You bought some shares a few years ago, or maybe an investment unit that has done well, and now you are thinking about selling. Before you do, it pays to understand how capital gains tax works — because the timing and the records you keep can make a real difference to what you owe. The good news is that CGT is not as mysterious as it sounds once you break it into its parts.
CGT is part of your income tax, not a separate bill
One of the most common misunderstandings is that capital gains tax is a tax of its own. It is not. A capital gain is simply added to your assessable income for the year and taxed at your marginal rate, alongside your salary, business profit or rental income.
That matters because Australia uses tiered rates. For 2025–26 the individual rates are nil up to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000, and 45% above that, plus the 2% Medicare levy for most people. A large gain can push part of your income into a higher band, so the year you choose to sell can change your overall result.
What actually triggers a capital gain
CGT is triggered by what the law calls a "CGT event". For most investors this means disposing of an asset such as listed shares, managed fund units or an investment property. Selling is the obvious example, but a CGT event can also happen when you:
- Give an asset away or transfer it to someone else
- Swap one asset for another
- Lose an asset, or have it destroyed, and receive a payout
Simply holding an asset does not trigger CGT. The gain or loss only crystallises when the event happens — which is usually the date of the contract, not the date the money lands in your account.
Working out your cost base
Your capital gain is broadly the proceeds you receive less your "cost base" — and the cost base is more than just the purchase price. It can also include the incidental costs of buying and selling and certain costs of owning the asset. For an investor that often means:
- What you originally paid for the shares or property
- Brokerage, stamp duty, conveyancing and legal fees
- Capital improvements (for property, a renovation rather than a repair)
- Some ownership costs where you have not already claimed a deduction for them
Getting the cost base right is where many investors either overpay or expose themselves to errors. A renovation that adds to a property's value, for example, generally lifts the cost base and reduces the eventual gain — but only if you have kept the paperwork.
The 50% discount for assets held over 12 months
Here is the rule worth planning around. If you are an individual and you have held an asset for more than 12 months before the CGT event, you are generally entitled to a 50% CGT discount, meaning only half of the gain is included in your income.
Sell a parcel of shares 11 months after buying and the full gain is taxed; hold it past the 12-month mark and generally only half is. That single threshold is one of the strongest arguments for a patient, long-term approach to investing. The discount applies to the gain after any capital losses are applied, and it works the same way for shares and for property held in your own name.
Using capital losses
Investments do not always go up, and the tax system recognises that. A capital loss can be offset against capital gains in the same year, and if your losses exceed your gains the unused amount can generally be carried forward to future years until you have a gain to apply it against.
Two points catch people out. First, a capital loss can only reduce a capital gain — it cannot be used against your salary, rent or business income. Second, you generally apply losses to your gains before working out the 50% discount, which usually gives a better result. This is why some investors review their holdings before 30 June, though any decision should be driven by the investment merits, not the tax alone.
A quick word on the main residence
Property raises a frequent question: what about the family home? The main residence exemption generally means the home you live in is exempt from CGT, in full or in part. The rules have conditions — they can be affected by renting the property out, using part of it to run a business, or owning it through certain structures — so the exemption is rarely as simple as "the home is always tax-free". If your property has been anything other than your straightforward main residence, it is worth checking the position before you sell.
Records are everything
None of the above helps if you cannot prove your numbers. For every investment, keep:
- The date and full cost when you bought, including fees
- The date and proceeds when you sold
- Any costs that improved the asset along the way
- Dividend reinvestment and corporate action details for shares
Without these records you cannot substantiate your cost base, and you may end up paying more than you needed to. Good records also make your tax return faster and less stressful.
If you are weighing up a sale and want to understand the tax before you act, we can model the likely outcome and help you plan the timing. Book a chat at nebulaaccounting.au or call 0433 822 227.
This article is general information only and does not take account of your personal circumstances — it is not personal tax, financial or legal advice. Tax laws change and apply differently to different people. Nebula Accounting Pty Ltd is a registered tax agent (No. 26259377); please speak with us or check with the ATO before acting.