Taxing capital gains

Assessable assets bought on or after 20 September 1985 are subject to capital gains tax under two possible methods. The most common method used is the CGT discount method which discounts a portion of the capital gain made where the asset is held for more than 12 months. For assets held for less than 12 months, the full capital gain is included as assessable income without a discount (with some limited exceptions including where assets are acquired through a deceased estate or in the event of a marriage breakdown).

Accordingly, assets that you hold for more than 12 months may only have a portion of the capital gain included in assessable income, depending on the discount percentage and the entity that owns the asset, as outlined on the following page.

The other available method is the ‘cost base indexation method’ which only taxes the real capital gain made, that is, the capital gain after accounting for the effects of inflation.  This method can only be used for assets acquired prior to 21 September 1999 and held for more than 12 months.

Taxpayers can select the CGT method which results in the lowest assessable capital gain.

Note that the CGT discount arrangements will remain in place until 30 June 2027.  From 1 July 2027, the 50% CGT discount will be replaced by the cost base indexation for assets held for at least 12 months. More details will be provided below.