Capital Gains Tax Explained: A Beginner's Guide

When you sell an asset for more than you paid, the profit can be taxable. Here is how capital gains tax works in Australia, in plain language.

Plantrino Guides · Updated 2026 · About a 9-minute read

Capital gains tax, or CGT, has a reputation for being complicated. The mechanics behind it, though, are quite logical once laid out clearly. This guide explains what a capital gain is, how it is calculated in Australia, the 12-month discount that matters enormously, and the traps that catch first-time sellers of shares and property.

What a Capital Gain Is

A capital gain is the profit you make when you sell an asset for more than it cost you. The asset might be shares, an investment property, cryptocurrency, or another item of value. If you sell for less than you paid, you instead have a capital loss.

The important word is sell. A gain is generally only counted when you actually dispose of the asset — this is called "realising" the gain. An investment that has risen in value but which you still hold has an unrealised gain, and is generally not taxed until you sell. This single fact is the foundation of most CGT planning: you usually choose the year a gain lands in, because you choose when to sell.

How a Capital Gain Is Calculated

At its simplest, the gain is the difference between what you received and what the asset cost you:

The cost base is more than just the original purchase price. It typically also includes certain associated costs — for example, buying and selling expenses such as brokerage or conveyancing, and some costs of owning or improving the asset. A larger cost base means a smaller taxable gain, so keeping good records of these costs genuinely matters.

CGT Is Part of Your Income Tax

Here is a point that surprises many people: in Australia, there is no separate CGT rate. Your net capital gain is added to your taxable income for the year and taxed at your ordinary marginal tax rate.

This means the tax on a gain depends on your other income. The same gain can be taxed more lightly in a low-income year and more heavily in a high-income year, because it may sit in a different tax bracket. CGT, in this sense, is less a distinct tax and more a rule about which profits count as income — and it is why a big gain in a high-salary year can hurt more than the same gain taken after retirement.

The 12-Month Discount

Australia rewards patience. Under the ATO's CGT discount, Australian resident individuals who hold an eligible asset for at least 12 months before the CGT event generally pay tax on only half of the gain — a 50% discount. Hold for 11 months and the full gain is taxable; hold past the 12-month line and half of it disappears from your taxable income. (The day you bought and the day you sold are excluded when counting the 12 months, so selling exactly on the anniversary is cutting it fine.)

The discount applies to individuals; other structures are treated differently, and rules can change — confirm your own situation with the ATO or an accountant before acting on it.

A Worked Example

Say you bought shares for 10,000 with 50 of brokerage, and sold them two years later for 16,050 with another 50 of brokerage on the way out.

Because you held the shares for more than 12 months, the 50% discount applies: only 2,975 is added to your taxable income. The tax is then whatever your marginal rate makes of that 2,975 — for most people, well under a third of it, which works out to a small fraction of the whole 5,950 profit. Sell the same shares at 11 months instead, and the full 5,950 is added to your income: the discount alone can change the bill by more than the brokerage, the accountant, and the paperwork combined.

Capital Losses

Losses are part of the picture too. If you sell some assets at a gain and others at a loss, the losses offset the gains, so you are taxed on the net result — and losses are applied before the 12-month discount, which works in your favour. If losses exceed gains in a year, the excess carries forward to reduce gains in future years; it does not expire, but it also cannot be used against your salary or other ordinary income.

This is why CGT is calculated across your whole year of disposals, not asset by asset in isolation — and why people review their portfolios before 30 June.

Timing and the End of the Financial Year

Because the gain lands in the year the CGT event happens, the weeks around 30 June are when timing decisions bite. Selling in late June puts the gain in this year's return; selling in early July pushes it into next year's. For property, be aware that the relevant date is generally tied to the contract, not the settlement — a detail worth confirming before signing anything close to year-end.

None of this is a reason to let tax wag the investment dog. A weak asset held purely to reach a discount date can lose more in price than the discount saves. The discount is a tiebreaker, not a strategy.

Common CGT Mistakes

Forgetting the purchase records. Years later, nobody remembers the brokerage, stamp duty, or renovation invoices — and every lost record shrinks the cost base and inflates the taxable gain. Keep a folder per asset from day one.

Selling at 11 months. A few weeks of impatience can double the taxable portion of the gain.

Assuming crypto is invisible. Cryptocurrency is generally treated as a CGT asset in Australia, and exchanges report data. Swapping one coin for another can itself be a disposal.

Ignoring CGT when averaging a windfall. A large one-off gain stacks on top of your salary in a single year. Spreading disposals across two financial years, where it makes investment sense, can keep parts of the gain in lower brackets.

Frequently Asked Questions

Capital gains tax comes down to a clear chain: a gain is sale price minus cost base, it is counted when realised, it is added to your income rather than taxed separately, and holding an eligible asset past 12 months can halve the taxable portion. Get the records right, watch the calendar, and the rest is arithmetic the calculator can do for you.