How to Minimise Capital Gains Tax in Australia

Capital gains tax in Australia is not a separate tax - it is income tax on a capital gain. Understanding how the gain is calculated, and what rate applies, is the foundation of every minimisation strategy.

• Capital gain calculation: proceeds minus cost base. The cost base has 5 elements: original purchase price, incidental costs of acquisition (stamp duty, legal fees, brokerage), costs of ownership (if not otherwise deductible), capital improvement costs, and incidental costs of disposal (agent commission, legal fees, brokerage)
• 50% CGT discount: for assets held by individuals, trusts, or super funds for more than 12 months, only 50% of the capital gain is included in assessable income (1/3 for super funds). Companies do NOT get the 50% discount
• Net capital gain: capital gains minus capital losses (current year) minus carry-forward capital losses = net capital gain. Only the net capital gain is added to assessable income and taxed at marginal rates
• CGT-free events: the main residence exemption (family home), death (not a CGT event - instead the asset passes to the beneficiary at the deceased's cost base), disposal of pre-CGT assets (acquired before 20 September 1985), and compensation for personal injury
• Marginal rate vs effective rate on a gain: a $200,000 capital gain on a property held 5 years (50% discount applies) adds $100,000 to your assessable income. If your income was already $100,000, the marginal rate on most of the gain is 47% - but the effective rate on the gross $200,000 gain is approximately 23.5%
• CGT is assessed in the financial year of the CGT event (contract date for property, trade date for shares) - not the settlement date. Planning the timing of disposal around financial year boundaries is one of the most accessible minimisation strategies

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Tax-loss harvesting involves deliberately selling assets that are sitting at a loss to crystallise a capital loss - which offsets a capital gain in the same or future income year. It is legal, widely used, and can significantly reduce CGT in volatile markets.

• How it works: you hold ETF A (at a $20,000 gain) and ETF B (at a $15,000 loss). You sell ETF B to crystallise the $15,000 loss, offsetting most of the gain on ETF A. Net capital gain: $20,000 - $15,000 = $5,000 (after 50% discount if held 12+ months: $2,500 assessable)
• Wash sale rule concern: the ATO does not have a statutory wash-sale rule (unlike the US), but Part IVA (general anti-avoidance) could apply if the sole purpose of selling and immediately re-buying the same asset is to generate a tax loss without any genuine change in economic position
• Practical safe harbour: sell an ETF at a loss and buy a similar (not identical) ETF that tracks a similar index - e.g., sell VAS (Vanguard ASX 300) at a loss, buy IOZ (iShares ASX 200) immediately. You maintain market exposure while crystallising a genuine loss on a different product
• Timing: harvest losses in the same financial year as the gain you want to offset. Losses crystallised after 30 June carry forward to the next year - they cannot offset gains from the previous year
• Carry-forward losses: unused capital losses carry forward indefinitely. There is no time limit on how long you can carry forward unused losses. A $30,000 capital loss from the 2022 market downturn can offset a $30,000 gain in 2026 or any future year
• Super fund tax-loss harvesting: super funds pay 15% on capital gains (10% with the 1/3 CGT discount for assets held 12+ months). Capital losses inside super can only offset capital gains inside the same fund - they cannot be used outside the fund by individual members

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The financial year boundary (30 June) is one of the most powerful tools for managing CGT. Deferring a disposal into the next financial year, or splitting a gain across multiple income years, can meaningfully reduce the effective tax rate.

• Defer gain to next financial year: if you are selling a large asset (property, business, significant share parcel) and your income this year will push you to the 47% bracket, consider deferring settlement to the next financial year - particularly if you expect lower income next year (planned career break, retirement, reduced hours)
• CGT event timing for property: property CGT is triggered by the contract date (exchange), not settlement. To defer to the next financial year, the contract must be exchanged AFTER 30 June - regardless of when settlement occurs. This is the most common timing error in property sales
• Year of reduced income: if you plan to retire, take parental leave, take study leave, or wind down work in a particular year, that year's lower income creates capacity to realise capital gains at lower marginal rates. A $100,000 capital gain (after 50% discount) realised in a retirement year with $20,000 other income attracts far less tax than in a peak earning year
• Spread sales across two years: if selling a large parcel of shares, consider selling half before 30 June and half after - splitting the gain across two financial years. This can keep each year's gain within a lower bracket
• Income from offsetting deductions: in the year you realise a capital gain, maximise deductions - salary sacrifice into super, prepay 12 months of investment loan interest, make charitable donations. Reducing assessable income in the gain year reduces the marginal rate applied to the gain
• End of financial year property settlement: property developers and large investors often target post-30 June settlements specifically to defer CGT for 12 months - having the use of the tax money for another year before it must be paid to the ATO

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Transferring assets between spouses can sometimes reduce the family's total CGT burden - by directing gains to the lower-income spouse. However, the rules around spousal transfers are specific and must be understood carefully.

