The 50% CGT Discount Explained

The CGT discount is the single most valuable concession available to Australian investors. If you hold a CGT asset for at least 12 months before disposing of it, you can reduce the capital gain before it's added to your taxable income.

The discount was introduced on 21 September 1999, replacing the previous indexation-only method of adjusting cost bases for inflation. For assets acquired before that date, you can still choose between the discount and the indexation method.

The discount rate depends on the type of entity that owns the asset:

There is also a 60% discount for qualifying affordable housing investments, though this is a narrow category with strict eligibility requirements.

The discount is applied after subtracting any capital losses — this ordering is critical and is covered in detail in the calculation steps below.

Eligibility depends on who you are (entity type), how long you held the asset, and your residency status.

Individuals (Australian residents)

Australian resident individuals receive the full 50% discount on any capital gain from an asset held for at least 12 months. This is the most straightforward case and covers the vast majority of CGT events — share sales, property sales, and crypto disposals.

Trusts

Trusts also receive the 50% discount at the trust level. However, how the discount flows through to beneficiaries depends on the beneficiary's entity type. If a trust distributes a discounted capital gain to a company beneficiary, the company must gross up the amount and receives no discount — effectively paying tax on the full original gain. This is a significant trap covered in detail in the trusts section below.

Self-managed super funds (SMSFs)

Complying superannuation funds receive a 33.33% discount (one-third). While this is less generous than the individual discount, the super fund tax rate of just 15% means the effective tax on a discounted gain in an SMSF is approximately 10% — often lower than what an individual pays.

Companies

Companies are permanently excluded from the CGT discount, regardless of how long they hold an asset. A company pays tax on the full capital gain at the corporate tax rate (25% for base rate entities, 30% for others). For assets acquired before 21 September 1999, companies can use the indexation method instead.

Foreign residents

Since 8 May 2012, the CGT discount for foreign residents has been restricted. Foreign residents receive a pro-rata discount based on the proportion of the holding period spent as an Australian resident. For assets acquired before 8 May 2012, the full discount still applies regardless of residency changes. See the foreign residents section for the full rules and a worked example.

To qualify for the CGT discount, you must hold the asset for at least 12 months before the CGT event. The holding period is measured from the day after acquisition to the day of disposal.

Precise counting

If you bought shares on 1 March 2024, the earliest discount-eligible sale date is 2 March 2025. Selling on 1 March 2025 is exactly 12 months from the acquisition date — but because the count starts from the day after acquisition (2 March 2024), this gives you only 364 days.

What counts as the acquisition and disposal date?

The dates that matter depend on the asset type:

For property, the acquisition date is when contracts are exchanged, not when settlement occurs. This can be weeks or months earlier — and that difference can make or break your discount eligibility.

The CGT event must be after 21 September 1999

The discount only applies to CGT events that occurred on or after 21 September 1999. For disposals before that date, only the indexation method was available. In practice, this historical cutoff only matters for very long-held assets being analysed retrospectively.

The ATO requires a specific ordering for CGT calculations. Getting this order wrong can result in an incorrect tax return:

1. Calculate your capital gain — capital proceeds minus cost base
2. Subtract capital losses — current-year losses first, then any carried-forward losses
3. Apply the CGT discount — to the gain after losses have been subtracted
4. The result is your net capital gain — added to your assessable income
5. Pay tax at your marginal rate — on your total taxable income

Why the ordering matters

The critical rule is: losses are applied before the discount. This is not optional — it's how the law works. Here's what this means in practice:

Example: $100,000 capital gain (discount-eligible) and $40,000 in capital losses.

Your $40,000 in losses reduced the pre-discount gain. But because the discount then halves the remaining $60,000, each dollar of loss only reduced your assessable income by 50 cents. This is an inherent feature of the system — losses against discountable gains are effectively worth half their face value.

Strategic loss allocation

When you have both discountable and non-discountable gains in the same year, you can choose which gains to apply your losses against. Always offset non-discountable gains first — your losses are worth twice as much there.

The smart approach saves $15,000 in assessable income. At the 37% marginal rate, that's $5,550 less tax.

