As a tax agent, one of the areas I frequently address with clients involves Capital Gains Tax (CGT). Understanding CGT is crucial for anyone involved in the sale or disposal of assets, as it can significantly impact your tax obligations. Here’s an essential guide to what CGT is and how it’s calculated.

1. What is Capital Gains Tax?

  • Tax on Profit from Sale of Assets: CGT is a tax on the profit (capital gain) you make from selling or disposing of an asset, such as property, shares, or investments, which you’ve held for more than 12 months.
  • Part of Income Tax: It’s not a separate tax but forms part of your income tax and is applied to the capital gain.

2. Calculating Capital Gain

  • Basic Calculation: The basic calculation of a capital gain is the difference between what it cost you to acquire the asset and what you received when you disposed of it.
  • Cost Base: The cost base includes the purchase price, plus costs associated with acquiring, holding, and disposing of the asset, such as legal fees, stamp duty, and agent’s commissions.

3. Types of Capital Gains

  • Discount Method: For assets held for more than 12 months, most individual taxpayers and small businesses can apply a 50% discount to the capital gain, reducing the taxable amount.
  • Indexation Method: Alternatively, for assets acquired before 21 September 1999, you can choose to apply the indexation method, which adjusts the cost base for inflation.
  • Other Method: For assets held for less than 12 months, the capital gain is generally calculated as the difference between the cost base and the sale price without any discount.

4. Reporting Capital Gains

  • In Tax Return: Capital gains must be reported in your income tax return in the year that the contract for disposal was signed.
  • Record Keeping: It’s important to keep detailed records of all transactions relating to the acquisition and disposal of assets.

5. Exemptions and Concessions

  • Main Residence Exemption: Your main residence (family home) is usually exempt from CGT.
  • Small Business Concessions: There are various CGT concessions available for small businesses.

6. Planning and Strategy

  • Timing of Sale: Consider the timing of the sale of an asset, especially in relation to other income and the length of time the asset was held.
  • Seek Professional Advice: Given the complexities of CGT calculations and implications, consulting a tax professional is advisable to optimise your tax position.

7. CGT and Estate Planning

  • Inherited Assets: Special rules apply to inherited assets, and these should be considered in estate planning.


Capital Gains Tax plays a significant role in the Australian tax system, particularly for those dealing with real estate, shares, or investments. Understanding how CGT is calculated and what exemptions or discounts apply is crucial for accurate tax reporting and effective financial planning. As always, it’s prudent to seek the advice of a tax professional to navigate the intricacies of CGT and make informed decisions about your assets.