Capital Gains Tax in Australia: How a Gain Is Calculated

Capital gains tax isn't a separate tax in Australia. It is the part of income tax that deals with profits and losses when you dispose of assets such as shares, investment property or crypto. Once you understand four building blocks, most CGT questions become a matter of careful record-keeping rather than mystery.

Building block one: the CGT event

CGT is triggered by a CGT event. The law lists many, but the most common by far is disposing of an asset: selling shares, selling an investment property, giving an asset away, or exchanging one crypto asset for another. The timing generally follows the contract date, not settlement, for things like property sales.

Common CGT assets include shares, units in managed funds, investment property, crypto assets, collectables and business assets. Some assets are exempt or treated specially, such as most cars, personal use assets under certain limits, and assets acquired before CGT was introduced in the mid-1980s.

Building block two: capital proceeds

Capital proceeds are what you receive, or are entitled to receive, from the CGT event. For a sale, that is usually the sale price. If you give an asset away or sell it to a relative below its value, the market value substitution rule may treat you as having received market value instead.

Building block three: the cost base

The cost base is more than the price you paid. Broadly, it can include:

• the amount you paid to acquire the asset;
• incidental costs of buying and selling, such as stamp duty, legal fees, brokerage and agent's commission;
• certain costs of owning the asset that you haven't claimed as deductions, such as some interest or rates on land held for investment in some cases;
• capital costs to increase or preserve the asset's value, such as improvements;
• costs of establishing, preserving or defending your title.

Amounts you have already deducted, such as capital works deductions on a rental property, generally reduce the cost base. That is why rental property sales often produce larger gains than owners expect.

Building block four: the discount and losses

If you are an individual and held the asset for at least a year before the CGT event, you may be able to apply the CGT discount, which reduces the capital gain included in your assessable income. Trusts and complying super funds have their own discount rules; companies generally cannot use the discount. Foreign and temporary residents face restrictions. The current discount rates are on the ATO website.

Capital losses work in one direction only: they reduce capital gains, not salary or other income. The order matters, because you apply capital losses before applying the discount. If losses exceed gains in a year, the net capital loss carries forward indefinitely to offset future gains.

The sequence is everything: work out each gain and loss, subtract losses from gains, apply the discount to what is left if eligible, and only then add the result to your income.

The calculation, step by step

1. Identify every CGT event in the income year and the date of each.
2. For each asset, work out capital proceeds and the cost base.
3. Subtract the cost base from proceeds to get the gain, or compare proceeds with the reduced cost base to find a loss.
4. Total your capital gains, then subtract current-year capital losses and any carried-forward net capital losses.
5. Apply the CGT discount to remaining eligible gains.
6. Include the resulting net capital gain in your tax return, where it is taxed at your marginal rate along with your other income.

Because the net capital gain is added to your income for that year, a large gain can push more of your income into higher marginal brackets. Timing a sale across financial years is a legitimate consideration, but it should not override investment judgment.

A worked example in words

Imagine an investor who bought a parcel of shares several years ago, paying brokerage on the purchase, and sells the whole parcel this year, paying brokerage again. During the same year they sold a different parcel at a loss, and they have a net capital loss carried forward from an earlier year.

First, they work out the gain on the profitable parcel: the sale price, less a cost base made up of the purchase price plus both lots of brokerage. Next, they work out the loss on the second parcel: its reduced cost base less the sale price. They then subtract the current-year loss, and after that the carried-forward loss, from the gain. Because the profitable parcel was held for more than a year, they apply the CGT discount to whatever gain remains. That final figure is the net capital gain that goes into their return.

Notice what made the calculation possible: purchase and sale contract notes for every parcel, and last year's records showing the carried-forward loss. Without those, the investor would be guessing at the most important numbers in the calculation.

Exemptions and special cases

Records you need

CGT is a record-keeping test as much as a tax. For each asset, keep evidence of the date and cost of acquisition, every cost that forms part of the cost base, and the date and proceeds of disposal. Keep those records for the period the ATO requires after the CGT event, which means some records may need to be kept for decades. For shares and crypto bought in multiple parcels, keep enough detail to identify which parcel you sold. The ATO's investments and assets section at ato.gov.au/individuals-and-families explains the requirements.

Frequently asked questions

Do I pay CGT if I haven't withdrawn the money?

Yes. CGT is triggered by the CGT event, such as a sale or a crypto-to-crypto swap, not by moving the proceeds to your bank account.

Can I use a capital loss to reduce tax on my salary?

No. Capital losses only offset capital gains. A net capital loss carries forward to future years until you have capital gains to use it against.

When does the holding period start and end for the discount?

It generally runs from when you acquired the asset to when the CGT event happens, usually the contract dates. The holding period excludes the day of acquisition and the day of disposal; check the ATO's guidance for edge cases.