Assignment – Capital Gains Tax Calculation and Advice for an Individual Investor

Introduction

Capital gains tax (CGT) is not a separate tax in Australia; it operates by including a net capital gain in assessable income under s 102-5 of the Income Tax Assessment Act 1997 (Cth) (ITAA97) (Woellner et al. 2024). This assignment calculates the CGT consequences of three disposals made by a Perth investor, Ms Elena Marsh, in the income year ended 30 June 2025, and advises her on timing, record keeping and engagement with Australian Taxation Office (ATO) guidance. The disposals comprise ASX-listed shares held for 14 months, an East Perth apartment held for six years that was her main residence for the final two, and a holding of Ether sold after eight months. Each disposal is framed as a CGT event, each cost base is built element by element, the exemption is apportioned by days, the loss is offset in the required order, and the net capital gain is converted into an estimated liability at 2024-25 resident rates.

Scenario, Assumptions and Method

Ms Marsh is a project accountant with a Perth engineering consultancy on a salary of $98,000. She sold 2,000 shares in Karri Resources Ltd, an ASX-listed mining services company, on 10 April 2025, having bought them on 5 February 2024. She also sold a two-bedroom strata-titled apartment in East Perth under a contract dated 26 July 2024, settled 31 August 2024; she had owned it since 1 September 2018, letting it to tenants for four years while renting in Subiaco (rentvesting) and occupying it as her main residence for the final two years. Finally, she sold a parcel of Ether on 12 June 2025, acquired on 15 October 2024 through an AUSTRAC-registered Australian digital currency exchange.

The analysis rests on the following assumptions:

• Ms Marsh is an Australian tax resident throughout and holds every asset on capital account as an investor, not as a trader carrying on a business (Barkoczy 2025).
• All assets were acquired after 21 September 1999, so the discount method applies and indexation is unavailable.
• No Division 43 capital works deductions were ever claimed for the apartment: the building was completed in 1984 and the only capital improvement occurred during the owner-occupation period, so no cost base reduction under s 110-45 arises.
• Ownership costs during the rental years were deductible against rent and so excluded from the cost base; only the owner-occupation period’s non-deductible costs enter the third element.
• She held complying private hospital cover all year, so the Medicare levy surcharge is not triggered, and the salary is her only other taxable income.

The Statutory Framework

Each sale is a disposal of a CGT asset and therefore CGT event A1 under s 104-10 of the ITAA97; the event happens when the contract is made, not at settlement (s 104-10(3)), which is why the apartment gain falls into 2024-25 (Woellner et al. 2024). A capital gain arises where capital proceeds (Division 116) exceed the cost base, which s 110-25 builds from five elements: acquisition cost; incidental costs (brokerage, transfer duty, conveyancing, agent commission); non-deductible ownership costs for assets acquired after 20 August 1991; capital improvements; and title costs. A capital loss is measured against the reduced cost base (s 110-55), which excludes the third element (Sadiq et al. 2024).

Three further rules shape the computation. Subdivision 118-B exempts a main residence, but only partially where the dwelling was the taxpayer’s main residence for part of the ownership period; s 118-185 apportions the gain by days. Division 115 halves a gain made by a resident individual on an asset held for at least 12 months (ss 115-25, 115-100). Finally, the method statement in s 102-5 requires current-year losses to be offset first, in the order the taxpayer chooses, then prior-year losses, and only then the discount (ATO 2024a). Figure 1 illustrates this sequence, which is applied to each asset below.

Asset 1: Karri Resources Ltd Shares (Held 14 Months)

The share parcel is the simplest disposal. The cost base comprises the purchase consideration of $43,000 plus $60 of brokerage as second-element incidental costs (s 110-35); the capital proceeds are the gross sale consideration of $56,860. As shown in Table 1, the gross capital gain is $13,800. Because 14 months separate acquisition and CGT event A1, the 12-month condition in s 115-25 is satisfied and the gain is a discount capital gain, although the discount is deferred until losses are applied under the method statement.

Table 1: Worked CGT calculation, Karri Resources Ltd shares (CGT event A1, 10 April 2025)

Asset 2: East Perth Apartment and the Partial Main Residence Exemption

The apartment cost $410,000, with transfer duty of $14,290 payable to RevenueWA and conveyancing of $1,200; it sold for $610,000, with agent commission of $13,750 and settlement fees of $1,310. During owner occupation Ms Marsh incurred $8,940 of non-deductible interest, rates, strata levies and insurance (third-element ownership costs) and spent $12,510 on an October 2022 kitchen and bathroom renovation (a fourth-element improvement). Table 2 assembles the $462,000 cost base and the $148,000 gross gain.

