Australian capital gains tax

Australian capital gains tax

CGT generally includes a net capital gain in assessable income. It is not a separate flat tax. This guide covers ordinary Australian resident investment disposals before 1 July 2027. Sources checked on 8 September 2026. Foreign residents, temporary residents, trusts and business transactions require the additional rules relevant to them.

• CGT arrangements change from 1 July 2027 — The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 changes CGT arrangements from 1 July 2027, including transitional treatment for existing holdings. Do not apply this guide's discount calculation to those later transactions without applying the new law. (Treasury Laws Amendment (Tax Reform No. 1) Act 2026)

Identify the asset and CGT event

• Identify the applicable CGT event — Record the legal and beneficial owner, asset, acquisition history, disposal contract and proceeds. A sale ordinarily triggers CGT event A1 at the contract date; settlement does not usually determine the income year. Gifts, asset cancellations, trust transactions, options and cessation of residency can involve other events. Identify the applicable event before calculating a gain. (ITAA 1997, section 104-10)
• Capital versus revenue — Establish whether the profit is capital or revenue. A trading business or profit-making commercial transaction can produce ordinary income, with provisions preventing double taxation where CGT also applies. Do not classify an asset as a capital investment solely because it was held for more than a year.
• Pre-CGT and main residence exemption — For assets acquired before 20 September 1985, check the pre-CGT exemption and exceptions, including later changes or separate assets. For a home, check occupation, land area, income-producing use, absences, ownership and residency before applying the main residence exemption. An investment property is not exempt merely because its owner later moves in. (ITAA 1997, section 118-110)

Establish proceeds and cost base

• Proceeds — Proceeds include money and the market value of other property received. Gifts and non-arm's-length transactions can require market value substitution. Reconcile sale proceeds to the contract before deducting selling costs; otherwise those costs may be counted twice.
• Five cost base elements — The five cost base elements are: 1. Money paid and market value of property given to acquire the asset. 2. Eligible incidental costs of acquisition or the CGT event, including relevant professional fees and selling costs. 3. Eligible ownership costs for assets acquired after 20 August 1991. 4. Qualifying capital expenditure to increase or preserve value, or install or move the asset. 5. Capital expenditure to establish, preserve or defend title or rights over the asset. An expense is not automatically included because it relates to the asset. Apply exclusions for deductible amounts, recoupments and relevant capital works adjustments. Keep invoices and a record of the tax treatment previously claimed. (ITAA 1997, section 110-25)
• Reduced cost base for capital losses — Calculate a capital loss using reduced cost base. Its third element differs from the ordinary cost base: it concerns specified balancing adjustment amounts, rather than general ownership costs. Do not calculate a loss by subtracting an unchanged cost base. (ITAA 1997, section 110-55)

Apply losses and concessions in order

• Order of losses — Calculate gains and losses for each event, then apply current-year capital losses and available earlier net capital losses before the CGT discount. Capital losses generally cannot reduce salary or other ordinary income. Collectable losses have separate restrictions.
• General CGT discount — For eligible events within this guide's period, the general discount is 50% for individuals and trusts and 33⅓% for complying super funds. Companies cannot use it. The asset must generally be held for at least 12 months; exclude the acquisition and disposal days when counting. Check special acquisition rules and excluded gains rather than applying the discount to every long-held asset. Older eligible assets may allow a choice between indexation frozen at September 1999 and the discount method. (ATO: CGT discount)
• Trust distributions — Trust distributions require separate beneficiary calculations, including gross-up and credit rules. A trust's discount percentage does not by itself establish the beneficiary's final taxable gain.

Test small business concessions separately

• Division 152 concessions — Division 152 provides the 15-year exemption, 50% active asset reduction, retirement exemption and rollover. Meeting a turnover threshold alone is insufficient. Establish the basic conditions, the active asset test and each concession's additional requirements.
• Small business concession gateways — The principal gateways include being a CGT small business entity with aggregated turnover below $2 million or satisfying the maximum net asset value test of no more than $6 million. Partnership and passively held asset pathways also exist. Include connected entities and affiliates where required. Sales of shares and trust interests have additional conditions. AUD (ITAA 1997, section 152-10)
• Active asset test period — For an asset held for 15 years or less, it generally needs to be active for at least half the relevant period. For longer holdings, the minimum is generally 7½ years. Apply the statutory period, cessation rules and active asset definition, including exclusions. (ITAA 1997, section 152-35)

Prepare a separate eligibility record for each proposed concession before calculating its effect. Retain the event date, proceeds, adjusted cost bases, loss applications, discount calculation, supporting valuations and any choice or rollover documentation with the return workpapers.

Contributed by Ryan Duguid.