Selling Shares? Make Sure You Understand the Capital Gains Tax (CGT) Rules

Whether you’re reacting to market volatility or simply looking to rebalance your portfolio, it’s essential to understand how Capital Gains Tax (CGT) applies when selling shares in Australia.

Making the right decisions — and avoiding common mistakes — can significantly affect your tax outcome.

1. Understand Your Cost Base

To calculate your capital gain (or loss), you need to determine the cost base of your shares. This generally includes:

• The original purchase price
  
• Brokerage fees and transaction costs
  

If you acquired shares through a dividend reinvestment plan (DRP), the cost base is the value of the dividend used to buy those shares — not the market price on the reinvestment date.

Accurately tracking this over time can prevent you from overpaying tax on your gains.

2. Selling Part of a Share Parcel? Keep Records

If you've bought shares in the same company at different times or prices, and you're only selling part of your holding, you'll need to be able to identify which parcel you're selling.

The ATO generally allows flexibility — you can choose which parcel is sold — but only if you maintain detailed records.

This can be a powerful tool in managing your CGT position:

• Selling older shares may qualify for the CGT discount
  
• Selling shares with a higher cost base may reduce your capital gain
  

Either way, good recordkeeping is key.

3. Use the 12-Month CGT Discount Wisely

If you hold your shares for more than 12 months, you may be eligible for a 50% discount on any capital gain.

Just be aware:

• The 12 months excludes the day of purchase and the day of sale
  
• Timing matters — don’t assume the discount applies automatically
  
• Selling too early could double your tax exposure unnecessarily
  

Check the dates before selling, especially around EOFY.

4. Offset Gains and Losses Strategically

When calculating your net capital gain for the financial year:

• You must apply current and carried-forward capital losses first
  
• Only after losses are applied can the CGT discount be used
  

If you have multiple gains and losses in the same year, you can choose which gains to offset first — and it's often smarter to apply losses to gains that don’t qualify for the CGT discount, to preserve the benefit.

This is where advice can really pay off — timing and sequencing make a difference.

5. Don’t Get Caught in a “Wash Sale”

Selling shares to realise a loss, then buying them back shortly after, might seem like a smart way to reduce tax — but the ATO may view this as a “wash sale”.

Wash sales are considered artificial tax arrangements and can lead to your capital loss being disallowed — and even penalties in some cases.

If you're considering this type of strategy, get advice first. The short-term benefit may not be worth the long-term risk.

Final Tip: Get Personalised Advice Before Selling Shares

The CGT rules around shares are full of fine print — especially if you:

• Hold multiple parcels
  
• Use dividend reinvestment
  
• Have carried-forward losses
  
• Trade through multiple platforms
  

A single share sale might seem simple, but the tax consequences rarely are.

Before making a move, speak to a qualified tax adviser to ensure you’re making tax-effective decisions based on your personal situation.