Use our CGT calculator to model the optimal loss allocation for your specific situation.

Let's walk through a complete example with real FY2025–26 tax rates.

The scenario: David earns a salary of $95,000. He bought 2,000 CBA shares at $80 per share ($160,000) in January 2024, paying $20 brokerage. He sells all 2,000 shares in April 2025 at $120 per share ($240,000), paying $20 brokerage. He has $8,000 in carried-forward capital losses from a prior year.

Step 1: Calculate the cost base

Step 2: Calculate the raw capital gain

• Capital proceeds: $240,000
• Cost base: $160,040
• Raw capital gain: $240,000 − $160,040 = $79,960

Step 3: Apply capital losses

• Carried-forward losses: $8,000
• Gain after losses: $79,960 − $8,000 = $71,960

Step 4: Apply the 50% CGT discount

David held the shares for over 12 months (January 2024 → April 2025), so the 50% discount applies:

• Discounted gain: $71,960 × 50% = $35,980

Step 5: Calculate the tax

David's $35,980 discounted gain is added to his $95,000 salary:

Without the capital gain, David's tax on $95,000 would be $19,288.

Extra tax from the capital gain: $30,082 − $19,288 = $10,794

The discount's impact

Without the CGT discount, David's net gain would be $71,960 (after losses, no discount). His taxable income would be $166,960, and the extra tax would be $23,825 — more than double.

The 50% discount saved David $13,031 in tax.

His effective tax rate on the original $79,960 gain is just 13.5% — well below his 30% marginal rate.

Super funds receive a smaller discount (33.33%) but pay a much lower tax rate (15%). Here's how it plays out.

The scenario: An SMSF bought an investment property in 2018 for $450,000. In 2026, it sells the property for $600,000.

Step 1: Calculate the cost base

Step 2: Calculate the capital gain

• Capital proceeds: $600,000
• Cost base: $513,000
• Capital gain: $600,000 − $513,000 = $87,000

Step 3: Apply the 33.33% CGT discount

The SMSF held the property for over 12 months (2018 → 2026), so the 33.33% discount applies:

• Discount amount: $87,000 × 33.33% = $29,000
• Net capital gain: $87,000 − $29,000 = $58,000

Step 4: Calculate the tax

SMSFs pay a flat 15% tax rate on income in accumulation phase:

• Tax on the gain: $58,000 × 15% = $8,700

Without the discount, tax would be $87,000 × 15% = $13,050. The discount saved $4,350.

Note: if the property was supporting a retirement-phase income stream (pension phase) at the time of sale, the tax rate may be 0% — making the gain completely tax-free.

Trusts are one of the most complex areas of CGT, especially when the discount is involved. The trust itself gets the 50% discount, but what happens next depends entirely on who the beneficiaries are.

How it works: the gross-up mechanism

When a trust distributes a discounted capital gain to a beneficiary, the beneficiary doesn't just receive the discounted amount and pay tax on it. Instead:

1. The trust calculates its capital gain and applies the 50% discount
2. The trust distributes the discounted amount to the beneficiary
3. The beneficiary must gross up the received amount (multiply by 2) to determine their "capital gain"
4. The beneficiary then applies their own CGT discount based on their entity type

This gross-up mechanism ensures the right amount of tax is paid regardless of whether the asset was held directly or through a trust.

Entity-specific outcomes

Based on a $100,000 capital gain at the trust level.

For individual beneficiaries, the end result is the same as if they owned the asset directly — the trust structure is tax-neutral.

For company beneficiaries, the trust-level discount is completely negated by the gross-up. The company pays tax on the full original gain. This is a critical trap that catches many people off guard.

The ×4 gross-up multiplier

If the trust also applied the 50% small business active asset reduction (in addition to the 50% CGT discount), the beneficiary's gross-up multiplier becomes ×4 instead of ×2. This is because the gain was reduced by 50% twice (50% × 50% = 25% of the original gain), so the gross-up must undo both reductions.

Trustee resolution deadline

The trustee must formally resolve to distribute capital gains to specific beneficiaries by 30 June of the financial year. If no resolution is made, the capital gain may be assessed to the trustee at the top marginal tax rate (45% plus Medicare levy) under section 99A.

