Calculation Methodology

Overview

This page explains every step of the calculation pipeline used by the Capital Gains Tax Calculator Australia. All computations run entirely in your browser using JavaScript — no data is transmitted to any server.

The engine follows the ATO's prescribed ordering for capital gains tax: exemptions are checked first, then cost base is computed, losses are applied, and finally the CGT discount or CPI indexation is selected — whichever produces the smaller net capital gain. This ordering is critical because applying losses before the discount (as the ATO requires) produces a materially different result than the reverse.

The 10-Step Calculation Pipeline

Every CGT estimate passes through the following deterministic pipeline. Each step generates a trace explanation so users can audit exactly how the result was derived.

1. 0
   Classify CGT event — Identify the CGT event type (A1, B1, C2, D1–D4, E1, H2, K4, K7) and confirm the asset was acquired after 20 September 1985.
2. 1
   Check exemptions — Short-circuit on pre-CGT assets, personal use assets (cost ≤ $10,000), collectables (cost ≤ $500), or full main residence exemption.
3. 2
   Calculate capital proceeds — Determine the sale price or market value substitution amount. If proceeds are less than market value and the disposal is not at arm’s length, market value is substituted.
4. 3
   Calculate cost base — Sum the 5 cost base elements, compute the reduced cost base (excluding Element 3), and calculate the indexed cost base if eligible.
5. 4
   Resolve parcels — For assets with multiple acquisition parcels (shares, crypto), resolve which parcels are being disposed using the selected method.
6. 5
   Calculate raw gain or loss — Subtract cost base from proceeds. If the result is positive, it is a capital gain. If proceeds are less than reduced cost base, it is a capital loss.
7. 6
   Apply main residence partial exemption — For partially exempt main residences, reduce the gain by the exempt proportion (main residence days ÷ total ownership days).
8. 7
   Apply capital losses — Offset current-year capital losses first, then carried-forward losses. Losses are applied BEFORE the CGT discount.
9. 8
   Compare discount vs indexation — If both methods are available, compare the net gain under each and select the method that produces the smallest taxable amount.
10. 9
    Apply small business concessions — If eligible, apply the 4 small business CGT concessions in statutory order.
11. 10
    Calculate tax impact — Add the net capital gain to assessable income and compute the marginal tax, Medicare levy, and effective CGT rate.

Exemptions and Disregards

Exemptions are checked early in the pipeline (Step 1). If an asset qualifies for a full exemption, the remaining steps are skipped entirely.

Pre-CGT Assets

Assets acquired before 20 September 1985 are fully exempt from CGT. However, inherited pre-CGT assets are not exempt for the beneficiary — the beneficiary's cost base is set to the market value of the asset at the date of the deceased's death.

Personal Use Assets

If a personal use asset was acquired for $10,000 or less, any capital gain is disregarded. Capital losses on personal use assets are always disregarded — they cannot offset gains on other assets.

Collectables

Collectables (artwork, jewellery, rare coins, antiques) acquired for $500 or less are exempt. Capital losses on collectables are quarantined and can only be offset against capital gains on other collectables.

Main Residence Exemption

A property that has been your main residence for the entire ownership period is fully exempt from CGT. Partial exemptions apply when the property was used to produce income for part of the ownership period. The 6-year absence rule allows continued exemption treatment for up to 6 years while the property is rented out, provided no other property is nominated as a main residence during that period.

Cost Base — The 5 Elements

The cost base determines how much of your capital proceeds represent a taxable gain. The ATO defines five elements:

Element 3 restriction: Ownership costs can only be included if the asset was acquired after 20 August 1991, and the asset is not a collectable or personal use asset.

Reduced cost base: Used to determine capital losses. It excludes Element 3 (ownership costs) entirely.

Inherited assets: For assets inherited from a deceased estate, the beneficiary's cost base is generally the market value of the asset at the date of the deceased's death.

Parcel Resolution

When you own multiple parcels of the same asset (e.g. shares purchased at different times), each parcel has its own acquisition date, cost base, and discount eligibility. When you sell, the calculator needs to determine which parcels are being disposed of.

The calculator supports five parcel selection methods:

• FIFO (First In, First Out) — sells the oldest parcels first
• LIFO (Last In, First Out) — sells the newest parcels first
• Specific identification — you choose exactly which parcels to sell
• Minimise gain — the engine selects parcels that produce the smallest total capital gain
• Maximise loss — the engine selects parcels that produce the largest capital loss (useful for tax-loss harvesting)

Loss Ordering

The correct loss ordering is:

1. Apply current-year capital losses against current-year gains (mandatory — you cannot defer current-year losses)
2. Apply carried-forward losses from previous years
3. Then apply the 50% CGT discount or indexation to the remaining net gain

Quarantined Losses

Capital losses on collectables are quarantined and can only offset gains on other collectables. Capital losses on personal use assets are always disregarded entirely. General capital losses cannot be deducted from salary, wages, or other ordinary income — they can only offset capital gains. Unused losses carry forward indefinitely with no time limit.

CGT Discount vs Indexation

CGT Discount

The CGT discount is available when the asset has been held for at least 12 months (measured from the day after acquisition to the disposal date). Companies are not eligible. The discount rates are:

CPI Indexation

Indexation is available for assets acquired before 21 September 1999 and held for at least 12 months. The cost base is inflated using Consumer Price Index (CPI) figures, with the CPI frozen at the September 1999 quarter value of 68.7.

