What is capital gains tax in Australia?
Capital Gains Tax (CGT) in Australia is a tax on the profit you make from selling or disposing of most assets, such as shares or investment properties. It is not a separate tax but part of your income tax, added to your assessable income in the year the asset is disposed of.
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How it works in practice
What is Capital Gains Tax (CGT)?
Capital Gains Tax (CGT) is the tax you pay on the profit you make from selling an asset that has increased in value since you acquired it. While it's called a 'tax', it's actually part of your income tax. Any capital gain you make is added to your assessable income in the financial year the asset is sold or disposed of, and then taxed at your marginal income tax rate.
Assets Subject to CGT
Most assets you own are subject to CGT, including investment properties, shares, managed fund investments, cryptocurrency, and valuable collectables. However, it's important to note that your main residence (your home) is generally exempt from CGT.
How CGT is Calculated
The capital gain is calculated by subtracting an asset's 'cost base' (its purchase price plus certain associated costs like stamp duty, legal fees, and improvement costs) from its 'capital proceeds' (the selling price). For individuals and trusts who hold an asset for more than 12 months, a 50% CGT discount can apply, meaning only half of the capital gain is added to your assessable income. This discount is designed to encourage long-term investment.
Important exceptions
The main residence (your home) is generally exempt from CGT, provided you haven't used it to produce income. Personal use assets (like your car, furniture, or boat) are exempt unless they cost more than $10,000. Collectables (e.g., artwork, jewellery) have their own specific CGT rules, often exempting items under $500. Small businesses may also be eligible for various CGT concessions when selling active assets.
What you should do now
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Keep thorough records of all asset purchases, sales, and related costs, including dates, prices, and incidental expenses.
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Determine if any CGT exemptions or discounts apply to your specific asset or situation, such as the main residence exemption or the 50% discount for assets held over 12 months.
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Calculate your capital gain or capital loss by subtracting the asset's cost base from its capital proceeds.
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Include any net capital gains in your annual income tax return in the financial year the asset was sold or disposed of.
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Seek professional advice from a tax agent or the ATO if you are unsure about your CGT obligations or how to accurately calculate your gains or losses.
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