What is capital gains tax?
Capital gains tax (CGT) is the tax you pay on profits from disposing of assets including investments, such as property, shares and crypto assets. Although it is referred to as 'capital gains tax', it's part of your income tax. It's not a separate tax.
If you dispose of assets (generally when you stop being the owner of an asset) a CGT event may be triggered. This is when you need to report capital gains and capital losses in your income tax return.
If you have a:
- capital gain, it will increase the tax you need to pay – you may want to work out how much tax you will owe and set aside funds to cover it
- capital loss, you can offset it against any capital gains in the year they occur, or in future years, and reduce the tax you need to pay – it's important to include losses on your tax return.
Example: calculating CGT
Maree buys some shares for $5,000.
She owns the shares for 6 months and sells them for $5,500. She has no other capital gains or losses.
Maree declares a capital gain of $500 in her tax return. She will pay tax on this gain at her individual income tax rate.