For more detail on trust distribution mechanics, see our Trust CGT Streaming guide and the Trust Distribution Calculator.

Foreign resident CGT discount rules have changed significantly over the past decade. What you're entitled to depends on when you acquired the asset and how long you were an Australian resident during the holding period.

Assets acquired after 8 May 2012

For assets acquired after 8 May 2012, the discount is pro-rated based on the proportion of the holding period you spent as an Australian resident.

The formula:

Effective discount = 50% × (days as Australian resident ÷ total holding period days)

If you were an Australian resident for the entire holding period and then became a foreign resident the day before selling, you'd still get most of the discount. If you were never an Australian resident, you get no discount at all.

Assets acquired before 8 May 2012

For assets acquired before 8 May 2012, the full discount applies regardless of any residency changes. This grandfathering rule protects investors who bought assets before the restriction was introduced.

Main residence exemption removed (1 July 2020)

Since 1 July 2020, foreign residents have also lost access to the main residence exemption. This means a foreign resident who sells their former Australian home must pay CGT on the full gain — even if they lived in the property for years as their main residence before moving overseas.

Worked example: pro-rata discount

Scenario: Sarah bought Australian shares in January 2015 (after 8 May 2012). She was an Australian resident until December 2020 (6 years as resident). She became a foreign resident in January 2021 and sold the shares in December 2025 (total holding period: 11 years).

• Resident proportion: 6 years out of 11 years
• Effective discount: 50% × (6 ÷ 11) = 27.3%

If her capital gain was $100,000:

• Discount amount: $100,000 × 27.3% = $27,300
• Net capital gain: $100,000 − $27,300 = $72,700

Compare this to a full Australian resident who would have a net gain of $50,000 — Sarah pays tax on an extra $22,700 due to her 5 years as a foreign resident.

For full coverage of foreign resident CGT rules, see our Foreign Resident CGT guide and the Foreign Resident CGT Calculator.

If you acquired an asset before 21 September 1999 and have held it for at least 12 months, you have a choice: use the 50% CGT discount or the indexation method. The ATO allows taxpayers to use whichever method gives the smaller capital gain.

How indexation works

The indexation method increases your cost base using CPI (Consumer Price Index) factors to account for inflation. The CPI table was frozen at the September 1999 quarter (CPI value: 68.7), so indexation only compensates for inflation up to that point.

Indexation factor = 68.7 ÷ CPI at the quarter you acquired the asset

The factor is multiplied by your cost base to give an indexed cost base, which is then subtracted from your proceeds.

Example A: Discount wins

Asset bought Q1 1990 for $80,000. CPI for Q1 1990 = 56.2. Sold in 2025 for $250,000.

When the asset has appreciated significantly (more than doubled), the 50% discount almost always beats indexation.

Example B: Indexation wins

Asset bought Q3 1985 for $200,000. CPI for Q3 1985 = 39.7. Sold in 2025 for $260,000.

When the asset was acquired long before 1999 (giving a large CPI uplift) and the percentage gain is modest, indexation can beat the discount — sometimes reducing the gain to zero.

When to consider indexation

Indexation tends to beat the discount when:

• The asset was acquired well before 1999 (larger CPI factor)
• The gain relative to the cost base is modest (e.g. the asset hasn't doubled in value)
• The cost base is large relative to the proceeds

In most real-world cases — especially property that has appreciated significantly since the 1990s — the discount gives a better result.

Companies must use indexation

Companies cannot use the CGT discount under any circumstances. For pre-1999 assets held by companies, the indexation method is the only concession available.

Inherited assets have special rules for the CGT discount that differ from assets you purchased yourself. There are two different dates that matter, and they serve different purposes.

Holding period for the discount

The holding period for discount eligibility starts from the date of death, not the deceased's original acquisition date. This means:

• If you inherit shares that the deceased held for 20 years, your holding period starts from zero at the date of death
• If you sell those shares within 12 months of inheriting them, you would not ordinarily qualify for the discount

The deemed 12-month rule

However, there is an important exception: if the deceased acquired the asset more than 12 months before their death, the beneficiary is automatically deemed to have held it for at least 12 months — regardless of how quickly they sell after inheriting.

