What is Capital Gains Tax (CGT)?
Capital Gains Tax (CGT) is the tax you pay on profits derived from the sale or disposal of capital assets, such as real estate, shares, cryptocurrency, and certain business assets. In Australia, CGT is not a separate tax, it’s integrated into your income tax system. This means any net capital gain you make during the financial year is added to your assessable income and taxed at your marginal tax rate.
The rules around CGT are outlined in Part 3-1 and 3-3 of the Income Tax Assessment Act 1997, and they apply to both individuals and businesses. The tax can have a significant impact on your net return from an investment, so understanding how and when it applies is crucial to effective tax planning.
When Does CGT Apply?
A CGT event is the trigger that causes a capital gain or loss to arise. The most common CGT event is the sale of a CGT asset, but there are many other events that can result in CGT, including:
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Gifting an asset to someone else (e.g., a family member)
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Transferring ownership through a divorce settlement
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Losing or destroying an asset (e.g., fire, theft, or disaster)
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Receiving compensation for the loss of an asset (e.g., insurance payout)
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Selling assets to related entities, such as a family trust or company
The timing of the CGT event is essential. For most CGT events, the date of the contract (not the settlement date) determines the relevant tax year. For example, if you signed a contract to sell a property on 28 June 2025, the CGT would be included in your 2024–25 tax return, even if settlement occurred in July.
Assets Subject to CGT
Most personal investment assets fall under CGT rules, including:
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Real Estate: Investment properties, land, and holiday homes (excluding your main residence under certain conditions)
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Shares and ETFs: Including ASX-listed and overseas equities
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Cryptocurrency: Each crypto transaction, whether swapping, selling, or using it to purchase goods—is a CGT event
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Collectibles and Personal Use Assets: Art, antiques, jewellery over $500 (collectibles), or boats/cars not used for business
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Business Assets: Particularly if you’re selling part or all of a small business
CGT Exemptions
Some assets are excluded from CGT, such as:
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Main Residence Exemption: Your family home is generally CGT-free, provided it was used solely as a residence and not rented or used for business
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Personal Use Assets: Items used or kept mainly for personal use and enjoyment, like furniture or your car
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Depreciating Assets: Used in business operations (e.g., computers, vehicles, machinery)
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Assets Acquired Before 20 September 1985: These are pre-CGT assets and exempt from CGT
Note: Exemptions like the main residence rule can become partial exemptions if the home was rented out or used to earn income.
How is CGT Calculated?
To calculate a capital gain or loss, subtract the cost base of the asset from the capital proceeds (sale price). The cost base includes:
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Purchase price
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Stamp duty
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Legal fees
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Agent commissions
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Improvement costs (but not maintenance)
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Holding costs (if not already claimed, and only for some entities)
Example 1: Basic CGT Calculation
You bought shares for $10,000 and sold them for $18,000 two years later:
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Capital Proceeds: $18,000
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Cost Base: $10,000
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Capital Gain: $8,000
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Discount Applied (if eligible): 50% → Taxable Gain: $4,000
This $4,000 is added to your assessable income for the financial year and taxed at your marginal rate.
CGT Discounts and Small Business Concessions
50% CGT Discount
Available to individuals, trusts, and super funds (not companies), this discount halves your capital gain if:
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The asset was held for at least 12 months, and
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You are an Australian resident
Super funds receive a 33.3% discount, not 50%.
Small Business CGT Concessions
If you run a small business (turnover under $2M or pass the $6M net asset test), you may qualify for generous CGT reliefs:
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15-Year Exemption: Full CGT exemption if the business asset was held for over 15 years and you’re retiring or permanently incapacitated.
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50% Active Asset Reduction: Halves the gain from a business asset.
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Retirement Exemption: Up to $500,000 in capital gains can be exempt, provided the proceeds go to retirement (no need to retire if under 55 and rolled into super).
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Rollover Relief: You can defer the CGT by reinvesting the proceeds in another active business asset within 2 years.
These rules are technical, and you’ll often need professional advice to meet all eligibility criteria and maximise the benefit.
Capital Losses
If the sale of an asset results in a loss, it can be used to offset capital gains, but not ordinary income like wages or business profits.
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Unused capital losses can be carried forward indefinitely
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Losses must be applied before CGT discounts
Reporting and Paying CGT
All CGT must be declared in your annual income tax return, typically in the Capital Gains section. You’ll need to provide:
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Asset description and purchase/sale dates
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Purchase cost and associated expenses
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Sale proceeds and selling expenses
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Applicable discounts or exemptions
The ATO expects accurate recordkeeping and may request documentation even years after the CGT event.
Tip for Tax Window clients: Keep a CGT schedule for each asset, especially crypto or shares, where transactions are frequent. Many platforms (e.g., Sharesight, Koinly, or BGL Simple Fund) now automate this.
Strategies to Minimise CGT
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Hold Assets > 12 Months
Qualify for the 50% CGT discount to halve your tax burden. -
Time Asset Sales Strategically
If your income will be lower next financial year (e.g. career break, maternity leave), defer the CGT event to benefit from lower marginal tax rates. -
Offset Gains with Losses
Sell underperforming assets in the same year you realise a capital gain to reduce the net CGT. -
Spread Sales Over Financial Years
Selling multiple assets in the same year can push you into a higher tax bracket. Consider staggering sales to even out income. -
Use the Main Residence Exemption Strategically
If you’re moving out of your main home, the six-year rule may allow you to rent it out without triggering CGT. -
Invest Via Superannuation
Capital gains made inside a super fund are taxed at 15% (or 10% for assets held over 12 months), which is far lower than personal rates.
Final Thoughts
Understanding Capital Gains Tax is essential whether you’re an investor, a small business owner, or managing personal wealth. Because CGT interacts with multiple parts of the tax system, there’s rarely a one-size-fits-all approach.
At Tax Window, many of your clients, whether sole traders, crypto investors, or retiring business owners, can benefit from careful CGT planning. Whether through timing disposals, structuring ownership, or applying small business concessions, there’s real opportunity to minimise CGT liability and keep more of your returns.
About The Author: Artur Osadchiy
Artur is a Certified Practising Accountant with over 30 years’ experience working as a trusted advisor to 600+ clients across Australia. Based in Melbourne, he started Tax Window with his wife Marina in 2009 and leads the firm’s tax and accounting team. In his free time, Artur enjoys watching the AFL (go Kangas!) and spending time with family.
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