• CGT rollover on spousal transfer: transfers between spouses living together (as part of a relationship breakdown or on death) can occur without triggering CGT - the receiving spouse takes the asset at its original cost base. This is a rollover, not a CGT-free disposal
• Relationship breakdown exemption (Section 126-5): transfers pursuant to a court order or binding financial agreement under the Family Law Act are CGT-free. The receiving spouse inherits the original cost base - CGT is deferred, not permanently exempt
• Pre-sale transfer: can you transfer an asset to a lower-income spouse before selling? Only if the transfer itself is a genuine disposal at market value - a private sale between unrelated parties. If the transfer is between spouses as part of a non-breakdown arrangement, rollover applies (cost base transfers), and the spouse still pays CGT on sale based on the original cost base
• Joint asset strategy: holding investment assets jointly (50/50 as tenants in common) means each spouse declares 50% of capital gains - useful when both have similar income levels. If one spouse consistently earns more, directing the capital gain to the lower earner via different ownership percentages may reduce overall family CGT
• Asset location for tax efficiency: hold high-capital-gain-potential assets (growth shares, investment property) in accounts where the lowest CGT applies - super accumulation (10% effective rate with 1/3 discount) or pension phase super (0%). Hold lower-gain assets (bonds, cash) in taxable accounts
• Timing spousal transfers: for tax planning purposes, a transfer of a CGT asset to a spouse is most valuable when the receiving spouse has lower income in the year of eventual sale - not at the time of transfer, since rollover applies regardless

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Death is not a CGT event in Australia - it is one of the most significant CGT exemptions in the system. Assets passing through deceased estates receive special treatment that can eliminate or significantly reduce CGT.

• Death is not a CGT event: when an asset owner dies, no CGT is triggered on the deceased's final return for assets that pass to beneficiaries. The asset passes to the beneficiary at the deceased's cost base (post-CGT assets) or at market value at death (pre-CGT assets and main residence)
• Post-CGT assets inherited: the beneficiary inherits the asset at the deceased's original cost base and original acquisition date. If the asset has grown significantly, the beneficiary inherits the unrealised gain - they will pay CGT when they eventually sell, based on the deceased's original cost base
• Pre-CGT assets inherited: assets acquired by the deceased before 20 September 1985 pass to the beneficiary at market value at date of death as the cost base. This effectively provides a CGT-free step-up in cost base - a major benefit for assets with large pre-1985 gains
• Main residence in a deceased estate: if the deceased lived in the home as their main residence, the beneficiary has 2 years from the date of death to sell and claim the full main residence exemption - no CGT on the sale regardless of value increase since the deceased acquired it
• Post-death gains: if the beneficiary keeps the inherited asset and it further appreciates, CGT applies to the gain from the deceased's cost base (or market value at death for pre-CGT assets) to the eventual sale price. The 50% discount applies if the asset is held 12+ months from the deceased's original acquisition date
• Estate planning implication: holding highly appreciated assets (investment property, shares with large embedded gains) until death rather than selling during one's lifetime avoids CGT entirely. This is a deliberate estate planning strategy - assets with large unrealised gains are better passed to heirs than sold and taxed

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Small business owners selling business assets or retiring have access to four powerful CGT concessions that can reduce or eliminate the capital gain entirely. These concessions are among the most valuable in Australian tax law.

• Eligibility: you must be a 'small business entity' (aggregated turnover under $2 million) OR have net assets of under $6 million (excluding superannuation, family home, and personal assets) - the net assets test is an alternative pathway for larger revenue businesses
• 15-year exemption: if you have continuously owned the active business asset for at least 15 years and are aged 55+ or permanently incapacitated, the entire capital gain is exempt from CGT - the most powerful concession. Often used by GP/allied health practitioners, tradespeople, and professional practice owners
• 50% active asset reduction: a 50% reduction in the capital gain for active assets (assets used in carrying on your business) - applied after the normal 50% CGT discount for individuals. A $500,000 gain becomes $250,000 after general discount, then $125,000 after active asset reduction - at 37% marginal rate, tax is $46,250 instead of $235,000
• Retirement exemption: up to $500,000 lifetime limit. The gain (up to $500,000) is exempt if the proceeds are paid into super (if under 55) or kept personally (if 55+). If under 55, the entire eligible amount must go directly into super - this is a powerful forced-saving mechanism for business owners
• Rollover concession: defer the capital gain by rolling it into a replacement active business asset purchased within 2 years. No CGT now - but the gain attaches to the new asset and becomes payable when the replacement asset is eventually sold
• Concessions stack: the 15-year exemption, general discount, active asset reduction, and retirement exemption can be combined in specific sequences to potentially reduce a large business sale gain to zero or near-zero. Specialist tax advice is essential - the concessions have precise eligibility conditions and interaction rules that must be applied in the correct order

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