When you sell shares or ETFs for more than they cost you, the profit is a capital gain and it is subject to capital gains tax (CGT). Shares are one of the most common triggers for CGT because they are easy to buy and sell, often in multiple parcels over time. The good news is that the rules for shares are relatively clean once you understand cost base, the 12-month discount and how to choose which parcel you are selling.
Try it: the Capital Gains Tax Calculator applies the 50% discount and estimates the tax on a share sale.
This guide sits under our pillar, capital gains tax in Australia. If you are still building a share portfolio, our beginner guide on how to buy shares in Australia is a good companion.
When CGT applies to shares
A CGT event happens when you dispose of shares — usually by selling them, but also by gifting them or transferring ownership. The CGT event date is the date of the trade (the contract date), not the settlement date a couple of days later. That date decides which financial year the gain falls into, which matters if you are selling near 30 June.
Buying shares is not a CGT event. Receiving dividends is not a CGT event either — dividends are ordinary income, taxed separately. That said, franking credits attached to those dividends are an important part of your overall return; see franking credits explained for how dividend imputation works alongside your capital gains.
Working out the gain on shares
The gain is your capital proceeds minus your cost base.
- Capital proceeds = the sale price less selling brokerage.
- Cost base = the purchase price plus buying brokerage, plus any incidental costs.
Brokerage is the most commonly missed element. It is small per trade but adds up, and it reduces your gain on both the buy and sell side.
If the shares are worth less than their cost base when you sell, you make a capital loss. Losses cannot reduce your salary or other income, but they offset capital gains this year and can be carried forward indefinitely — see capital losses and carry-forward.
The 50% discount on shares
If you are an individual (or trust) and have held the shares for more than 12 months, you only pay tax on half the gain thanks to the 50% CGT discount. The clock runs from the day after you bought to the date of the sale contract.
| Who holds the shares | Discount on gains (held >12 months) |
|---|---|
| Individuals and trusts | 50% |
| Complying super funds (incl. SMSFs in accumulation) | 33.3% |
| Shares sold in SMSF pension phase | Effectively nil CGT |
| Companies | No discount |
The 12-month rule is decisive: selling at 11 months forfeits the discount entirely. See the CGT discount and 12-month rule for the full detail. If you hold shares inside super, the CGT and SMSF guide explains the concessional rates.
Choosing which parcel you sell
If you have bought the same share in several parcels over time, you can generally choose which parcel you are deemed to sell. This matters because different parcels may have different cost bases and different holding periods.
For example, you might choose to sell:
- A higher-cost-base parcel to reduce the gain this year, or
- A parcel held for more than 12 months to qualify for the 50% discount, or
- A loss-making parcel to crystallise a loss and offset other gains.
You must keep clear records identifying which shares you sold. If you cannot identify them, the ATO expects a “first in, first out” approach. Good record-keeping is what makes parcel selection possible.
Worked example: selling shares
Nadia has been buying shares in the same company:
- Parcel A: 500 shares bought 3 years ago at $10 (cost base $5,000 + $20 brokerage = $5,020)
- Parcel B: 500 shares bought 8 months ago at $18 (cost base $9,000 + $20 brokerage = $9,020)
The shares are now $22. Nadia wants to sell 500 and needs the cash. She compares selling each parcel.
If she sells Parcel A (held >12 months):
| Item | Amount |
|---|---|
| Capital proceeds ($11,000 − $20) | $10,980 |
| Cost base | $5,020 |
| Gross gain | $5,960 |
| 50% discount | −$2,980 |
| Net capital gain | $2,980 |
If she sells Parcel B (held <12 months):
| Item | Amount |
|---|---|
| Capital proceeds ($11,000 − $20) | $10,980 |
| Cost base | $9,020 |
| Gross gain | $1,960 |
| Discount (held <12 months) | $0 |
| Net capital gain | $1,960 |
Selling Parcel B produces a smaller net taxable gain this year ($1,960 vs $2,980) because its cost base is higher. But if she waited four more months, Parcel B would also qualify for the discount, cutting its taxable gain to $980. There is rarely a single “right” answer — it depends on your cash needs, your income this year and your longer-term plan.
ETFs and managed funds
ETFs and managed fund units are shares for CGT purposes, but they add a wrinkle: as well as the gain when you sell, the fund itself buys and sells assets internally, and it distributes any net capital gains to you each year through the annual tax statement. Those distributed gains are included in your assessable income in the year you receive them, and the discountable portion is flagged on the statement so you can apply the 50% discount to it. When you eventually sell the ETF units themselves, that is a separate CGT event calculated in the usual way. The practical point is to use the fund’s annual tax statement (often an AMMA statement) rather than trying to reverse-engineer the numbers yourself.
Bonus issues, splits and takeovers
Corporate actions can change your parcels without a cash sale. A share split or bonus issue generally spreads your existing cost base across more shares rather than creating a new gain. A takeover or merger may trigger a CGT event, though “scrip-for-scrip” rollover relief can sometimes defer the gain if you receive shares in the acquirer rather than cash. These situations are common for long-term holders, so keep the paperwork from any corporate action and check whether rollover relief applied before assuming you have a gain to report.
Common pitfalls with share CGT
- Forgetting brokerage on both the buy and the sell side.
- Using the settlement date rather than the trade date to decide the financial year.
- Not tracking parcels, which removes your ability to choose the most tax-effective one.
- Overlooking dividend reinvestment plans (DRPs) — each reinvestment is a separate parcel with its own cost base and start date.
- Assuming a loss is “used up” — losses carry forward until you have gains to offset.
If you are weighing shares against bricks and mortar, our comparison of shares vs property in Australia looks at the tax and practical trade-offs, and CGT on investment property covers the property side in detail.
This article is general information only and not financial or tax advice; consider your own circumstances and speak to a licensed adviser or the ATO before acting.