Here’s a guide to how CGT works and some ways to minimise your tax burden
Capital gains tax is charged on the profit you make from the sale of assets.
CGT can apply to assets you’ve purchased or inherited – shares, investments, land, property (special rules apply to your primary residence), and even collectibles and personal items, depending on what you paid for them1.
The good news is, if you understand the general ins and outs of CGT in Australia you could reduce the amount you have to pay2.
When CGT is payable
When you sell an asset and make a capital gain, the amount is included as part of your personal income for tax purposes.
CGT isn’t a standalone tax. Any capital gains you’ve received need to be declared when you lodge your annual tax return and will then be assessed as part of your total income for the year. The amount of tax you pay will vary depending on what income bracket you fall into.
If you have a shared asset, you need to work out each owner’s individual interest in the asset to determine their personal capital gain or loss3.
How you can reduce CGT
Strategies that lower your total income could help to reduce the amount of tax you pay on any capital gains you make.
One example is making a tax-deductible super contribution. If you’ve sold an asset that you have to pay CGT on and you contribute some or all of that money into super – and claim a tax deduction – this could reduce or even eliminate the CGT that’s owing altogether. There are even catch-up rules that could allow you to tip more tax-deductible contributions into super from up to five previous years – you may have unused amounts from 2018/19 which will expire by 30 June 2024.
It’s a good idea to get across all the rules and limits around tax deductible super contributions.
What happens when you transfer a property
Making a cash gift to family or friends doesn’t trigger CGT. But gifting assets (such as property and shares) generally will trigger CGT – even if no cash changes hands. If you sell, transfer or gift a property for less than it’s worth, you still need to use market value to calculate the capital gain.
There are special cases when it comes to marriage breakdowns and special disability trusts but understanding how it works can be complex. So, it’s a good idea to make sure you’re across the rules and get some expert advice if you need it.
How to calculate your capital gain
Got your calculator ready? Right. Here goes…
Generally, you can calculate your net capital gain by adding up your capital gains over the financial year and subtracting your capital losses (including any from previous years that haven’t been used already) and any CGT discounts or small business concessions you may be entitled to4.
A capital gain is typically reduced by 50% when an asset has been held for at least 12 months5. So, if you sell an asset you’ve owned for less than a year – such as an investment property or shares in a business – the entire gain will need to be included in your taxable income.
Reviewing your portfolio before EOFY
The end of financial year is fast approaching so it could be a good idea to do a stocktake of your finances to minimise your CGT exposure.
If you received a capital gain from selling any assets during the year you could consider selling underperforming assets. This would realise a capital loss to offset the capital gain.
But you need to be very careful, particularly if you’re planning to immediately buy back the same assets. The ATO monitors these sorts of ‘wash sales’ and could disallow the capital loss. Your best approach is to speak to us or your tax accountant to work out the best approach that’s within the rules.
You should also make sure you’re aware of what the upcoming tax cuts could mean for your CGT exposure.
What tax cuts mean for CGT strategies
Net capital gains forms part of your taxable income. So, tax cuts are good news!
The Government’s long-awaited ‘stage 3’ tax cuts are coming into effect on 1 July 2024. While there have been well-publicised changes – lower income earners will receive a higher cut than originally proposed, while higher income earners will receive a lower cut – the bottom line is that all personal income taxpayers will pay less tax.
| Taxable income | Tax payable 2023/24 | Tax payable 2024/25 | Tax cut |
| $40,000 | $4,367 | $3,713 | $654 |
| $60,000 | $11,067 | $9,888 | $1,179 |
| $80,000 | $18,067 | $16,388 | $1,679 |
| $100,000 | $24,967 | $22,788 | $2,179 |
| $120,000 | $31,867 | $29,188 | $2,679 |
| $140,000 | $39,667 | $35,938 | $3,729 |
| $150,000 | $43,567 | $39,838 | $3,729 |
| $160,000 | $47,467 | $43,738 | $3,729 |
| $180,000 | $55,267 | $51,538 | $3,729 |
| $190,000 | $59,967 | $55,438 | $4,529 |
| $200,000 | $64,667 | $60,138 | $4,529 |
Source: https://treasury.gov.au/tax-cuts/calculator
After 1 July 2024 you’ll be paying a lower rate of tax. So, you might like to think about deferring any capital gain from selling an asset. This applies any time you move from a higher tax bracket to a lower one. So, if you’re planning to retire, it could make sense to defer the income.
Assets exempt from CGT
CGT generally doesn’t apply to6:
- assets acquired before 20 September 1985
- a property that’s your main residence
- cars, motorcycles or similar vehicles
- personal-use assets, which you paid under $10,000 for
- winnings or losses from gambling and prizes.
Check the ATO website to find out more about which assets are subject to CGT and which assets are exempt.
How long you should keep records
You need to keep records of every transaction, event or circumstance that may be relevant to working out whether you’ve made a capital gain or loss for five years7.
There’s no time limit on how long you can carry forward a net capital loss and it can be deducted against capital gains in future years8, helping to reduce the tax you pay.
Where to go for more help
To find out more, speak to us or an accountant who specialises in taxation.
Current as at May 2024
1, 7 ATO – CGT assets and exemptions
2, 6 ATO – Working out your capital gain
3 ATO – Joint ownership
4, 5 ATO – Working out your net capital gain or loss
8 ATO – Record keeping for CGT
