You do not pay tax on shares for going up in value. You pay when you sell, and that single distinction is where a lot of investors trip up.

Capital gains tax is not a separate tax in Australia. It is part of your income tax, applied to the profit you make when you dispose of an asset like shares.

When CGT actually applies

A CGT event is triggered when you dispose of shares. That includes:

• Selling them on-market for Australian dollars.
• Transferring or gifting them to someone else.
• Certain off-market transfers and share buy-backs.

Simply holding shares that have risen in value does not trigger anything. Those are unrealised gains, and they are not taxed until you sell.

The 50% CGT discount

If you are an individual and you held the shares for more than 12 months before disposing of them, only half of the capital gain is taxable. Hold for less than 12 months and the full gain is added to your income.

Capital losses work in your favour

If you sell for less than your cost base, you make a capital loss. Losses offset capital gains in the same financial year, and any unused loss carries forward to future years. Losses cannot be applied against your salary or other ordinary income.

Watch out for reinvested dividends

If you are in a dividend reinvestment plan, each reinvestment buys new shares with their own cost base and their own 12-month clock. Those parcels are easy to forget and are a common source of errors at tax time.

Track every parcel automatically

The tricky part is not the rule, it is tracking dozens of parcels with different purchase dates and prices. Summ keeps a running cost base for every parcel, flags which sales qualify for the discount, and applies your losses for you.

Try Summ for free.

This article is general information only and does not take your personal circumstances into account. For advice specific to your situation, speak to a registered tax agent.