Capital gains tax (CGT) is essential for Australian investors, property owners, and business operators. Whether you’re selling shares, real estate, or other assets, understanding how CGT works can legally help you reduce your tax liability.
This article explains how CGT is calculated, which assets are subject to tax, and the most effective strategies for reducing or eliminating your CGT obligations under Australian law.
Let’s Get Straight to the Point
Here’s a quick summary of what you need to know about capital gains tax in Australia:
- CGT applies when you sell an asset at a profit, including real estate, shares, and business assets.
- CGT is not a separate tax but is included in your income tax assessment.
- Holding an asset for over 12 months qualifies for a 50% CGT discount (for individuals and trusts, not companies).
- Exemptions apply to your main residence, depreciating assets, and certain small business assets.
- Superannuation funds are taxed at a lower rate (15%), making them tax-efficient investments.
- Strategies like tax-loss harvesting, reinvesting profits, and using a self-managed super fund (SMSF) can help minimise CGT.
- The Australian Taxation Office (ATO) provides special rules for inherited assets, small business owners, and rental property sales.
Let’s look at how capital gains tax works and how to reduce it effectively.
What Is Capital Gains Tax?
1. How CGT Works in Australia
Capital gains tax applies when you sell an asset for more than its purchase price. The taxable amount is calculated as follows:
Capital Gain = Selling Price - Purchase Price - Eligible Deductions
Unlike some other countries, Australia does not have a separate CGT rate. Instead, capital gains are added to your taxable income for the financial year you sell the asset. The amount of tax you pay depends on your marginal income tax rate.
2. Short-Term vs Long-Term Capital Gains
- Assets held for 12 months or less: Gains are taxed at your full marginal tax rate (up to 45% for high-income earners).
- Assets held for more than 12 months: Individuals and trusts receive a 50% discount on the capital gain, effectively reducing their tax liability. Companies do not receive this discount.
Which Assets Are Subject to CGT?
1. Taxable Assets
When sold, most assets that appreciate in value are subject to capital gains tax (CGT). These include:
- Real Estate – Investment properties, holiday homes, and commercial properties attract CGT. Costs like stamp duty, agent fees, and renovations can reduce taxable gains.
- Shares and Managed Funds – Profits from selling shares or ETFs are taxed, but holding for 12+ months qualifies for the 50% CGT discount.
- Cryptocurrency – Selling, trading, or converting digital assets incurs CGT. Crypto over 12 months qualifies for the CGT discount, but frequent trading may be taxed as income.
- Business Goodwill & Intellectual Property – Selling business assets, trademarks, or patents triggers CGT, but small business concessions may reduce tax.
- Collectibles Over $500 – Art, antiques, jewellery, and rare coins are taxable unless valued under $500.
2. CGT-Exempt Assets
Certain assets are exempt from CGT, meaning no tax applies when sold:
- Your Primary Residence – The main residence exemption applies unless the property was rented or used for business.
- Personal Assets Under $10,000 – Household goods, electronics, and furniture are CGT-free unless bought as an investment.
- Superannuation Withdrawals – Funds inside super grow tax-free, and withdrawals are CGT-exempt after retirement age.
- Assets Bought Before 20 September 1985 – Older assets are fully CGT-free unless major improvements were made after this date.
Understanding which assets attract CGT and how exemptions apply helps investors manage tax liabilities effectively.
How to Reduce Your Capital Gains Tax
1. Hold Your Asset for at Least 12 Months
The simplest way to reduce your CGT is to hold assets for over a year before selling them. This allows individuals and trusts to claim the 50% CGT discount, significantly reducing the taxable gain.
2. Use Tax-Loss Harvesting
If you have capital losses from previous investments, you can use them to offset current capital gains. This strategy, known as tax-loss harvesting, allows you to reduce the total taxable amount and lower your tax bill.
For example:
- Capital Gain: $10,000
- Capital Loss: $3,000
- Taxable Capital Gain: $7,000
3. Take Advantage of the Main Residence Exemption
If you sell your primary residence, no CGT is usually payable. However, a partial CGT exemption may apply if you rent out part of your home or use it for business purposes.
