Understanding Capital Gains Tax in Australia: Key Rules and Exemptions
Capital gains tax has never been the simplest part of an Australian tax return, and right now it’s moving faster than usual. Between a major legislative overhaul, tighter rules for foreign residents and an ATO that is getting better at matching third-party data, there’s less room than ever for guesswork.
This guide walks through how CGT works, the biggest recent change, and the exemptions and concessions that most often decide how much tax a client actually pays. It’s written mainly for accountants and tax agents, but business owners and investors will find it useful too. Rules described here are current as at October 2026. Always check the latest ATO guidance before acting.
CGT in a Nutshell
Capital gains tax isn’t a separate tax. A net capital gain is added to your assessable income and taxed at your marginal rate. A gain arises when a CGT event happens, most commonly when you sell an asset such as an investment property, shares or business assets. For a sale, the event generally occurs on the date of the contract, not settlement, which catches people out near the end of a financial year.
In simple terms, the gain is the capital proceeds minus the asset’s cost base. Capital losses can only be used against capital gains, but unused losses carry forward to future years. CGT applies to assets acquired on or after 20 September 1985, with some important exceptions, which we’ll cover below.
The Biggest Change: The 50% Discount Is Going
For decades, individuals, trusts and partnerships holding an asset for more than 12 months have been able to halve their capital gain before tax. That’s changing. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament in June 2026 and replaces the discount with cost base indexation plus a 30% minimum tax on capital gains. In broad terms:
- Start date: The new rules apply to gains accruing from 1 July 2027.
- Transition: Growth before 1 July 2027 keeps access to the 50% discount, while growth after that date is taxed under the new approach. The detail of how the two portions are worked out matters, so it’s worth reading the ATO’s transitional guidance closely.
- Who’s affected: Individuals, trusts and partnerships. Companies never had the discount, so their position works differently.
- Pre-CGT assets: Assets acquired before 20 September 1985 are drawn into the system for gains that accrue after 1 July 2027. Gains before that date stay exempt.
- What hasn’t changed: The main residence exemption and the four small business CGT concessions have been kept.
- New homes: Investors in new residential dwellings get a choice between the 50% discount and indexation.
The practical takeaway for firms is to start preparing now. Clients with large unrealised gains may want to talk through timing, and records showing values and dates around 1 July 2027 will become far more important. Good cost base records have always mattered. Now they matter even more.
Foreign Resident Withholding Has Tightened
Since 1 January 2025, the foreign resident capital gains withholding (FRCGW) regime has been stricter. The withholding rate rose from 12.5% to 15%, and the old $750,000 value threshold was removed, so it now applies to sales of Australian taxable property regardless of price.
In practice, that means:
- Australian resident vendors should get a clearance certificate from the ATO before settlement. Without one, the purchaser may be required to withhold 15% of the sale price, which can create a nasty cash flow surprise.
- Foreign resident vendors should expect withholding and plan for it. Where the withholding would exceed the likely tax, a variation may be available.
Applying for a certificate early, ideally when the property is listed, avoids last-minute stress for everyone involved.
The Main Residence Exemption: Common Traps
A home that’s your main residence is generally exempt from CGT, and it’s the concession clients rely on most. It’s also the one most often misunderstood. Watch for these issues:
- The six-year absence rule. If a client moves out and rents the property, they can often keep treating it as their main residence for up to six years. During that time they can’t claim a different property as their main residence, so the dates need to be tracked carefully.
- Partial exemptions. If part of the home produces income, for example a rented room or a space used for business and claimed as a deduction, the gain may be only partly exempt. The split depends on floor area and how long the space was used that way.
- Land size. The exemption usually covers up to two hectares around the dwelling, so larger blocks need a closer look.
- Moving in and out. Timing of when a client first occupied the home, and when they stopped, drives the entire calculation.
Small Business CGT Concessions: Valuable but Strict
For owners of small businesses, these concessions can reduce a gain dramatically, sometimes to nothing. They’re also frequently under-used because the eligibility tests are detailed. As a starting point, the business generally needs to meet the basic conditions: the asset must be an active asset, and the taxpayer must pass either the maximum net asset value test (net assets of $6 million or less) or the small business entity test (turnover under $2 million).
If those conditions are met, four concessions may be available:
- 15-year exemption. A full exemption for an asset held for at least 15 years where the owner is 55 or older and retiring, or permanently incapacitated.
- 50% active asset reduction. A further 50% reduction on the gain for an active asset.
- Retirement exemption. An exemption up to a lifetime limit of $500,000. If the owner is under 55, the amount generally has to be paid into a super fund.
- Rollover. The gain can be deferred if a replacement asset is acquired within the permitted time, generally two years.
The concessions can often be combined, and applied in the right order they can wipe out a client’s liability. The conditions and sequencing are strict, though, so this is an area where mistakes are expensive.
Getting the Cost Base Right
Many errors come from an incomplete cost base. It isn’t just the purchase price. It can include:
- The amount paid for the asset.
- Incidental costs such as legal fees, stamp duty and agent commission.
- Certain non-deductible costs of owning the asset, such as some holding costs. These are often overlooked, and they only apply to assets acquired after 20 August 1991.
- Capital expenditure that increases the asset’s value, like renovations or improvements.
- Costs of preserving or defending title to the asset.
Missing any of these inflates the gain and the tax bill. Add in carried-forward losses, share reinvestments and rollover events like demergers, and the workload for a single client can grow quickly.
Why the ATO Is Paying Attention
The ATO uses data from banks, share registries, state revenue offices and other third parties to spot unreported gains. Property sales and share trading are common areas of review. When your client’s return doesn’t line up with data the ATO already holds, expect questions. Clean, well-documented workpapers are your best protection.
How Back-Office Support Can Help
CGT work is detailed, document-heavy and unforgiving of errors, which makes it a good candidate for specialist support. At APT Business Services, our taxation and compliance team can take on the groundwork: building cost bases, tracking losses, working through share and property records and preparing review-ready workpapers. That frees your senior people to focus on timing, planning and the conversations clients actually value. This fits with the broader shift we describe in From Compliance to Strategy.
If you’re comparing options, our guide to choosing the right outsourcing pricing model explains how fixed fee, hourly and dedicated team arrangements differ. Our bookkeeping services can also help keep underlying records clean, which makes CGT work far smoother at year end. You can learn more about APT, read our FAQs or browse more articles in our Accounting and Finance category.
Final Thoughts
CGT rewards careful preparation. With the 50% discount on its way out, foreign resident rules tighter and ATO data matching more sophisticated, the firms that do well will be those with strong records, clear processes and enough capacity to plan ahead for their clients.
Need extra capacity for CGT and tax compliance work? Talk to our team about how APT can support your firm.
This article is general information only and isn’t tax advice. Tax law changes often, so confirm the current position with the ATO or a qualified tax professional before acting.