au-capital-gains

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# AU Capital Gains

## AU Capital Gains

## AU Capital Gains

## Australia Capital Gains Tax v1.6

> **General reference only.** This skill is general tax and accounting reference material for
> AI-assisted workflows. It has not been reviewed for any specific person's facts, documents,
> elections, deadlines, residency, filing status or local procedures. Do not rely on it to
> lodge, pay, amend or take a tax position without review by a qualified professional.

> **Enacted change from 1 July 2027.** The 50% CGT discount for individuals, trusts and
> partnerships is replaced by cost base indexation with a 30% minimum tax rate on capital gains.
> The change applies to gains that accrue after 1 July 2027. Separately, negative gearing for
> residential property investments is limited to new builds from 1 July 2027, with properties
> held at 7:30 pm AEST on 12 May 2026 exempt from that limit. Both measures are law. See
> Section 9 before advising on any disposal planned for 2027-28 or later.
> [ATO, Reforming negative gearing and capital gains tax](https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/tax-reform-boosting-home-ownership-reforming-negative-gearing-and-capital-gains-tax)

## Section 1 - Quick Reference

**Quick reference table**

| Field | Value |
| --- | --- |
| Country | Australia |
| Income year covered | 2026-27 (1 July 2026 to 30 June 2027) |
| CGT rate | No separate rate. The net capital gain is included in assessable income and taxed at the entity's rate |
| Effective top rate, individual, asset held over 12 months | 23.5% for 2026-27, being 47% (45% plus 2% Medicare levy) applied to half the gain |
| 50% general discount | Individuals and trusts, for assets held more than 12 months, until 30 June 2027 |
| Complying superannuation fund discount | 33.33% |
| Companies | No discount. The gain is taxed at the company rate |
| Annual tax-free amount | None. Australia has no annual CGT exemption |
| Primary legislation | ITAA 1997 Parts 3-1 and 3-3 |
| Tax authority | Australian Taxation Office |
| Where reported | Capital gains item in the return, with a CGT schedule where required |
| Reviewed by | Pending. Australian CPA or CA review required |

## Section 2 - The calculation workflow

Work through these steps in order. Each step can end the analysis.

**Step 1. Identify the CGT event and its date.**
A CGT event, not a payment, triggers CGT. For a disposal under a contract, the event happens at
the contract date, not settlement. This determines the income year, the 12-month holding test and
the residency position.

**Step 2. Check whether the asset or the gain is exempt.**
If an exemption applies in full, stop. Common exemptions: the main residence, a car or motorcycle,
a personal use asset acquired for $10,000 or less, an asset acquired before 20 September 1985,
certain compensation and gambling amounts, and depreciating assets used wholly for a taxable
purpose, which are dealt with under Division 40 instead.

**Step 3. Work out the cost base or reduced cost base.**
Use the cost base for a gain and the reduced cost base for a loss. See Section 4.

**Step 4. Calculate the gross gain or loss per asset.**
Capital proceeds less cost base gives a gain. Reduced cost base less capital proceeds gives a
loss. An amount that falls between the two produces neither.

**Step 5. Apply capital losses.**
Current year losses first, then losses carried forward from earlier years. Losses are applied
before any discount, which is what makes the order matter.

**Step 6. Apply the discount, if available.**
See Section 6 for the entity and residency tests.

**Step 7. Apply concessions.**
Small business CGT concessions, rollovers and any specific relief. See `au-small-business-cgt.md`.

**Step 8. Report the net capital gain.**
The net capital gain is included in assessable income for the year. A net capital loss cannot
reduce other income; it is carried forward indefinitely and used against future capital gains.

## Section 3 - What triggers CGT

**Common CGT events**

| Event | What it is |
| --- | --- |
| A1 | Disposal of a CGT asset by sale, gift or transfer |
| B1 | Use and enjoyment before title passes |
| C1 | Loss or destruction of an asset |
| C2 | Cancellation, surrender or expiry of a right or option |
| D1 | Creation of a contractual or other right |
| E4 | Capital payment from a trust exceeding the cost base of the interest |
| G1 | Return of capital on shares exceeding the cost base |
| I1 and I2 | Ceasing to be an Australian resident |
| K6 | Pre-CGT shares or trust interests where post-CGT property dominates |

- **Multiple events** — More than one event can apply to the same transaction. Where that happens, the most specific event generally prevails.
- **CGT assets** — CGT assets include land and buildings, shares and units, goodwill, contractual rights, options, crypto assets, foreign currency and leases.
- **A gift is a disposal** — A gift is a disposal. Where parties are not dealing at arm's length, or where no consideration passes, the market value substitution rule replaces the actual proceeds with market value.
- **Capital versus revenue** — Establish whether the profit is on capital or revenue account before applying CGT. A trading business or an isolated profit-making transaction produces ordinary income, and section 118-20 reduces a capital gain to the extent the amount is otherwise assessable, so the same profit is not taxed twice. Holding an asset for more than a year does not by itself make it a capital investment.  _([ITAA 1997 (Cth) s 118-20](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/118-20))_
- **Main residence conditions** — The main residence exemption depends on the dwelling being the taxpayer's home, land of two hectares or less, the extent of any income-producing use, the absence rule and residency at the CGT event. A property bought as an investment is not exempt because the owner later moves in: the exemption is apportioned to the days it was the main residence. Check occupation, absences and use before applying it.  _([ITAA 1997 (Cth) s 118-110](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/118-110); [s 118-185](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/118-185))_

## Section 4 - Cost base and reduced cost base

**The five elements of the cost base**

| Element | Content |
| --- | --- |
| 1 | Money paid, or the market value of property given, to acquire the asset |
| 2 | Incidental costs of acquisition and disposal, such as stamp duty, legal fees, agent commission, valuation and brokerage |
| 3 | Non-capital costs of ownership, such as rates, land tax, insurance and interest, only for assets acquired after 20 August 1991 and only to the extent not deductible |
| 4 | Capital expenditure to increase or preserve the asset's value, or to install or move it |
| 5 | Capital expenditure to establish, preserve or defend title to the asset |

- **The reduced cost base** — The reduced cost base is used to work out a capital loss and has five elements. Elements 1, 2, 4 and 5 match the cost base. Its third element replaces ownership costs with the assessable balancing-adjustment amounts specified in section 110-55(3), including its statutory relief cases. Apply the section's exclusions separately: subsection (4) excludes deductible amounts, including deductible balancing adjustments, and subsection (6) excludes recouped expenditure unless the recoupment is assessable. Do not subtract an assessable balancing adjustment merely because a deductible balancing adjustment is excluded.  _([ITAA 1997 (Cth) s 110-55](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/110-55))_
- **Deductions reduce the cost base** — Amounts claimed as capital works deductions under Division 43 reduce the cost base, and element 3 excludes anything that was deductible. This is the most common cost base error on a rental property disposal. See `au-rental-property.md`.
- **Selling costs belong in the cost base, not the proceeds** — Capital proceeds are the money and the market value of property received for the event. Agent commission, legal fees and other disposal costs are second-element cost base amounts. Reconcile proceeds to the contract before adding selling costs to the cost base, otherwise they are counted twice.  _([ITAA 1997 (Cth) s 116-20](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/116-20); [s 110-25](https://www.ato.gov.au/law/view/document?docid=PAC/19970038/110-25))_

## Section 5 - Capital losses

- **Capital loss applied only against capital gains** — A capital loss can be applied only against capital gains, never against ordinary income.
- **Order of losses** — Current year capital losses are applied before prior year losses.
- **Losses before discount** — Losses are applied before any CGT discount. Applying the discount first overstates the benefit of the loss.

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