Element 3 (ownership costs) cannot be indexed. Only Elements 1, 2, 4, and 5 are eligible for indexation.

Method Selection

When both methods are available (assets acquired before 21 September 1999, held 12+ months, by an individual or trust), the calculator compares the net gain under each method and automatically selects whichever produces the smallest net capital gain. Companies must use indexation if eligible (they have no access to the discount).

Foreign Resident Pro-Rata Discount

Foreign and temporary residents receive a pro-rata discount based on the number of days they were Australian residents during the holding period, per section 115-115 of the ITAA 1997.

Entity-Type Differences

The tax treatment of capital gains varies significantly by entity type:

For companies, the base rate entity tax rate is 25% (aggregated turnover under $50 million and no more than 80% of assessable income is passive). Otherwise the 30% rate applies.

Foreign Resident Rules

Taxable Australian Property (TAP)

Foreign residents pay CGT only on taxable Australian property. This primarily includes Australian real property (land and buildings), business assets connected with Australia, and indirect interests in entities where more than 50% of value is attributable to Australian real property.

Main Residence Exemption Denial

Since 1 July 2020, foreign residents cannot claim the main residence exemption — even if the property was their home when they were an Australian resident. This applies regardless of when the property was acquired.

Foreign Resident Capital Gains Withholding (FRCGW)

From 1 January 2025, a 15% withholding applies to all Australian property sales by foreign residents with no price threshold. Previously, the rate was 12.5% and only applied to properties valued above $750,000. The withholding is collected at settlement and credited against the vendor's CGT liability.

Pro-Rata Discount

Foreign residents receive a pro-rata discount based on the proportion of the holding period they were Australian residents. This is calculated per section 115-115 of the ITAA 1997.

Small Business CGT Concessions

Eligibility

To access the small business CGT concessions, you must satisfy at least one of:

• Aggregated turnover less than $2 million, OR
• Maximum net asset value (MNAV) of CGT assets less than $6 million

The asset must also be an active asset (used in the course of carrying on a business) at the time of the CGT event.

The 4 Concessions (Statutory Order)

The concessions are applied in a fixed statutory order after losses and discount/indexation have been applied:

1. 15-year exemption — the entire gain is disregarded if the asset was continuously owned for at least 15 years and the taxpayer is retiring (age 55+) or permanently incapacitated.
2. 50% active asset reduction — reduces the remaining capital gain by a further 50%.
3. Retirement exemption — up to $500,000 (lifetime cap) of the remaining gain is exempt. If under 55, the exempt amount must be contributed to a complying super fund.
4. Rollover — the remaining gain can be deferred if a replacement active asset is acquired within 2 years (or 4 years for manufacturing assets).

The CGT cap amount for the 2025-26 financial year is $1,865,000.

Trust Distribution Streaming

Under Subdivision 115-C of the ITAA 1997, a trust can stream capital gains to specific beneficiaries. The calculator models this process including the required gross-up of gains at the beneficiary level.

Gross-Up Multipliers

The gross-up factor depends on which reductions have been applied at the trust level:

Beneficiary-Level Treatment

After grossing up, each beneficiary applies their own losses and discount rate based on their entity type. Company beneficiaries receive no discount and are assessed on the full grossed-up amount. Non-resident beneficiaries are treated conservatively with a 0% discount (pro-rata may apply).

Division 6AA — Minor Beneficiaries

If a beneficiary is under 18, the trust distribution may be subject to penalty tax rates under Division 6AA. Unearned income above $416 is taxed at 66% (up to $1,307) and 45% thereafter. The calculator generates a warning when it detects a minor beneficiary.

Tax Impact Calculation

The net capital gain is added to your assessable income and taxed at your marginal rate. There is no separate CGT tax rate — CGT is part of your income tax.

2025-26 Tax Brackets (Resident Individuals)

Medicare Levy

The Medicare levy is 2% of taxable income for resident individuals. A phase-in applies for low-income earners: individuals with taxable income below $27,222 pay no levy, and the levy is phased in at 10% of the excess above this threshold until the full 2% rate applies.

Low Income Tax Offset (LITO)

The LITO provides a maximum offset of $700 for individuals with taxable income of $37,500 or less. The offset is reduced by 5 cents for each dollar of income above $37,500 and phases out entirely at $66,667.

Limitations

• This calculator provides general information only — it does not constitute financial, tax, or legal advice.
• The Medicare levy calculation is simplified — it does not model family income thresholds or the Medicare levy surcharge.
• Tax rates and thresholds are static for the selected financial year and do not account for mid-year legislative changes.
• The calculator does not model interactions between multiple concurrent CGT events in a single financial year.
• All processing is client-side only — results are not verified against ATO systems.
• Consider seeking advice from a registered tax agent for complex situations.

Data Sources

All calculations are based on publicly available ATO rates, thresholds, and guidance. Key references include:

• ATO Guide to Capital Gains Tax
• Individual Income Tax Rates
• CGT Discount
• Cost Base of Assets
• Small Business CGT Concessions
• Foreign Residents and CGT
• CGT and Trusts
• Indexation of Cost Base