dependent children for the whole ownership period.
• You moved in as soon as practicable after acquisition.
• The dwelling was not used to produce assessable income (rented out) at any time, beyond limited circumstances.
• The land does not exceed two hectares.

Partial exemption applies if the property was your main residence for only part of the ownership period (apportioned by days), or if part of the property was used to produce income (apportioned by floor area). The maths can get fiddly — particularly for home-office claims that involve depreciating a portion of the home, which can affect the CGT outcome years later.

The six-year rule (absence rule)

The "six-year rule" is one of the most useful concessions inside the main-residence exemption. If you move out of your main residence and rent it out, you can continue to treat it as your main residence for CGT purposes for up to six years — preserving the full CGT exemption even though you're producing rental income from it. If you return to live in the property and then move out again, the six-year clock resets.

You can only have one main residence at a time for CGT purposes. If you rent your previous main residence under the six-year rule and buy and live in a new home, you have to choose which one gets the main-residence treatment for the overlap period. Most people elect to apply the exemption to the property that will have the larger taxable gain when eventually sold.

Note: foreign residents are generally no longer eligible for the main-residence exemption following 2019 legislation. There are transitional rules for properties held before 9 May 2017 — but practically, most expats selling Australian property after 2025 will face CGT on the entire ownership period if they're non-resident at the time of disposal.

Capital losses

Capital losses can only be offset against capital gains, not against ordinary income (with very limited exceptions). Net capital losses for a year can be carried forward indefinitely and applied against future capital gains.

Capital losses are applied before the 50% discount. So if you have a $100,000 long-term gain (eligible for discount) and a $30,000 capital loss in the same year: the loss reduces the gross gain to $70,000, then the 50% discount applies, giving a net $35,000 included in income. Apply the loss against a short-term gain instead and you reduce the full pre-discount amount.

This is why "tax-loss selling" near the end of a financial year — realising losses to offset gains crystallised elsewhere — is a common, legitimate tax-planning technique. The ATO's wash sale integrity rule under Part IVA can disallow tax-loss selling that's clearly designed only to manufacture a deductible loss while retaining economic exposure to the same asset; but legitimate position changes are fine.

Timing & pre-30-June planning

The "CGT event" is normally the date of the disposal contract, not settlement. So a property contract signed on 28 June 2026 with settlement in August falls into the 2025–26 tax year for CGT purposes. Conversely, a contract signed on 2 July 2026 is in the 2026–27 year. This gives you a powerful timing lever to push a gain into a lower-income year or to bunch deductions and losses against it.

Pre-30-June planning checklist:

• Can the gain wait until next financial year (lower-income year, more carry-forward losses)?
• Are there unrealised losses elsewhere that could offset?
• Can you make a deductible super contribution that year to absorb the gain?
• Have you crossed the 12-month threshold yet for the discount?
• If selling shares: which parcels do you sell? FIFO is the default but you can specifically identify parcels — typically pick the highest-cost-base parcel to minimise gain.

CGT and super contributions

One of the most underused tax-planning levers when crystallising a big capital gain is the concessional super contribution. If you have unused concessional cap from prior years (and your total super balance is below $500,000), you can make a deductible contribution to super of up to $80,000 in a single year (current cap of $30,000 + up to $50,000 of carry-forward, depending on use history).

A $50,000 deductible contribution reduces your taxable income by $50,000. At the top marginal rate (47% with Medicare), that saves $23,500 in personal income tax. Inside super, the contribution is taxed at 15% ($7,500). Net saving: $16,000 — directly applied against the year's tax bill which is being inflated by the capital gain. This works particularly well for investors selling a property they've held for over a decade.

Frequently asked questions