The basics of Capital Gains Tax

Capital Gains Tax (CGT) is tax on your net capital gain.  

Net capital gain is total capital gains, minus total capital losses, minus the CGT discount.

What is the CGT discount?

The CGT discount is 50% - shares or units need to be held for 12 months to get the discount.    

Capital losses are taken away from capital gains before the discount is applied. (The discount is available for individuals, but not for a company.)

The net capital gain is then taxed at your marginal tax rate. CGT is not a separate tax.

Note that capital gains or losses as a general rule can be disregarded for CGT purposes when assets were acquired before 20 September 1985 (pre CGT).

The CGT events

A capital gain or capital loss only happens if there is a CGT event. Some common CGT events include:

1.   Sale of shares or units.
2.   Distribution of a capital gain by a managed fund or other trust.
3.   Receipt of a payment from a company other than a dividend.
4.   When a liquidator or administrator declares shares in a failed company are worthless.
5.   When shares are cancelled because a company is wound up.
6.   Creating a trust over a CGT asset or transferring a CGT asset to a trust.

There are about 50 CGT events. Details of each can be found in the Guide to CGT, issued annually by the ATO. The timing of the event is important. If an asset is sold the CGT event happens when you enter into a contract. The distribution of a capital gain from a managed fund is taken to have been made in the income year shown on the statement.

Calculating CGT

There are three ways of calculating a capital gain:

1. Indexation (see Consumer Price Index 1985-1999 below) which applies only to assets acquired before 11:45am on 21 September 1999 and allows you to apply the CPI (up to September 1999 only) to the cost base of the asset. Subtract the result from the capital proceeds to arrive at the capital gain. Use the method if shares or units were held for 12 months or more and it produces a better result than the discount method.

Consumer Price Index (CPI)
Year	Q/E 31 Mar	Q/E 30 Jun	Q/E 30 Sep	Q/E 31 Dec
1985	-	-	71.3	72.7
1986	74.4	75.6	77.6	79.8
1987	81.4	82.6	84.0	85.5
1988	87.0	88.5	90.2	92.0
1989	92.9	95.2	97.4	99.2
1990	100.9	102.5	103.3	106.0
1991	105.8	106.0	106.6	107.6
1992	107.6	107.3	107.4	107.9
1993	108.9	109.3	109.8	110.0
1994	110.4	111.2	111.9	112.8
1995	114.7	116.2	117.6	118.5
1996	119.0	119.8	120.1	120.3
1997	120.5	120.2	119.7	120.0
1998	120.3	121.0	121.3	121.9
1999	121.8	122.3	123.4	N/A*
Q/E - Quarter Ended * Indexation applies up to September 1999 only.

2. Discount capital gains by half after first deducting any capital losses. Use if shares or units were held for 12 months or more and it produces a better result than the indexation method.

3. Other method applies if shares or units were not held for 12 months and the indexation and discount methods do not apply. Simply subtract the cost base from the capital proceeds.

Capital Loss/Neither Gain nor Loss: If you did not make a capital gain, you need to calculate a reduced cost base of your asset before you can work out any capital loss. The reduced cost base is the cost base less any amounts you need to exclude from it. If the capital proceeds are less than the reduced cost base, the difference is your capital loss. If the capital proceeds are less than or equal to the cost base but more than or equal to the reduced cost base, you have not made a capital gain or a capital loss. (And that's just another reason why tax reform is overdue!!)


We recommend you review the following sections of our website for specific Capital Gains Tax situations:

Loss declarations – for failed companies

Deregistered companies – generally for failed companies