Explains how to work out each capital gain or capital loss you made during 2022–23.
Overview
It does not explain how to work out your net capital gain or net capital losses carried forward to later income years. If you are completing the Tax return for individuals (supplementary section) 2023 and want more information on how to calculate your net capital gain for 2022–23 or net capital losses carried forward to later income years (including how to deduct any unapplied net capital losses from earlier years), see part B of this guide. For more information about companies, trusts and funds or about completing the CGT summary worksheet, see part C of this guide.
Methods of calculating capital gains
There are 3 methods that are used to calculate a capital gain:
There is only one way to calculate a capital loss.
The 3 methods of calculating capital gains are summarised and compared in Table 2 below. They are explained in more detail in the following pages. In some cases, you may be able to choose either the discount method or the indexation method to calculate your capital gain. In these cases, you can use the method that gives you the better result.
The CGT summary worksheet for 2023 tax returns shows the 3 methods of calculating a capital gain. You are not obliged to use this worksheet, but you may find it helps you calculate your capital gain or capital loss for each CGT event.
Method type |
Indexation method |
Discount method |
'other' method |
|---|---|---|---|
Description of method |
Allows you to increase the cost base by applying an indexation factor based on CPI up to September 1999 |
Allows you to discount your capital gain |
Basic method of subtracting the cost base from the capital proceeds |
When can you use the method |
For an asset owned for 12 months or more. Use only for assets acquired before 11:45 am AEST on 21 September 1999. |
For an asset owned for 12 months or more |
You must use when the indexation and discount methods do not apply (for example, if you have bought and sold an asset within 12 months). |
How to calculate your capital gain using the method |
Apply the relevant indexation factor, see CPI table at appendix 2, then subtract the indexed cost base from the capital proceeds, see worked example 13. |
Subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage, see worked example 13. |
Subtract the cost base (or the amount specified by the relevant CGT event) from the capital proceeds, see worked example 9. |
The 'other' method
This is the simplest of the 3 methods. You must use the 'other' method to calculate your capital gain if you have bought and sold your asset within 12 months or generally for CGT events that do not involve an asset. In these cases, the indexation and discount methods do not apply.
Generally, to use the 'other' method, you simply subtract your cost base (what the asset cost you) from your capital proceeds (how much you sold it for). The amount of proceeds left is your capital gain. For some types of CGT events, a cost base is not relevant. See appendix 1 for the amounts to use.
Example 9: Calculating a capital gain using the 'other' method
Marie-Anne bought a property for $250,000 under a contract dated 23 June 2022. The contract provided for the payment of a deposit of $25,000 on that date, with the balance of $225,000 to be paid on settlement on 4 August 2022.
Marie-Anne paid stamp duty of $5,000 on 20 July 2022. On 4 August 2022, she received an account for solicitor's fees of $2,000 which she paid as part of the settlement process.
Marie-Anne sold the property on 16 October 2022 (the day the contracts were exchanged) for $315,000. She incurred costs of $1,500 in solicitor's fees and $4,000 in agent’s commission.
As she bought and sold her property within 12 months, Marie-Anne must use the 'other' method to calculate her capital gain.
Deposit |
$25,000 |
Balance |
$225,000 |
Stamp duty |
$5,000 |
Solicitor's fees for purchase of property |
$2,000 |
Solicitor's fees for sale of property |
$1,500 |
Agent's commission |
$4,000 |
Cost base (total) |
$262,500 |
Marie-Anne works out her capital gain as follows:
Capital proceeds |
$315,000 |
less cost base |
$262,500 |
Capital gain calculated using the 'other' method |
$52,500 |
Assuming Marie-Anne has not made any other capital losses or capital gains in 2022–23, and does not have any unapplied net capital losses from earlier years, the net capital gain to be included at question 18 in her Tax return for individuals (supplementary section) 2023 is $52,500.
End of exampleThe indexation method
Use the indexation method to calculate your capital gain if:
- a CGT event happened to an asset you acquired before 11:45 am AEST on 21 September 1999, and
- you owned the asset for 12 months or more.
If you are not a company and you meet the 2 conditions above and you wish to use the indexation method, you must choose to do so, otherwise the discount method will apply. If you are a company (other than a listed investment company) and the capital gain meets the conditions listed above, you must use the indexation method to calculate the capital gain. Specific rules affect certain assets of a life insurance company.
Under the indexation method, you increase each amount included in an element of the cost base (other than those in the third element, costs of owning the asset) by an indexation factor.
