What is capital gains tax?



This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.

End of attention

Capital gains tax (CGT) refers to the tax you pay on any capital gain you make (for example, from the sale of an asset) that you include on your annual income tax return. There is no separate tax on capital gains, it is merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate. Your net capital gain is the difference between your total capital gains for the year and your total capital losses (including capital losses from previous years), less any CGT discount to which you are entitled.

When you sell an asset, this transaction is known as a CGT event. You can make a capital gain or capital loss if a CGT event happens or you receive a distribution of a capital gain from a managed fund. You show the total of your current year capital gains at H item 17 on your 2002 tax return for individuals (supplementary section).

You show your net capital gain at A item 17 on your tax return.

Note-New terms

We may have used some terms that are not familiar to you. The first time these words are used, they are linked to their entry in Explanation of terms.

While we have used the word 'bought' rather than 'acquired' in our examples, you may have acquired your shares or units without paying for them (for example, as a gift or through an inheritance or through the demutualisation of an insurance company such as the NRMA). If you acquired shares or units in any of these ways you may be subject to CGT when you sell them.

Similarly, we refer to 'selling' shares or units when you may have disposed of them in some other way (for example, giving them away or transferring them to someone else). All of these disposals are CGT events.

Note-World-wide obligations

Australian residents can make a capital gain or capital loss if a CGT event happens to any of their assets anywhere in the world. There are special rules that apply to non-residents that are not dealt with in this guide.

Handy hint

You need to keep good records of any assets you have bought or sold so you can correctly work out the amount of capital gain or capital loss you have made when a CGT event happens. You must keep these records for 5 years after the CGT event has happened or after you claim any capital loss from that event against future capital gains.

Last modified: 06 Oct 2009QC 27431