4. Small Business CGT Concessions
Small business owners may qualify for generous CGT exemptions and discounts, including:
- 15-Year Exemption: No CGT if you’ve owned the business for at least 15 years and are retiring or over 55.
- 50% Active Asset Reduction: Another 50% reduction for assets used in business.
- Retirement Exemption: Up to $500,000 in capital gains is tax-free if you use the proceeds for retirement.
5. Use a 1031 Exchange for Property (Roll-Over Relief)
Australian property investors can defer CGT by using roll-over relief, which allows you to reinvest the proceeds from a sold asset into another similar investment without triggering an immediate tax liability.
6. Invest Through Superannuation
Superannuation funds pay only 15% tax on capital gains and 10% on assets held for over a year. This makes superannuation an excellent tax-efficient investment vehicle for Australians planning for retirement.
7. Inherited Assets and Step-Up Cost Base
If you inherit an asset, CGT is only payable when you sell it. The cost base is "stepped up" to its market value at the time of inheritance, reducing the taxable gain.
8. Donate Shares or Property to Charity
Donating assets to a registered charity eliminates CGT and qualifies for a tax deduction on the market value of the donation.
9. Be Strategic About Asset Sales
If you have significant gains in one year, consider spreading sales across multiple financial years to stay in a lower tax bracket and reduce your overall CGT liability.
Special Considerations for 2025
1. CGT on Cryptocurrency in Australia
The ATO treats cryptocurrency as an asset, meaning any profits from selling, trading, or converting digital currencies are subject to CGT. If you have held crypto for over 12 months, you may qualify for the 50% CGT discount, reducing taxable gains.
Since 2025, the ATO has increased surveillance of crypto transactions through agreements with Australian and international exchanges. To avoid compliance issues, investors must keep detailed records of transactions, including purchase dates, amounts, and exchange details.
2. Changes to CGT Rules for Expats
Starting 1 January 2025, Australian expats selling property may face higher CGT obligations. Expats cannot claim the main residence exemption unless they are Australian tax residents at the time of sale.
This means expats selling a former home may pay CGT on the full gain, even if they lived there previously. Expats should consider returning to Australia before selling or seeking tax advice on alternative strategies to minimise tax.
3. ATO Crackdown on CGT Non-Compliance
The ATO is expanding its data-matching program in 2025 to detect undeclared capital gains from:
- Cryptocurrency transactions across exchanges.
- Share sales and dividend reinvestments.
- Property sales falsely claimed as a main residence.
With AI-driven audits and increased enforcement, investors must accurately report CGT or risk penalties, interest charges, or legal action. Keeping detailed transaction records and consulting a tax professional ensures compliance and minimises tax liability.
Conclusion
Capital gains tax is a reality for Australian investors, but you can legally reduce your tax liability with the right strategies. Understanding the latest tax rules and exemptions will help you keep more of your profits, whether you're selling property, shares, or a business.
By holding assets for over a year, using tax-efficient investment vehicles, and offsetting gains with losses, you can take control of your capital gains tax obligations in 2025 and beyond.
If you’re unsure how CGT applies to your situation, it’s always worth speaking with a tax professional to ensure you maximise your savings and meet ATO requirements.
Capital gains tax is added to your taxable income and taxed at your marginal tax rate, which can be up to 45% for high-income earners. If you hold the asset for over 12 months, you may qualify for a 50% CGT discount, reducing the taxable amount.
CGT is assessed in the same financial year you sell the asset and must be reported in your tax return. If you sell an asset just before 30 June, the tax is due sooner than if you sell after 1 July, so timing matters for managing your tax bill.
The easiest and most cost-effective method is to hold your asset for over 12 months to qualify for the 50% CGT discount. However, you can also offset gains with capital losses, invest through superannuation for lower tax rates, or donate assets to a charity to eliminate CGT.
Inherited properties are subject to CGT only when sold, but the cost base is adjusted to the market value at the time of inheritance, reducing the taxable gain. If the deceased lived in the property as their main residence, a CGT exemption may apply if you sell it within two years.