The indexation factor is worked out using the consumer price index (CPI) at appendix 2.
If the CGT event happened on or after 11:45 am AEST on 21 September 1999, you can only index the elements of your cost base up to 30 September 1999. You use this formula:
A = B ÷ C
Where:
- A is the indexation factor
- B is CPI for the quarter ending September 1999 (68.7)
- C is CPI for the quarter in which expenditure was incurred
If the CGT event happened before 11:45 am AEST on 21 September 1999, you use this formula:
A = B ÷ C
Where:
- A is the indexation factor
- B is CPI for the quarter when CGT event happened
- C is CPI for the quarter in which expenditure was incurred
Work out the indexation factor to 3 decimal places, rounding up if the 4th decimal place is 5 or more.
For most assets, you index expenditure from the date you incur it, even if you do not pay some of the expenditure until a later time. However, there is an exception for partly paid shares or units acquired on or after 16 August 1989. If the company or trust later makes a call on the shares or units, you use the CPI for the quarter in which you made that later payment.
There are some exceptions to the requirement that you must have owned an asset for at least 12 months for indexation to apply. For example, you can use the indexation method if:
- you acquire a CGT asset as a legal personal representative or a beneficiary of a deceased estate. The 12-month requirement is satisfied if the deceased acquired the asset 12 months or more before you disposed of it, or
- you acquired an asset as the result of a marriage or relationship breakdown. You will satisfy the 12-month requirement if the combined period your spouse and you owned the asset is more than 12 months.
The discount method
Use the discount method to calculate your capital gain if:
- you are an individual, a trust or a complying superannuation entity
- a CGT event happens to an asset you own
- the CGT event happened after 11:45 am AEST on 21 September 1999
- you acquired the asset at least 12 months before the CGT event
- you did not choose to use the indexation method.
Generally, the discount method does not apply to companies, although it can apply to a limited number of capital gains made by life insurance companies.
In determining whether you acquired the CGT asset at least 12 months before the CGT event, you exclude both the day of acquisition and the day of the CGT event.
You can use the discount method to work out your capital gain from the property if you:
- acquire a property and construct a building or make improvements to it that are not separate assets (see Separate assets)
- owned the property for at least 12 months (even if you did not construct the new building or improvements more than 12 months before the CGT event happened).
Example 10: Discount method
Sally acquired a CGT asset on 2 February 2022. She is entitled to apply the CGT discount if a CGT event happened to that asset on or after 3 February 2023.
End of exampleIn certain circumstances, you may be eligible for the CGT discount even if you have not owned the asset for at least 12 months. For example:
- You acquire a CGT asset as a legal personal representative or as a beneficiary of a deceased estate. The 12-month requirement is satisfied if the asset was acquired by the deceased
- before 20 September 1985 and you disposed of it 12 months or more after they died, or
- on or after 20 September 1985 and you disposed of it 12 months or more after they acquired it.
- You acquired a CGT asset as the result of a marriage or relationship breakdown and rollover applies. You will satisfy the 12-month requirement if the combined period your spouse and you owned the asset was more than 12 months.
- A CGT asset was compulsorily acquired, lost or destroyed and you acquired a rollover replacement asset, you will satisfy the 12-month requirement for the replacement asset if the period of ownership of the original asset and the replacement asset was at least 12 months.
Certain capital gains are excluded
The CGT discount does not apply to capital gains from certain CGT events. The CGT discount does not apply to these CGT events:
- D1 Creating contractual or other rights
- D2 Granting an option
- D3 Granting a right to income from mining
- E9 Creating a trust over future property
- F1 Granting a lease
- F2 Granting a long-term lease
- F5 Lessor receives payment for changing a lease
- H2 Receipt for an event relating to a CGT asset
- J2 Change for replacement asset or improved asset after a rollover under Subdivision 152-E
- J5 Failure to acquire replacement asset and to incur 4th element expenditure after a rollover under Subdivision 152-E
- J6 Cost of acquisition of replacement asset or amount of 4th element expenditure, or both, not sufficient to cover disregarded capital gain
- K10 Forex realisation gain.
The full list of CGT events is shown at Appendix 1.
If you make a capital gain from a CGT event that creates a new asset (for example, receiving a payment for agreeing not to do something; that is, entering into a restrictive covenant) you cannot satisfy the 12-month ownership rule, so your CGT event does not qualify for the CGT discount.
