How does the 50% capital gains tax discount work in Australia?

Introduction

The 50% capital gains tax discount is one of the most valuable tax concessions available to Australian investors. It allows eligible individuals and trusts to reduce their taxable gain by half when selling an asset held for more than twelve months.

In this blog, we explain how the 50% capital gains tax discount in Australia works, who qualifies, situations where it does not apply, and how to report it correctly in your tax return. At ZedPlus our accounting and tax experts help investors plan property and asset sales strategically to make the most of this discount and ensure full compliance with ATO requirements.

In this blog, we will explain what capital gains tax (CGT) is, how it works for property investors, how to calculate it using the ZedPlus Capital Gain Tax Calculator, and ways to increase your after-tax returns through better planning.

What is the 50% capital gains tax discount?

The 50% capital gains tax (CGT) discount allows eligible Australian residents to reduce their capital gain by half when they sell an asset they have owned for more than 12 months. It is one of the most common and valuable tax concessions available to individuals and trusts.

For example, if you make a capital gain of $200,000 from selling an investment property, you only need to report $100,000 as taxable income if you meet the discount criteria. This discounted amount is then added to your assessable income and taxed at your marginal rate.

The discount applies to a wide range of assets, including property, shares, managed funds, and business investments. However, it does not apply to companies.

Who qualifies for the CGT discount in Australia?

Eligibility for the 50% CGT discount depends on both your residency and the type of entity that owns the asset.

• Individuals can claim a 50% discount if they are Australian residents for tax purposes and have held the asset for at least 12 months.
• Trusts can also claim the 50% discount and pass the benefit through to beneficiaries.
• Complying superannuation funds are entitled to a reduced 33.33% discount.
• Companies cannot claim any CGT discount.

It is important to confirm your residency status at the time of the CGT event, as this determines whether you can apply the discount in full or only partially.

The 12-month rule explained: When you can claim the CGT discount

To access the CGT discount:

The asset must be held for at least 12 months before the CGT event occurs (usually the contract date).

The acquisition and disposal days are excluded from the 12-month period.

Special scenarios that still count toward the 12 Months:

• Assets acquired from a deceased estate.
• Transfers during a relationship breakdown.
• Assets replaced under rollover relief provisions.

When does the 50% CGT discount not apply?

While the 50% discount is widely available, there are several important exceptions.

• Assets held for less than 12 months – The discount does not apply to assets sold within a year of acquisition.
• Foreign or temporary residents – The full 50% discount is not available for capital gains made by foreign or temporary residents after 8 May 2012. You may be eligible for a partial discount if part of the ownership period occurred while you were an Australian resident.
• Pre-1999 assets – If you bought the asset before 21 September 1999, you can choose to use indexation for inflation instead of the 50% discount. Most taxpayers get a better outcome using the discount, but both methods cannot be used together.
• Creation of new assets – You cannot claim the discount for capital gains arising from the creation of a new asset, such as a restrictive covenant or a lease agreement, because there was no prior ownership period.
• Non-widely held entities – If you dispose of interests in a company or trust with fewer than 300 members, the CGT discount may be denied.
• Reclassification of income assets – If you convert an income-producing asset into a capital asset primarily to claim the CGT discount, the ATO may disallow the discount under anti-avoidance provisions.

How to calculate your capital gain with the 50% discount?

Calculating your discounted gain involves a few key steps.

Step 1: Determine your capital gain by subtracting the cost base (purchase price, stamp duty, legal fees, and selling costs) from the sale price.

Step 2: Subtract any capital losses from other investments.

Step 3: Apply the 50% discount to the remaining gain if you qualify.

Step 4: Report the discounted gain in your tax return under assessable income.

For example, if your property sale produced a $180,000 gain after costs and you are eligible for the 50% discount, you only need to declare $90,000 as taxable income.

How to calculate CGT with the 50% discount (Example)

Consider an investor who bought a rental property for $600,000 and sold it for $800,000 after two years. After deducting $20,000 in selling costs, the total capital gain is $180,000.

Since the property was held for more than 12 months and the seller is an Australian resident, the 50% CGT discount applies. Only $90,000 of the gain is included in taxable income.

If the taxpayer’s marginal rate is 37%, the tax payable on that gain would be $33,300 instead of $66,600. The timing and structure of ownership make a significant difference to the outcome.

To learn more about improving after-tax returns, check out the article on how property investors can maximise returns using a capital gains tax calculator.

Common mistakes that can make you lose the CGT discount

Many taxpayers unintentionally miss out on the CGT discount due to simple oversights. Some of the most frequent mistakes include:

• Selling an asset before completing the 12-month ownership period.
• Holding assets through a company that is not eligible for the discount.
• Missing acquisition or improvement costs when calculating the cost base.
• Overlooking residency changes that can affect your eligibility.
• Using indexation for a pre-1999 asset instead of the 50% discount.

A careful review of ownership structure, timing, and documentation can prevent these issues.

Difference between CGT discount and CGT exemption

Many investors confuse the capital gains tax (CGT) discount with CGT exemptions. While both reduce the amount of tax you pay, they apply in very different situations.

Aspect	CGT Discount	CGT Exemption
What it does	Reduces the taxable capital gain by 50%	Removes capital gains tax entirely
Example	Sale of a long-term investment property	Sale of your main residence
Who can claim	Individuals and trusts	Homeowners or eligible small businesses
Time requirement	Must own the asset for more than 12 months	Depends on the specific exemption rules

Both options reduce your CGT liability, but they work in different ways. Selling your main residence is generally CGT-free under the main residence exemption, while selling an investment property after 12 months may qualify for the 50% discount.

How to report the discount on our tax return?

When completing your tax return:

• Include your total capital gain in the CGT schedule
• Subtract any capital losses from other assets
• Apply the 50% discount if you meet the eligibility rules
• Report the discounted gain as part of your assessable income.
• Keep complete records to support your calculations if the ATO requests verification.

You can review the ATO’s guidance on record-keeping for CGT to confirm what’s required.

If you’re using accounting software, double-check that it applies the CGT discount correctly. Automated data imports from investment platforms can occasionally cause errors, so it’s important to verify the final figures before you lodge.

Final thoughts

The 50% capital gains tax discount is one of the most effective ways for Australian property investors to reduce their overall tax bill. The timing of your sale, how the property is owned, and the way your finances are structured can all make a meaningful difference to your result.

At ZedPlus, we help investors connect their lending and tax strategies to achieve better long-term outcomes. Whether you are preparing to sell, refinance, or reinvest, our team can guide you through each stage with accuracy and compliance in mind.

If you are planning your next purchase, explore investment property loan options in Australia to structure your finance effectively, or book a call with our expert team to discuss your property and tax strategy today.