How the 50% CGT Discount Works in Australia (and When You Don't Get It)

The 50% CGT discount is one of the most valuable tax concessions available to Australian investors. Get it right, and you cut your capital gains tax bill in half. Get it wrong -- or miss the eligibility window by a single day -- and you pay full freight. Here's exactly how it works, who qualifies, and the situations where you won't get it.

What is the 50% CGT discount?

When you sell an asset for more than you paid, the profit is a capital gain. In Australia, that gain gets added to your taxable income and taxed at your marginal rate. But if you've held the asset for at least 12 months before selling, the ATO lets you reduce the gain by 50% before it hits your tax return.

The mechanic is straightforward: you calculate your capital gain, apply any capital losses, then halve the remaining amount. Only that discounted figure gets added to your assessable income.

This applies to most CGT assets -- shares, ETFs, cryptocurrency, investment property, and other investments. It does not apply in every situation, and the exceptions matter.

Eligibility rules

Three conditions must be met to claim the 50% CGT discount:

1. You held the asset for at least 12 months. The clock starts on the day after you acquired the asset and must reach or exceed 12 full months before the CGT event (typically the contract date for the sale).
2. You are an individual, trust, or complying superannuation fund. Individuals and trusts get the full 50% discount. Complying super funds get a 33.33% discount instead.
3. The asset is not excluded. Certain asset types and entity structures don't qualify, regardless of holding period.

Companies never receive the CGT discount. If you hold shares through a company structure, every dollar of capital gain is taxed at the company rate with no discount applied.

How the 12-month rule works

The ATO measures the holding period from the day after acquisition to the day of the CGT event. Both dates matter.

Acquisition date: For shares bought on-market, this is the trade date (T+0), not the settlement date (T+2). For off-the-plan property, it's the contract date, not the settlement or completion date.

Disposal date: For shares, it's the trade date you sold. For property, it's the contract date of sale, not settlement.

The critical edge case: If you bought shares on 15 March 2025, the 12-month period starts on 16 March 2025 and the earliest you can sell with the discount is 15 March 2026. Selling on 14 March 2026 means you've held for 364 days -- no discount.

This catches people out more often than you'd think, especially around end of financial year when investors rush to crystallise gains before 30 June.

Contract rollovers and replacements: If you acquired an asset as a replacement under a CGT rollover (such as a company restructure or marriage breakdown transfer), the original acquisition date typically carries over. Check the specific rollover provisions -- the ATO has different rules for different rollover types.

Worked example: the difference the discount makes

Let's say you bought $50,000 worth of VAS (Vanguard Australian Shares ETF) and sold it for $60,000, making a $10,000 capital gain. Your total taxable income before the gain is $80,000.

Scenario 1: Held for 11 months (no discount)

The full $10,000 gain is added to your taxable income, bringing it to $90,000.

At $90,000, your marginal tax rate is 30% (the $45,001 to $135,000 bracket for FY2024-25 under Stage 3 tax cuts).

Tax on the $10,000 gain: $3,000

Scenario 2: Held for 12 months or more (50% discount applied)

The $10,000 gain is discounted by 50%, so only $5,000 is added to your taxable income, bringing it to $85,000.

Your marginal rate is still 30%, but you're only paying it on $5,000.

Tax on the gain: $1,500

That's a $1,500 saving -- half the tax -- just by holding for one extra month. The higher your marginal rate, the bigger the absolute saving. At the top marginal rate of 45%, the same $10,000 gain would cost $4,500 without the discount versus $2,250 with it.

When you DON'T get the discount

The 50% discount is generous, but it has clear boundaries. Here are the situations where it doesn't apply.

Held less than 12 months

The most common reason. If you sell before the 12-month mark, the entire capital gain is taxable at your marginal rate. There's no partial discount for holding 11 months and 29 days. It's binary: 12 months or nothing.

Company entities

Companies are completely excluded from the CGT discount. A company that sells an asset held for 20 years gets no discount -- the full gain is taxed at the company tax rate (25% for base rate entities, 30% otherwise). This is a major consideration when choosing your investment structure. Trusts can distribute discounted capital gains to individual beneficiaries, but companies cannot.

Foreign residents (post-8 May 2012 assets)

If you're a foreign resident for tax purposes, you cannot claim the CGT discount on assets acquired after 8 May 2012. For assets acquired before that date, the discount is prorated based on the number of days you were an Australian resident during the holding period versus the total holding period. If you became a non-resident after buying Australian shares, you'll lose some or all of the discount.

This hits Australian expats hard. Moving overseas for work can erode the CGT discount on your entire investment portfolio.

Trading stock

If the ATO considers your share trading to be carrying on a business (rather than investing), your shares may be classified as trading stock rather than CGT assets. Trading stock profits are assessed as ordinary income -- no CGT discount applies. The distinction depends on factors like frequency of trading, purpose of acquisition, and whether you have a business plan around your trading activity.

Collectables acquired for $500 or less

Personal use assets and collectables (artwork, jewellery, rare coins) acquired for $500 or less are CGT-exempt -- meaning no CGT at all, so the discount question is moot. But collectables acquired for more than $500 are CGT assets, and the discount does apply if held for 12 months. The $500 threshold is per item, not aggregate.

Other exclusions

The discount also doesn't apply to gains from a CGT event happening to a depreciating asset used for income-producing purposes (those follow the capital allowance rules instead), or to certain capital gains from life insurance policies and some financial arrangements taxed under Division 230.

How the discount interacts with capital losses

This is where people get tripped up. Capital losses are applied before the 50% discount, not after.

Here's why it matters. Say you have:

• A $10,000 capital gain on BHP shares (held 14 months -- eligible for discount)
• A $4,000 capital loss on Afterpay (sold at a loss)

The calculation goes:

1. Start with the $10,000 gain
2. Subtract the $4,000 loss = $6,000 net gain
3. Apply the 50% discount = $3,000 assessable gain

If losses were applied after the discount, you'd get: $10,000 discounted to $5,000, minus $4,000 loss = $1,000 assessable gain. That would be more favourable, which is exactly why the ATO doesn't do it that way.

You cannot choose which gains to offset losses against first. But if you have both discounted and non-discounted gains, you can apply losses against the non-discounted gains first to maximise your benefit. This is a legitimate strategy worth understanding.

Strategic implications

Understanding the discount creates real opportunities for tax-efficient investing.

Hold for 12 months when practical

If you're sitting on a gain and you're close to the 12-month mark, waiting a few extra days or weeks can halve your tax bill. This is one of the simplest and most effective tax planning strategies available to Australian investors.

Time sales around the 12-month mark

Before selling a profitable position, check the acquisition date. If you're two weeks short of 12 months, the tax saving from waiting will almost always outweigh the risk of a small price movement. At a 30% marginal rate on a $10,000 gain, that's $1,500 for waiting a fortnight.

Year-end loss harvesting

If you have unrealised losses at the end of financial year, consider crystallising them to offset gains -- but remember that losses reduce gains before the discount. Offsetting a discounted gain with a loss is less tax-efficient than offsetting a non-discounted gain.

Structure matters

If you're investing significant amounts, the entity you invest through affects whether you get the discount at all. Companies miss out entirely. Trusts can distribute discounted gains to individual beneficiaries. Super funds get a 33.33% discount. The right structure depends on your situation, but the CGT discount should be part of that decision.

Check your discount eligibility with Grove's free CGT calculator. Enter your purchase date, sale date, gain amount, and income -- it shows your exact tax with and without the discount, including days remaining until you qualify.