The CGT discount may be denied:
- if the CGT event that gave rise to the capital gain occurred under an agreement that was made within 12 months of the acquisition of the asset
- on the disposal of certain shares or trust interests in non-widely held companies and trusts, that is, those with fewer than 300 members
- if an arrangement was entered into for the purposes of claiming the CGT discount under which an ‘income’ asset was converted into a ‘capital’ asset (conversion of income to capital) (Part IVA of the Income Tax Assessment Act 1936).
If the home first used to produce income rule applies and the period between when you first used the dwelling to produce income and the CGT event happening is not at least 12 months, the discount method is not available.
Discount percentage
The discount percentage is the percentage by which you reduce your capital gain. You can reduce the capital gain only after you have applied all the capital losses for 2022–23 and any unapplied net capital losses from earlier years.
The discount percentage is 50% for individuals and trusts, and 33⅓% for complying superannuation entities and eligible life insurance companies.
You may no longer receive the full 50% discount on capital gains made on taxable Australian property if you are:
- an individual
- a beneficiary of a trust, or
- a partner in a partnership
and
- a foreign or temporary resident, or
- an Australian resident with a period of foreign residency.
An additional CGT discount of up to 10% may be available to Australian resident individuals who provide affordable rental housing to people earning low to moderate income. This increases the CGT discount percentage to up to 60% for qualifying owners of these residential rental properties. To qualify, you must have provided affordable housing:
- on or after 1 January 2018 for a period or periods totalling at least 3 years (1,095 days), which may be aggregate usage over different periods; and
- either directly, or from a trust including where there is an interposed entity between you and the trust. The trust that provides the affordable housing and any interposed entities may be a trust, a managed investment trust or partnership, but cannot be a public unit trust or superannuation fund.
The number of days you may have provided affordable housing before 1 January 2018 will not be counted.
For more information, see CGT discount for foreign residents.
Choosing the indexation or discount method
For assets you acquired before 11:45 am AEST on 21 September 1999 and have held for 12 months or more, you can choose to use the indexation method or the discount method to calculate your capital gain.
There is no one factor to use as a basis to select the better option as it depends on:
- the type of asset you own
- how long you have owned it
- the dates you owned it
- past rates of inflation.
Because capital losses must be offset against capital gains before the discount is applied, your choice may also depend on the amount of capital losses that you have available.
For more information, see Choices.
Example 11: Comparison of discount and indexation methods
Justin sold some land and has a $10,000 capital gain under the discount method (before applying the CGT discount) or a $7,000 capital gain under the indexation method. If Justin has no capital losses, the discount method will produce the smaller capital gain (that is, $5,000).
However, Justin also made a capital loss of $5,000 on the sale of some shares. He will be better off using the indexation method to work out the capital gain from the sale of his land. Under this method, his net capital gain is $2,000 (that is, $7,000 minus $5,000). If he used the discount method, his net capital gain would be $2,500 (that is $10,000 minus $5,000, multiplied by 50%).
End of exampleExample 12 shows that applying one method to work out your capital gains on a whole parcel of shares you acquired before September 1999 may not be to your advantage if you have capital losses or net capital losses to apply.
In this situation, you will get a better result if you apply the indexation method to sufficient shares to absorb the capital loss (or as much of the capital loss as you can) and apply the discount method to any remaining shares.
Example 12: Capital gains on shares where you also have capital losses
Clare sold a parcel of 500 shares in March 2023 for $12,500, that is, for $25 each. She had acquired the shares in March 1995 for $7,500, that is, for $15 each, including stamp duty and brokerage. There was no brokerage on the sale. Clare had no other capital gains or capital losses in 2022–23, although she has $3,500 net capital losses carried forward from previous income years.
Because Clare owned the shares for more than 12 months she can use the discount method or the indexation method to work out her capital gains, whichever gives her a better result. Clare decides to work out her net capital gain by applying both the discount method and the indexation method to the whole parcel of shares:
Calculation element |
Using indexation method |
Using discount method |
|---|---|---|
Capital proceeds |
12,500 |
12,500 |
Cost base |
8,077 (see note 1) (acquisition cost × indexation factor) |
7,500 |
Capital gain |
4,423 |
5,000 |
less capital losses |
3,500 |
3,500 |
Subtotal |
923 |
1,500 |
CGT discount |
Nil |
750 |
Net capital gain |
923 |
750 |
Note 1: $7,500 × 1.077 (indexation factor is 68.7 ÷ 63.8 = 1.077)
However, because each share is a separate asset, Clare can use different methods to work out her capital gains for shares within the parcel. The lowest net capital gain would result from her applying the indexation method to the sale of 395 (see note 2 below) shares, and the discount method to the remaining 105 shares. She works out her net capital gain as follows:
Capital proceeds ($25 each) |
$9,875 |
Cost base (395 × $15 × 1.077 each) |
$6,381 |
Capital gain |
$3,494 |
less capital losses |
$3,500 |
Capital gain/(loss) |
−$6 |
Capital proceeds ($25 each) |
$2,625 |
Cost base (105 × $15) |
$1,575 |
Capital gain |
$1,050 |
less any remaining capital losses |
$6 |
|
$1,044 |
CGT discount |
$522 |
Net capital gain |
$522 |
Note 2: To calculate this, Clare worked out the capital gain made on each share using the indexation method ($4,424 ÷ 500 = 8.85) and divided the capital loss by this amount ($3,500 ÷ 8.85 = 395).
