The 50% CGT Discount: Your Most Powerful Tool
The single most valuable CGT reduction strategy available to Australian individuals is simply holding assets for at least 12 months before selling. The 50% CGT discount is available to individuals and trusts (not companies or superfunds, which have their own rates) - it halves the assessable capital gain, effectively halving the tax payable.
- How the discount works: If you buy shares for $50,000 and sell for $80,000 after holding for 14 months, your nominal gain is $30,000. With the 50% discount, only $15,000 is included in your assessable income. At a 37% marginal rate, you pay $5,550 in tax - rather than $11,100 without the discount.
- The 12-month rule is precise: The discount applies if the asset is held for more than 12 months - not 12 months exactly. The acquisition date for shares purchased on market is the contract date (trade date), not the settlement date. Selling one day before the 12-month anniversary forfeits the entire discount.
- SMSFs receive a 1/3 discount: Superannuation funds (including SMSFs) in accumulation phase pay 10% tax on discounted capital gains - the 1/3 discount reduces the 15% tax rate to an effective 10%. In pension phase, SMSFs pay 0% tax on all income and gains - the discount is irrelevant as no tax is payable.
- Companies receive no discount: Companies pay 30% (or 25% for base rate entities with turnover under $50M) on the full nominal capital gain - no 50% discount. If you hold investment assets in a company structure, this is a significant disadvantage compared to individual or trust ownership for long-term capital growth assets.
- The interaction with losses: Capital losses must be applied before the 50% discount - you cannot choose to apply the discount first. Example: $30,000 gain, $10,000 capital loss. Net gain is $20,000. Then apply 50% discount: $10,000 assessable. This is more favourable than applying the discount first.
Timing Asset Sales to Minimise CGT
When you sell a CGT asset is within your control - and the timing relative to your income, the tax year, and upcoming life events can significantly change the tax outcome.
- Sell in a low-income year: CGT is assessed at your marginal rate on the discounted gain. If you plan to retire, take parental leave, return to study, or otherwise reduce your income in a future year, deferring a sale into that year can reduce the marginal rate applied to the gain. A gain assessed at 19% vs 47% is a substantial difference.
- Stagger large gains across financial years: If you have a large portfolio to sell, splitting sales across two financial years (e.g. December and January) spreads the gain across two tax years - potentially keeping both years below a higher marginal rate bracket.
- Sell before 30 June vs after: Most investors think selling before 30 June accelerates tax. In most cases it does - but if your income is unusually high this year and lower next year (e.g. you are changing jobs, reducing hours, or retiring on 1 July), selling after 30 June defers the gain into a lower-income year. Run the numbers for your specific situation.
- Realise gains in the year you make super contributions: A large concessional super contribution (up to the $30,000 cap in 2024-25, or more using carry-forward provisions) reduces your taxable income - offsetting some of the capital gain and potentially keeping you in a lower marginal rate bracket.
Tax-Loss Harvesting and the Wash Sale Rule
Tax-loss harvesting is the practice of selling investments that have fallen in value to crystallise capital losses - which can then be offset against capital gains, reducing net assessable income. Used correctly it is a powerful strategy. Used incorrectly it triggers ATO scrutiny.
- How it works: You hold shares in Company A (bought at $10,000, now worth $6,000) and have a $20,000 capital gain from selling investment property this year. Selling Company A shares crystallises a $4,000 capital loss, offsetting $4,000 of the $20,000 gain - saving approximately $1,480 in tax at 37% marginal rate.
- Capital losses carry forward indefinitely: If your capital losses exceed your capital gains in a given year, the excess is carried forward to future years - it never expires. There is no time limit on the carryforward of capital losses.
- The wash sale warning - ATO Part IVA risk: The ATO's wash sale guidance (TD 2008/23 and subsequent guidance) states that selling an asset solely to crystallise a loss and immediately reacquiring a substantially identical asset may be a scheme under Part IVA (the general anti-avoidance provision). The ATO expects a genuine change in position.
- Practical safe harbour - 30 days: While no statutory safe harbour period exists in Australia (unlike the US 30-day wash sale rule), the ATO's guidance and professional consensus suggest that waiting at least 30 days before reacquiring a substantially identical asset significantly reduces the Part IVA risk. Some advisers use a different ETF tracking a similar (not identical) index as an alternative - e.g. selling VGS and buying IVV for 30 days before reacquiring VGS.
- Do not manufacture losses: Selling assets to create artificial losses with no genuine economic purpose - particularly in related-party transactions - is a specific ATO focus area. All loss-harvesting transactions should reflect genuine commercial decisions.
Super, Main Residence and Other CGT Strategies
Beyond the 50% discount and loss harvesting, several structural strategies can reduce or eliminate CGT on specific asset types.
- Main residence exemption: Your principal place of residence is fully exempt from CGT for the period you live in it. If you move out and rent it, CGT applies from the date of first rental - unless you use the 6-year absence rule (you can treat the property as your main residence for up to 6 years while renting it out, but only if you do not nominate another property as your main residence in that period). The 6-year absence period resets every time you move back in.
- Contribute assets to superannuation: Assets held inside an SMSF in accumulation phase are taxed at 10% (with the 1/3 discount) on capital gains - compared to up to 47% in personal name. Contributing cash to super and purchasing growth assets inside the fund shifts future gains to the more favourable super tax environment. The concessional cap ($30,000) and non-concessional cap ($120,000, or $360,000 under bring-forward) limit how much can be contributed annually.
- Small business CGT concessions: If you sell a business asset or shares in a small business company (active asset, turnover <$2M or net assets <$6M), four concessions may apply: (1) 15-year exemption (asset held 15+ years by owner aged 55+ retiring - full exemption); (2) 50% active asset reduction; (3) retirement exemption (up to $500,000 lifetime, can be contributed to super); (4) rollover into replacement asset. Stacking these concessions can reduce a large business sale gain to zero.
- Specific parcel identification: When selling shares or ETF units, you can choose which parcel to sell - not just FIFO. Identifying parcels purchased at the highest cost base minimises the gain. You must identify the specific parcel at the time of sale - not retrospectively. Keep detailed records of every purchase including date, quantity, price, and brokerage.
- Donate appreciated assets to charity: Donating listed shares (held 12+ months) directly to a DGR-registered charity - rather than selling and donating cash - avoids triggering CGT on the gain entirely. You also receive a tax deduction for the market value of the shares at the time of donation. A powerful strategy for philanthropically inclined investors with large unrealised gains.
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