Capital Gains Tax: Understanding How It Works

What is Capital Gains Tax (CGT)?

CGT is the tax you pay on profits from selling or disposing of "assets", including investments like property, shares, and crypto-assets.

When you sell an asset for more than you paid for it, you have made a capital gain. This gain is subject to CGT, which is calculated as a percentage of the profit. The tax rate varies depending on your taxable income and the type of asset you sold.

CGT Discount for Individuals

Australian individuals who have owned an asset for 12 months or more are eligible for a 50% CGT discount. This means that only 50% of the capital gain is taxable.

CGT Rates

Capital gains are taxed at the same rate as your taxable income. For example, if you earn $40,000 per year and make a capital gain of $60,000, your capital gain will be taxed at the 32.5% tax bracket.

Reporting and Paying CGT

When you sell an asset, you must report the capital gain or loss on your tax return. The Australian Taxation Office (ATO) provides guidelines on how to calculate and report your CGT.

CGT Exemptions

Certain assets are exempt from CGT, including:

• Your main residence
• Personal-use assets (e.g., cars, furniture)
• Inherited assets

Selling Shares as a CGT Event

The ATO clarifies that selling shares is considered a CGT event and is subject to capital gains tax.