End of exampleYou can choose to calculate your capital gain using both methods to find out which gives you the better result. This is shown for Val in example 13 and in the completed Capital gain or capital loss worksheet 2023.
Example 13: Choosing the indexation or discount method
Val bought a property for $150,000 under a contract dated 24 June 1991. The contract provided for the payment of a deposit of $15,000 on that date, with the balance of $135,000 to be paid on settlement on 5 August 1991.
She paid stamp duty of $5,000 on 20 July 1991. On 5 August 1991, she received an account for solicitor's fees of $2,000, which she paid as part of the settlement process.
She sold the property on 15 October 2022 (the day the contracts were exchanged) for $350,000. She incurred costs of $1,500 in solicitor's fees and $4,000 in agent's commission.
Val’s capital gain calculated using the indexation method
Deposit × indexation factor |
$17,460 |
Balance × indexation factor |
|
Stamp duty × indexation factor |
$5,795 |
Solicitor's fees for purchase of property × indexation factor |
|
Solicitor's fees for sale of property |
$1,500 |
Agent's commission |
|
Cost base (total) |
$188,213 |
Val works out her capital gain as follows: |
|
Capital proceeds |
$350,000 |
less cost base |
$188,213 |
Capital gain |
$161,787 |
Assuming Val has not made any other capital losses or capital gains in 2022–23 and does not have any unapplied net capital losses from earlier years, her net capital gain using the indexation method is $161,787.
Val’s capital gain calculated using the discount method
Deposit |
$15,000 |
Balance |
$135,000 |
Stamp duty |
$5,000 |
Solicitor's fees for purchase of property |
$2,000 |
Solicitor's fees for sale of property |
$1,500 |
Agent's commission |
$4,000 |
Cost base (total) |
$162,500 |
Val works out her capital gain as follows: |
|
Capital proceeds |
$350,000 |
less cost base |
$162,500 |
Capital gain before applying discount |
$187,500 |
less CGT discount |
$93,750 |
Net capital gain |
$93,750 |
Val considers the discount method gives her the better result. Val will write the amount worked out using the discount method on her tax return rather than the amount worked out using the indexation method.
The Capital gain or capital loss worksheet 2023 shows how Val might complete the worksheet using both methods.
End of exampleHow to calculate a capital loss
Example 14: Calculating a capital loss
Antonio acquired a new income-producing asset on 28 September 1999 for $100,000, including stamp duty and legal costs. He sold it for $90,000 in November 2022. During the period he owned it, he was allowed capital works deductions of $7,500. Antonio works out his capital loss as follows:
Cost base |
$100,000 |
less capital works deductions |
$7,500 |
Reduced cost base |
$92,500 |
less capital proceeds |
$90,000 |
Capital loss |
$2,500 |
End of example
Example 15: Calculating a capital loss
In July 1996, Chandra bought 800 shares at $3 per share. He incurred brokerage and stamp duty of $100. In December 2022, Chandra sold all 800 shares for $2.50 per share. He incurred brokerage of $75. He made a capital loss, calculated as follows:
Calculation of reduced cost base
July 1996 |
Purchase price |
$2,400 |
July 1996 |
Brokerage and stamp duty |
$100 |
December 2022 |
Brokerage |
$75 |
Reduced cost base |
|
$2,575 |
Calculation of capital loss
Reduced cost base |
$2,575 |
Capital proceeds (800 × $2.50) |
$2,000 |
Capital loss |
$575 |
End of example
However, the reduced cost base is not relevant for some types of CGT events. In these cases, see appendix 1 for the amounts to use for the particular CGT event.
Reduced cost base
You cannot index a reduced cost base.
Continue to: Keeping records