Your guide to capital gains tax in Australia

If you sell assets like property or shares, you might need to pay capital gains tax (CGT).

Understanding how it works can make a real difference to your investment strategy and final tax bill.

What is capital gains tax?

Capital gains tax is the tax you pay on the profit (a capital gain) you make when you sell or dispose of an asset. It's not a separate tax but is included as part of your income tax. This means the amount of CGT you pay depends on your income tax bracket for that year.

Selling an asset is called a 'CGT event'. If you sell it for more than you paid, you make a capital gain. If you sell it for less, you have a capital loss.

How to calculate capital gains tax

Calculating your CGT involves a few key steps. You need to add up your gains for the year, subtract any losses, and then apply any discounts you might be entitled to.

Here's a simple way to think about it:

Work out your capital gain or loss for each asset

Subtract what you paid for the asset (plus any extra buying costs) from the sale price.
Apply any capital losses

Use capital losses (current or past) to reduce gains; unused losses carry forward indefinitely.
Apply the CGT discount

If you're eligible, you can reduce your capital gain.
Add the final amount to your taxable income

The amount left is added to your income and taxed at the rate for your income level.

For example, if you bought shares for $10,000 and sold them for $15,000, your capital gain is $5,000. This $5,000 (after any losses or discounts) is the amount that gets taxed.

Work out your capital gains tax with the Australian Taxation Office CGT calculator.

Tip: If you make money from the sale of property or shares, you may have to pay capital gains tax. If you lose money, you can use that loss to reduce taxes on future capital gains.

How to reduce your capital gains tax

There are several ways you might be able to lower the amount of CGT you owe. With smart timing, planning and good records, you can keep more of your money.

Hold assets for over 12 months

If you're an Australian resident and have held an asset for more than 12 months, you may be eligible for a 50% CGT discount. This means you only pay tax on half of the capital gain.
Use capital losses

If you lose money selling an asset, you can use that loss to lower any capital gains in the same year. If your losses are bigger than your gains, you can carry the leftover loss forward to help reduce gains in future years.
Claim the main residence exemption

Usually, you don't need to pay CGT when you sell your main home. But you might have to pay some if you rented it out, used it for business, or if the land is bigger than 2 hectares.
Spread out asset sales

If you sell assets in different financial years, you may be able to manage your income and avoid moving into a higher tax bracket. This could help you pay less CGT in any one year.
Contribute to your super

You may be able to make a tax-deductible contribution to your super fund from the money you received when you sold an asset. There are limits and rules for this, so it's a good idea to get advice if you're thinking about this option.

See the list of CGT assets and exemptions on the Australian Taxation Office website.

Things to consider when selling assets

Capital gains tax on shares and dividends

Selling shares and making a profit will trigger a CGT event.

Dividends in Australia are either franked or unfranked. Franked dividends include a tax credit reflecting company tax that has already been paid, while unfranked dividends are taxed as regular income.

ETFs and managed funds

When you sell your units in exchange-traded funds (ETFs) or managed funds, you may have to pay CGT. Also, payouts (distributions) from these funds can include capital gains, and you need to declare these in your tax return.

Taxation of foreign investors

As a foreign resident, you usually only need to pay CGT on some Australian properties, mainly real estate.

So if you sell a property in Australia worth $750,000 or more, some of the sale price has to be held back and sent to the Australia Tax Office (ATO). This is called foreign resident capital gains withholding (FRCGW) and is an important part of taxation of foreign investors in Australia.

Quoting your tax file number (TFN)

If you don't provide your TFN to your bank or another investment body, they might have to withhold tax from your investment income at the highest tax rate. This is called TFN withholding tax.

Keeping good records is key

To correctly calculate your capital gains and tax, it's important to keep good records of all your investments. This includes:

When you bought and sold (dates and prices)
Any costs to buy or sell (like brokerage, stamp duty)
Expenses for keeping the asset (like repairs on a rental property)

Australia's tax system can seem complicated, but if you understand the basics of CGT, you can make better decisions about your investments.

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Important information

This article is intended to provide general information of an educational nature only. This information should not be relied upon as personal financial product advice as it does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of the information to your own circumstances and seek independent legal and financial advice prior to making any investment choice.