With recent market volatility triggered by Trump’s tariffs leading to widespread share sell-offs globally, it’s more important than ever to understand how Capital Gains Tax (CGT) applies to the sale of shares in Australia.
1. Know Your Cost Base
When calculating your capital gain (or capital loss), it’s crucial to determine the correct “cost base” of your shares. This includes the
original purchase price and any associated brokerage fees.
If your shares were acquired through a Dividend Reinvestment Plan (DRIP), the cost base is the value of the dividend used to purchase those
shares.
2. Partial Parcel Sales – Keep Accurate Records
If you’re only selling part of a parcel of shares—especially where you’ve bought shares at different times and prices—you’ll need to identify which specific shares are being sold. In most cases, an identifier (like an ASX code or company name) will assist, but where this isn’t available, the ATO allows you to choose which parcel is sold, provided you maintain proper records. This flexibility may help you manage your CGT position more effectively.
3. Take Advantage of the CGT Discount
Shares held for at least 12 months (not including the day of purchase or the day of sale) may be eligible for the 50% CGT discount, significantly reducing your taxable gain. Make sure you meet the timing requirements before applying the discount.
4. Understand How to Calculate Net Capital Gains
When calculating your net capital gain for the year, capital losses—both from the current year and any carried forward—must be applied before
the CGT discount is calculated. This can impact the overall tax payable and should be carefully reviewed.
If you have multiple capital gains, you may choose which gains to offset with losses first. Typically, it’s more tax-effective to apply
losses to gains that don’t qualify for the CGT discount.
5. Avoid “Wash Sales”
In a volatile market, it may be tempting to sell shares at a loss and repurchase them shortly after to claim a tax benefit. However, the ATO may view this as a “wash sale” and consider it a form of tax avoidance—potentially leading to penalties.
Seek Professional Advice
Navigating CGT rules can be complex, especially when multiple gains and losses are involved. For tailored, tax-effective strategies aligned with your circumstances, consult a qualified tax advisor before selling your shares.
