Capital Gains Tax

Plain-English definition. Capital gains tax (CGT) is the tax payable on the profit made when you sell an investment asset, including investment property. It is added to your assessable income in the year of the sale and taxed at your marginal rate.

How it works in Australia. CGT was introduced on 20 September 1985 and is administered by the ATO. Individuals and trusts who hold a CGT asset for more than 12 months qualify for the 50% CGT discount. Your main residence is generally fully exempt under the main residence exemption, with a partial exemption if you've rented it out (up to 6 years possible under the absence rule). The cost base includes purchase price, stamp duty, legal fees and capital improvements; depreciation claimed reduces the cost base.

Concrete example. You bought an investment unit in 2018 for $500,000 with $25,000 stamp duty and $3,000 legal fees (cost base $528,000). You sell in 2026 for $760,000 with $20,000 selling costs (capital proceeds $740,000). Gross gain $212,000. Apply 50% discount: assessable gain $106,000. If your taxable income is already $130,000, CGT at 39% (37% + Medicare) = $41,340.

Common confusion. The family home is not always exempt. Not true if you've moved out and rented it (beyond 6 years), used part as a home office claiming occupancy expenses, or were a foreign resident at sale. The 50% discount also doesn't apply to companies — only individuals, trusts and complying super funds (which get a one-third discount).