The exemption analysis turns on occupancy history. Because the apartment was tenanted from settlement, s 118-135 cannot deem earlier occupation; the market-value reset in s 118-192 has no operation, as it applies only where the dwelling would have been fully exempt immediately before first producing income; and the s 118-145 absence rule is irrelevant because she occupied the apartment continuously from 1 September 2022 until sale. The partial exemption formula in s 118-185 therefore governs. Measured settlement to settlement as s 118-125 requires, the ownership period runs from 1 September 2018 to 31 August 2024, a total of 2,192 days (the period includes the 29 February days of 2020 and 2024). The dwelling was her main residence for the final 731 days, leaving 1,461 non-main-residence days.

Assessable gain = gross gain × non-main-residence days / total ownership days = 148,000 × 1,461 / 2,192 = $98,644 (nearest dollar). The exemption accordingly shelters $49,356 of the gain. Having held the apartment for six years, Ms Marsh comfortably satisfies s 115-25, so the surviving $98,644 is also a discount capital gain, as summarised in Table 2.

Table 2: Worked CGT calculation, East Perth apartment (CGT event A1 at contract, 26 July 2024)

Asset 3: Ether Sold at a Loss (Held 8 Months)

Crypto assets are CGT assets within s 108-5, a position first articulated for bitcoin in Taxation Determination TD 2014/26 and now applied to crypto assets generally (ATO 2014; ATO 2024b). Because Ms Marsh acquired the Ether as an investment, it is not a personal use asset under s 108-20 and the loss is not disregarded. As Table 3 shows, capital proceeds of $13,600 fell short of the reduced cost base of $18,250, producing a capital loss of $4,650. Had a gain arisen, the eight-month holding would have failed s 115-25 and the profit would have been assessable in full; in any event the discount never applies to losses, which retain full face value when offset.

Table 3: Worked CGT calculation, Ether parcel (CGT event A1, 12 June 2025)

Loss Offset Ordering and the Net Capital Gain

The s 102-5 method statement is now applied across the portfolio:

1. Step 1. Current-year gains total 13,800 + 98,644 = $112,444. The current-year loss of $4,650 is applied in the order Ms Marsh chooses; here it is set against the apartment gain: 98,644 less 4,650 = $93,994, leaving gains of $93,994 and $13,800.
2. Step 2. There are no net capital losses from earlier years.
3. Step 3. Both remaining gains are discount capital gains: (93,994 + 13,800) × 50% = $53,897.
4. Steps 4 and 5. The small business concessions do not apply, so the net capital gain included in assessable income is $53,897.

Two ordering points deserve emphasis. First, because both surviving gains are discountable, allocating the loss between them is economically neutral; the choice becomes valuable when a taxpayer has both discountable and non-discountable gains, in which case losses should absorb non-discountable gains first (ATO 2024a; Sadiq et al. 2024). Secondly, the statute forces losses to be applied before the discount, so a dollar of loss set against a discount gain reduces the net capital gain by only 50 cents: the $4,650 Ether loss lowered the final figure by just $2,325. This sequencing deliberately blunts loss harvesting aimed at discount gains, a post-1999 design feature that has drawn sustained academic criticism (Evans, Minas & Lim 2015).

Estimated Tax on the Net Capital Gain

There is no flat CGT rate; the net capital gain is stacked on other taxable income and taxed at marginal rates under the Income Tax Rates Act 1986 (Cth), as reset by the 2024 cost-of-living tax cuts. Taxable income becomes 98,000 + 53,897 = $151,897, so the gain fills the top of the 30 per cent bracket, which ends at $135,000, and part of the 37 per cent bracket:

• Tax at 30 per cent: (135,000 less 98,000) × 0.30 = 37,000 × 0.30 = $11,100.00
• Tax at 37 per cent: (151,897 less 135,000) × 0.37 = 16,897 × 0.37 = $6,251.89
• Medicare levy: 53,897 × 0.02 = $1,077.94

The estimated incremental liability is 11,100.00 + 6,251.89 + 1,077.94 = $18,429.83, approximately $18,430, payable on assessment because PAYG withholding covers only the salary. That equates to 34.2 per cent of the net capital gain but only 11.7 per cent of the $157,150 of economic gains actually realised across the three assets, a gap created by the main residence exemption and the CGT discount, which Treasury consistently ranks among Australia’s largest tax expenditures (Treasury 2024).

