27 Jun Understanding Capital Gains Tax: A Smart Seller’s Guide

Understanding Capital Gains Tax: A Smart Seller’s Guide

Selling an investment property or shares can be a major financial milestone — but it also brings tax consequences that are often misunderstood. One of the most significant is Capital Gains Tax (CGT).

Whether you’re planning to offload an asset soon or just want to be better informed, understanding how CGT works can help you make smarter, more tax-effective decisions.

What is Capital Gains Tax?

Capital Gains Tax is the tax you pay on the profit when you sell a capital asset. In Australia, this includes:

• Investment properties
• Shares and ETFs
• Cryptocurrency
• Business assets
• Certain collectables or personal use assets

You don’t pay CGT on the gross sale price — you pay it on the capital gain, which is the difference between what you receive and what you originally paid (adjusted for eligible costs and depreciation).

How Is CGT Calculated?

The formula is simple — but the details can trip people up.

Capital Gain = Sale Price – Adjusted Cost Base

Your cost base includes:

• The original purchase price
• Stamp duty, legal fees, and selling costs
• Renovations and capital improvements
• BUT it must be reduced by any capital works depreciation you’ve claimed over the years

This last point is key for property investors. If you’ve claimed depreciation (e.g. on the building structure), your cost base is reduced — which increases your capital gain.

Case Study: Selling an Investment Property

Client: Sarah, 46, Marketing Executive
Asset: Investment property in Marrickville
Purchased for: $800,000 in July 2018
Sold for: $1,200,000 in August 2024
Depreciation claimed: $40,000 (capital works)
Selling costs: $40,000

Capital Gain Calculation:

Because Sarah owned the property for more than 12 months, she qualifies for the 50% CGT discount, reducing her taxable gain to $200,000. This is then added to her assessable income and taxed at her marginal rate.

The CGT Discount

If you’ve held an asset for 12 months or more, individuals and trusts may be eligible for a 50% CGT discount. This is one of the most valuable concessions in the Australian tax system — but it doesn’t apply to companies.

What If You Make a Loss?

If you sell an asset for less than its cost base (adjusted for depreciation), you incur a capital loss. These losses:

• Can offset capital gains in the same year
• Can be carried forward indefinitely
• Cannot be used to reduce ordinary income (like salary)

Timing and Strategy Matter

• There’s often more than one way to sell an asset. Planning ahead can help reduce your CGT bill:
• Time the sale: Consider delaying until the new financial year if your income will be lower
• Offset gains with losses: Realising a loss in the same year can help reduce net CGT
• Maximise the discount: Holding assets just long enough to pass the 12-month rule can make a huge difference
• Track depreciation: Make sure you’re accounting for capital works deductions correctly — especially when selling property

Final Thoughts

CGT is not just a tax issue — it’s a planning opportunity. Whether you’re selling a property, a parcel of shares, or a business asset, getting the timing, structure and paperwork right can save you thousands.

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)