In practice, this means most inherited assets qualify for the discount, because the deceased typically held them for well over 12 months.

Cost base rules (brief overview)

• Deceased acquired the asset on or after 20 September 1985: the beneficiary inherits the deceased's cost base
• Deceased acquired the asset before 20 September 1985 (pre-CGT): the beneficiary's cost base is the market value at the date of death

Death is not a CGT event

An important point: death itself does not trigger CGT. There is an automatic rollover to the beneficiary (or the deceased estate). CGT is only triggered when the beneficiary eventually disposes of the asset.

Indexation for inherited assets

If the deceased acquired the asset before 21 September 1999, the beneficiary may be able to use the indexation method. For indexation eligibility, the relevant date is the deceased's original acquisition date (not the date of death).

For the full rules on inherited assets, see our CGT on Inherited Property guide.

If you're a small business owner, the CGT discount is just one piece of a larger concession stack. The concessions apply in a specific order (a "waterfall"), and the CGT discount sits early in the sequence.

The concession waterfall

The statutory order is:

1. 15-year exemption — if you've owned the active business asset for 15+ continuous years and you're 55+ or permanently incapacitated, the entire gain is exempt. If this applies, stop here.
2. 50% CGT discount — the standard discount for assets held 12+ months (this article's topic)
3. 50% active asset reduction — reduces the remaining gain by a further 50%
4. Retirement exemption — up to $500,000 lifetime cap, must be contributed to super if under 55
5. Small business rollover — defer the remaining gain by acquiring a replacement active asset

The 75% compounding reduction

Because the CGT discount (step 2) is applied before the active asset reduction (step 3), they compound:

• Start with a $400,000 capital gain
• After 50% CGT discount: $200,000
• After 50% active asset reduction: $100,000
• Total reduction: 75% — you only pay tax on $100,000 of the original $400,000 gain

Add the retirement exemption, and the first $500,000 (lifetime cap) can be completely exempt.

Eligibility basics

To access the small business concessions, you must meet basic eligibility:

• Aggregated turnover under $2 million, or net CGT assets under $6 million
• The asset must be an active asset (used in the business)

For full details and to model your concessions, see our Small Business CGT Concessions guide and the Small Business CGT Calculator.

These are the mistakes that cost investors the most money or trigger ATO scrutiny:

• Applying the discount before losses — the ATO requires capital losses to be subtracted from the full gain before the discount is applied. Applying them in the wrong order understates your net capital gain and can lead to reassessment with penalties.

• Selling 1 day too early — the discount requires the asset to be held for at least 12 months. The count starts from the day after acquisition. Missing the threshold by even one day means paying tax on the full gain instead of the discounted amount. On a $60,000 gain, this can cost over $10,000.

• Assuming companies get the discount — companies are permanently excluded from the CGT discount. If you hold investments through a company, you pay tax on the full capital gain at the corporate rate. No exceptions.

• The trust-to-company trap — distributing discounted capital gains from a trust to a company beneficiary results in the company paying tax on the full original gain after gross-up. The trust-level discount is completely negated. See the trusts section for details.

• Ignoring the indexation alternative — for assets acquired before 21 September 1999, the indexation method sometimes gives a better result than the discount — especially for assets with modest percentage gains. Our calculator compares both methods automatically.

• Foreign resident discount assumption — investors who move overseas may not realise their discount is reduced or eliminated for assets acquired after 8 May 2012. Planning the timing of asset disposals around residency changes can save significant tax.

• Not claiming the SMSF discount — some SMSF trustees and administrators overlook the 33.33% discount for complying super funds. On a $200,000 gain, this oversight costs $10,000 in unnecessary tax (at the 15% super fund rate).

• Inherited asset timing — selling an inherited asset within 12 months of the date of death without checking whether the deemed 12-month rule applies. In most cases, the deceased's holding period satisfies the requirement, and the discount is available immediately.

• Offsetting losses against the wrong gains — when you have both discountable and non-discountable gains in the same year, applying losses to the discountable gains first wastes their value. Offset non-discountable gains first for the best outcome.