Advice to the Client

Timing of disposals

Three timing disciplines emerge from the calculations. First, the 12-month rule: planned profitable disposals should, market risk permitting, be deferred past the s 115-25 threshold, and Australian evidence shows realisations respond strongly to such rate differentials (Minas, Lim & Evans 2018). Secondly, the contract date rather than settlement fixes the income year (s 104-10(3)), so a vendor near 30 June can legitimately defer a gain by a full year by exchanging contracts in July, improving cash flow. Thirdly, genuine loss positions should be reviewed before 30 June so they can absorb current-year gains, but selling and promptly repurchasing an asset merely to crystallise a loss is a wash sale that may attract Part IVA, as the Commissioner warned in Taxpayer Alert TA 2008/7 (ATO 2008).

Record keeping

Division 121 of the ITAA97 obliges Ms Marsh to retain records substantiating every cost base element, including contracts, duty assessments, brokerage confirmations, renovation invoices, loan statements evidencing non-deductible interest, and proof of occupation dates such as electoral enrolment and utility accounts, for at least five years after the relevant CGT event. Crypto records deserve particular care: the ATO’s data-matching program collects transaction data from Australian designated service providers and pre-fills myTax, so complete exchange histories should be exported at the time of each trade, because unexplained discrepancies invite amended assessments and penalties (ATO 2024b; CCH Australia 2025).

Engaging with ATO guidance and professional support

For any future property sale, Ms Marsh must obtain an ATO clearance certificate before settlement: from 1 January 2025 the foreign resident capital gains withholding rules apply to every sale of Australian real property regardless of price, and without a certificate the purchaser must withhold 15 per cent. She should also anticipate entry into the PAYG instalment system after this return, and could consider a deductible personal superannuation contribution within the concessional cap to moderate the 37 per cent slice of the gain (Barkoczy 2025). Uncertain positions can be resolved in advance through a private ruling. This analysis is general in nature, and implementation should be confirmed with a registered tax agent.

Conclusion

Applied in the statutorily mandated order, the ITAA97 produces the following outcome for Ms Marsh’s 2024-25 disposals: a $13,800 discountable share gain, a $148,000 apartment gain reduced to $98,644 by the days-based partial main residence exemption, and a $4,650 Ether loss. After the loss is offset and the remainder halved, the net capital gain is $53,897, generating an estimated additional liability of approximately $18,430 including Medicare levy. The exercise demonstrates three practical truths of Australian CGT: the sequence of the s 102-5 method statement matters as much as the arithmetic, occupancy history drives the value of the main residence exemption, and the 12-month discount threshold makes disposal timing a first-order planning variable. Disciplined records and attention to current ATO guidance turn those rules from compliance risks into planning opportunities.

References

Australian Taxation Office 2008, Taxpayer Alert TA 2008/7: wash sale arrangements, Australian Taxation Office, Canberra.

Australian Taxation Office 2014, Taxation Determination TD 2014/26: income tax: is bitcoin a CGT asset for the purposes of subsection 108-5(1) of the Income Tax Assessment Act 1997?, Australian Taxation Office, Canberra.

Australian Taxation Office 2024a, Guide to capital gains tax 2024, Australian Taxation Office, Canberra.

Australian Taxation Office 2024b, Tax treatment of crypto assets in Australia, Australian Taxation Office, Canberra.

Barkoczy, S 2025, Foundations of taxation law 2025, 17th edn, Cambridge University Press, Port Melbourne.

CCH Australia 2025, Australian master tax guide 2025, 76th edn, Wolters Kluwer, Sydney.

Evans, C, Minas, J & Lim, Y 2015, ‘Taxing personal capital gains in Australia: an alternative way forward’, Australian Tax Forum, vol. 30, no. 4, pp. 735-761.

Income Tax Assessment Act 1997 (Cth).

Income Tax Rates Act 1986 (Cth).

Minas, J, Lim, Y & Evans, C 2018, ‘The impact of tax rate changes on capital gains realisations: evidence from Australia’, Australian Tax Forum, vol. 33, no. 4, pp. 635-666.

Sadiq, K, Black, C, Hanegbi, R, Jogarajan, S, Krever, R, Obst, W & Ting, A 2024, Principles of taxation law 2024, Thomson Reuters, Pyrmont.

Treasury 2024, Tax expenditures and insights statement, Australian Government, Canberra.

Woellner, R, Barkoczy, S, Murphy, S, Evans, C & Pinto, D 2024, Australian taxation law 2024, 34th edn, Oxford University Press, South Melbourne.