The Three Paths to
Accurate CGT
Calculating Capital Gains Tax in Australia is not a singular process. The Australian Taxation Office (ATO) provides three distinct methodologies, each suited to specific timing, asset types, and ownership structures.
Execution Summary
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01.
The 50% Discount method for long-term individual holdings.
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02.
Indexation for assets acquired before 21 September 1999.
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03.
The Other method for short-term speculative gains.
The CGT discount method allows individuals, trusts, and complying superannuation funds to reduce their capital gain by a specific percentage, provided the asset was held for at least 12 months. This is often referred to as the "half-off" rule for individuals, where the taxable capital gain is reduced by 50%.
Eligibility Criteria
- The individual is an Australian resident for tax purposes.
- The asset (property, shares, or collectables) was owned for exactly 12 months or longer before the CGT event.
- Any prior-year capital losses have been applied to the gross gain before the discount is calculated.
For superannuation funds, the discount is set at 33.33%. It is critical to note that companies are generally not eligible for the CGT discount. At Gozunaro Digital, we emphasise that the timing of the contract date—rather than the settlement date—is usually the trigger for the 12-month holding period.
The Indexation Method
Applicable to assets acquired before 11:45 am on 21 September 1999, the indexation method allows you to increase the "cost base" of an asset by an inflation factor based on the Consumer Price Index (CPI).
This method effectively removes the portion of the gain that was simply a result of inflation up until September 1999. While it is less common in modern portfolios, long-term property holders or those with legacy shareholdings often find this method highly relevant when disposing of assets held for decades.
The "Other" Method
For assets held for less than 12 months, the calculation is straightforward: your capital gain is your capital proceeds minus your cost base.
Proceeds
The total money or value you receive as a result of the CGT event, typically the sale price of the asset.
Cost Base
Your purchase price plus incidental costs like legal fees, stamp duty, and advertising for sale.
Net Gain
Subtract the cost base from the proceeds. If the result is positive, it is added to your assessable income.
Complexities in
Capital Losses
A capital loss occurs when an asset’s cost base exceeds its sale proceeds. It is a fundamental rule of Australian taxation that capital losses cannot be offset against ordinary income (like your salary). They can only be used to reduce capital gains.
Unused capital losses can be carried forward indefinitely to future income years.
Losses must be applied to current year gains before any CGT discount is applied.
Decision Tree: Which Method?
Choose the method that results in the smallest capital gain.
Calculation Freshness
Last updated: March 20, 2026. Taxation rates and legislated methods are subject to change by federal budget amendments.
Next Strategic Steps
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