What is Capital Gains Tax in Australia?

Capital gains tax (CGT) is the tax you pay on the profit when you sell or dispose of an asset in Australia. Despite the name, CGT is not a separate tax — it's part of your income tax. Your capital gain is added to your assessable income for the financial year, and you pay tax on it at your marginal tax rate.

CGT was introduced on 20 September 1985. This date is the dividing line for all CGT calculations:

• Assets acquired before 20 September 1985 are completely CGT-free (known as "pre-CGT assets")
• Assets acquired on or after this date are subject to CGT when you dispose of them

In simple terms: if you sell something for more than it cost you, the difference is your capital gain, and the ATO wants its share.

CGT is triggered by a CGT event — a specific transaction or occurrence involving your asset. The most common is selling, but there are over 50 different CGT events defined in Australian tax law.

The most common CGT events you'll encounter:

Important: A CGT event doesn't always mean you owe tax. You might have a capital loss (if you sold for less than your cost base), or an exemption might apply (like the main residence exemption).

Not everything you own is a CGT asset. Understanding what's covered — and what's not — can save you from unexpected tax bills or unnecessary worry.

A few things to watch out for:

• Crypto-to-crypto swaps are CGT events — exchanging Bitcoin for Ethereum triggers CGT just like selling for cash
• Collectables (art, wine, jewellery) have special rules: you can only offset collectable losses against collectable gains, not other capital gains
• Your home is generally CGT-free, but this changes if you've used it to produce income (e.g. renting it out or running a home business) — see our Main Residence Exemption guide

The basic CGT formula is straightforward:

Capital gain = Capital proceeds − Cost base

Here's the step-by-step process:

1. Work out your capital proceeds — the money (or market value) you received from disposing of the asset
2. Calculate your cost base — what you paid for the asset, plus associated costs (see the 5 elements below)
3. Subtract the cost base from the proceeds to get your capital gain (or loss)
4. Apply any capital losses — offset current or carried-forward losses against the gain
5. Apply the CGT discount — if you held the asset for 12+ months, you may reduce the gain by 50% (individuals) or 33.33% (super funds)

The result is your net capital gain, which is added to your other income on your tax return.

Use our CGT calculator to run through these steps automatically with your own numbers.

Your cost base is more than just the purchase price. The ATO defines 5 elements that make up your cost base — including them all can significantly reduce your capital gain:

1. Money paid for the asset — the purchase price or acquisition cost
2. Incidental costs of acquisition — stamp duty, legal/conveyancing fees, brokerage, valuation fees, search fees
3. Non-deductible ownership costs — costs you incurred that aren't deductible elsewhere (e.g. interest on a loan for a vacant block of land, but not interest on an investment property loan that you've already claimed as a deduction)
4. Capital expenditure to increase or preserve value — renovations, structural improvements, capital additions (e.g. a new kitchen, extension, or deck)
5. Costs of disposing — agent/broker commissions, advertising, legal fees on the sale, auctioneer fees

The key rule: if a cost has already been claimed as a tax deduction (like depreciation or investment property interest), you cannot also include it in your cost base. No double-dipping.

The CGT discount is one of the most valuable concessions in Australian tax law. If you hold a CGT asset for at least 12 months before disposing of it, you can reduce your capital gain before adding it to your income.

The discount rate depends on who you are:

The 12-month rule is precise: the holding period is measured from the day after you acquired the asset to the day you disposed of it. If you bought shares on 1 March 2024, the earliest you can sell with the discount is 2 March 2025.

Read our detailed CGT Discount guide for more on how the discount interacts with losses, trusts, and foreign residents.

Your net capital gain is added to your assessable income and taxed at your marginal tax rate. There is no separate "CGT rate" in Australia — the tax you pay depends entirely on your total taxable income.

Here are the individual income tax rates for FY2025–26:

Plus the 2% Medicare levy on all taxable income above $26,000.

This is why CGT is so dependent on individual circumstances. Someone earning $40,000 with a $50,000 capital gain will pay significantly less tax than someone earning $180,000 with the same gain — because the gain pushes them into different tax brackets.

You report CGT in the Capital gains section of your tax return (Schedule 3 for individuals). The ATO receives data from share registries and property settlement records, so they already know about most of your disposals.

Several exemptions and concessions can reduce or eliminate your CGT liability. The main ones to know about:

• Main residence exemption — your home is generally CGT-free when you sell it, provided you've lived in it as your main residence and not used it to produce income. This is the most common CGT exemption in Australia. → Main Residence Exemption guide | MRE Calculator

• 6-year absence rule — if you move out of your home, you can continue to treat it as your main residence for up to 6 years while it's rented out (provided you don't claim another property as your main residence during that time)

• Small business CGT concessions — if you're a small business owner (aggregated turnover under $2 million or net assets under $6 million), you may qualify for up to 4 concessions: 15-year exemption, 50% active asset reduction, retirement exemption, and rollover relief. → Small Business CGT Calculator

• Personal use assets under $10,000 — items you bought for personal enjoyment (not investment) and that cost less than $10,000 are CGT-free. This covers furniture, appliances, boats under $10k, etc.

• Pre-CGT assets — anything acquired before 20 September 1985 is completely exempt from CGT, regardless of how much profit you make on the sale

Let's walk through a complete, realistic example to see how all the pieces fit together.

The scenario: Sarah bought an investment property in Sydney in March 2018 for $500,000. She has a salary of $90,000. In October 2025, she sells the property for $780,000.

Step 1: Calculate the cost base

Note: Sarah claimed interest on her investment loan as a tax deduction each year, so loan interest is NOT included in the cost base.

Step 2: Calculate the capital gain

• Capital proceeds: $780,000
• Cost base: $564,500
• Capital gain: $780,000 − $564,500 = $215,500

Step 3: Apply the CGT discount

Sarah held the property for over 12 months (March 2018 → October 2025 = 7.5 years), so the 50% discount applies:

• Discounted capital gain: $215,500 × 50% = $107,750

Step 4: Calculate the tax

Sarah's $107,750 discounted gain is added to her $90,000 salary:

Without the capital gain, Sarah's tax on $90,000 would be $17,788.

Extra tax from the capital gain: $55,126 − $17,788 = $37,338

That's an effective tax rate of 17.3% on the original $215,500 gain — well below the top marginal rate, thanks to the 50% discount and marginal rate structure.

These are the mistakes the ATO sees most often — and the ones most likely to cost you money or trigger a review:

• Forgetting to include all cost base elements — stamp duty, legal fees, and selling costs all reduce your gain. On a property sale, this can be worth $20,000–$50,000 in cost base additions that many people miss

• Applying the 50% discount before deducting losses — the correct order is: (1) calculate gains, (2) subtract losses, (3) then apply the discount. Getting this backwards means you lose the benefit of your losses

• Not realising crypto swaps trigger CGT — exchanging one cryptocurrency for another is a disposal event. The ATO receives data from Australian exchanges and uses data-matching to identify unreported crypto gains

• Claiming the main residence exemption incorrectly — if you rented out your home or used part of it for business, you may only get a partial exemption. The "first used to produce income" date matters

• Missing the 12-month holding period by a day — the discount requires the asset to be held for at least 12 months. The count starts from the day after acquisition, not the acquisition date itself

• Forgetting to report small share sales — even small gains are assessable. The ATO receives data from share registries and CHESS, so they know about your trades

• Not keeping records — the ATO requires you to keep CGT records for 5 years after you lodge the return that includes the capital gain or loss. For some assets (like property), this can mean keeping records for decades. Keep purchase contracts, receipts for improvements, brokerage confirmations, and settlement statements