Capital Gains Tax in Australia: Chapter 1- Capital Gains Tax Explained - Current Rules, Common Assets and the 50% Discount

Future Accounting
May 5
4 min read

One of the most common misconceptions we hear from clients is that capital gains tax (CGT) is a separate tax.

It isn’t.

A capital gain is simply added to your taxable income and taxed at your marginal tax rate, after applying any available losses, discounts or concessions. Understanding this point is critical, because it means the timing of a sale — and your broader income position — can have a significant impact on the tax outcome.

Capital Gains Tax Explained: What is capital gains tax?

Capital gains tax applies when a CGT event occurs. In practical terms, this is most commonly when you:

sell an asset
transfer ownership
or otherwise dispose of something of value

This could include obvious transactions like selling an investment property, but also less obvious events such as:

selling shares or units
transferring business goodwill
selling cryptocurrency
entering into certain contracts or rights

Understanding capital gains tax explained in practical terms helps avoid unexpected tax liabilities.

What assets does CGT apply to?

CGT applies broadly to most assets, including:

Investment properties
Shares and managed funds
Business assets (including goodwill)
Cryptocurrency
Intangible assets (licenses, contracts, rights)

However, there are some important exceptions. For example:

Assets acquired before 20 September 1985 are generally exempt
Your main residence may be fully or partially exempt (we cover this in a separate article)
Cars and motorcycles are exempt
Some personal use assets and collectables may be exempt depending on their value

The basic CGT calculation

At its simplest, calculating a capital gain follows this process:

Capital proceeds (sale price)

less cost base (what you paid, plus certain costs)

= capital gain

From there, you apply:

any capital losses
then any discounts or concessions

The final amount is your net capital gain, which is included in your taxable income.

What is included in the cost base?

This is an area where many taxpayers miss opportunities.

Your cost base is not just the purchase price — it can include:

acquisition costs (stamp duty, legal fees)
selling costs (agent fees, legal fees)
improvement costs (renovations, structural upgrades)
certain holding costs (in some cases)

Good record-keeping here can significantly reduce your taxable gain.

The 50% CGT discount

For individuals, one of the most valuable features of the CGT system is the 50% discount.

If you:

hold an asset for more than 12 months, and
are an Australian resident for tax purposes,

you can generally reduce your capital gain by 50% before it is taxed.

Example

Let’s say:

You purchase shares for $100,000
You sell them 3 years later for $180,000
Selling costs are $2,000

Your capital gain is:

$180,000 − $102,000 = $78,000

If you’re eligible for the discount:

$78,000 × 50% = $39,000

Only $39,000 is included in your taxable income — not the full gain.

Why CGT is not a “flat tax”

Because capital gains are taxed at your marginal rate, two people with the same gain can pay very different amounts of tax.

For example:

A taxpayer on a lower income may pay significantly less tax on the same gain
A high-income taxpayer may effectively pay tax at the top marginal rate (after the discount)

This is why timing matters — and why CGT planning should never be done in isolation from your broader tax position.

A brief note on your home

Your main residence may be exempt from CGT, either fully or partially, depending on how it has been used over time.

Because the rules are complex and there are several important traps, we’ve covered this separately in our main residence exemption article, which forms part of this series.

Practical strategies to maximise outcomes

Even at this foundational level, there are several key strategies that can materially improve outcomes:

1. Timing the sale

Selling in a year where your income is lower can reduce the overall tax payable.

2. Holding assets for at least 12 months

Crossing the 12-month threshold can effectively halve the taxable gain.

3. Using capital losses strategically

Capital losses can only be used against capital gains — but when used properly, they can significantly reduce tax.

4. Keeping detailed records

Missing cost base items is one of the most common (and costly) mistakes we see.

5. Planning before signing a contract

Once a contract is signed, many planning opportunities are lost. The best outcomes are usually achieved before the transaction is locked in.

Key takeaway

Capital gains tax is not a separate system — it is part of your broader tax position.

Understanding how gains are calculated, what assets are affected, and how discounts apply is the first step in making better decisions around investing, structuring and ultimately building long-term wealth.

Next, we’ll move into one of the most powerful — and most misunderstood — areas of the tax system: the small business CGT concessions.

Book a meeting with us to discuss your circumstances and identify opportunities to reduce tax, avoid common traps, and plan ahead with confidence.

Disclaimer  

This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.  

Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder 

Liability limited by a scheme approved under professional standards legislation.