Traditionally, most people associate capital gains tax (CGT) as something that is attached to the selling of property. For beginner investors, reporting their CGT can catch them off guard at tax time, as they are unaware or unprepared that they have to report it when lodging their returns. It's important to know that when selling shares or other investments for a profit, you may receive a tax bill — that’s capital gains tax (CGT) at work.
What is capital gains tax?
Capital gains tax is the tax you pay on the profit (or capital gain) you make when you sell a capital asset, such as shares, ETFs, or managed funds. It’s not a separate tax — your capital gains are included in your assessable income and taxed at your marginal tax rate. The Australian Taxation Office (ATO) has an extensive list of what can trigger a CGT event when selling your shares and similar investments. Investors are encouraged to check with the ATO if they are not sure or seek professional financial advice.
When does CGT apply?
You trigger a capital gains event when you sell or dispose of shares. That includes:
Selling shares on the stock market
Gifting shares to someone else
Switching between managed funds
Receiving shares as part of a corporate restructuring or takeover
If sold at a loss, investors may be able to offset that capital loss against other capital gains, reducing their overall tax liability.
The 12-month CGT discount
If shares are held for at least 12 months, investors may be eligible for a 50% CGT discount. That means only half of the capital gain is taxed.
Example:
You buy $10,000 worth of shares and sell them for $15,000 after 13 months.
Your capital gain is $5,000. With the 50% discount, only $2,500 is added to your taxable income.
If you sell the same shares within 12 months, you pay CGT on the entire $5,000.
What about capital losses?
Capital losses are the opposite of capital gains. If shares decrease in value and are sold for less than what was paid, investors make what is known as a capital loss. This loss can be:
Offset against capital gains in the same financial year
Carried forward to future years if unused
However, capital losses can’t be deducted against your regular income, like salary or interest.
CGT on international shares
CGT applies to both Australian and international shares. If investing in US stocks, for example, any capital gains (in AUD) will still need to be reported on the Australian tax return. Currency fluctuations can also impact CGT calculation; the ATO has more information on this.
Importance of record keeping
To accurately calculate CGT, you need to keep good records, including:
Purchase and sale dates
Prices (in AUD)
Brokerage fees
Corporate actions (e.g. splits, mergers, DRPs)
Using share-tracking software or spreadsheets can make tax time much easier. The ATO has a CGT and capital loss worksheet that may help keep track of your assets for tax reporting.
Things to consider
Consider timing: Selling just after the 12-month mark can mean a reduction in the tax paid.
Offset gains and losses: Strategic selling can reduce the overall tax bill.
Seek advice: CGT rules can get complex, especially if you trade frequently or invest overseas. An accountant or financial adviser can advise further by considering personal financial circumstances.
Understanding the rules around CGT can help investors make more informed investment decisions and optimise their tax position. It's important to remember: When you sell an asset for more than it costs, you have a capital gain; if you sell it for less, you have a capital loss. It's always recommended that a financial advisor or accountant be consulted to ensure the right advice and direction is given based on each individual.
Tiger Trade makes tax time reporting easier by teaming up with Sharesight. Link your Tiger Trade account to Sharesight's platform and streamline your reporting. Simply log into the desktop version of Tiger Trade and go to My Account>Reports>Tax Reports> Connect with Sharesight. Follow the prompts to connect your accounts.
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