Investing in the stock market can be a rewarding way to build wealth, but when it comes time to sell your shares, capital gains tax (CGT) can take a bite out of your profits. Fortunately, there are smart strategies that Australian investors can use to reduce or even avoid paying capital gains tax on shares. Whether you’re a seasoned investor or just starting out, understanding how CGT works and how to legally minimize your liability can save you thousands.
Let’s break down the most effective ways to avoid or reduce capital gains tax on shares in Australia.
Understand the Capital Gains Tax Basics
Before exploring tax-saving opportunities, it’s essential to grasp how CGT applies in Australia.
Capital gains tax is not a separate tax but part of your income tax. It applies when you sell an asset—like shares—and make a profit. If you held the asset for more than 12 months, you’re generally eligible for a 50% CGT discount on the gain.
Here’s an example:
| Share Holding Period | Capital Gain | CGT Discount | Taxable Amount |
|---|---|---|---|
| Less than 12 months | $10,000 | 0% | $10,000 |
| More than 12 months | $10,000 | 50% | $5,000 |
Holding shares for over a year is just one way to reduce CGT. Let’s dive into more strategies.
Use CGT Discounts and Concessions
One of the most common methods for reducing CGT on shares is the 50% discount for individuals. This only applies if:
- You’ve held the shares for more than 12 months
- You are an individual taxpayer (not a company)
- The shares are not part of a short-term trading business
Make sure you time your sale accordingly to maximise this discount.
Offset Gains With Capital Losses
Capital losses from other investments can offset your capital gains, reducing your tax bill.
Example:
If you made a $5,000 gain on your shares but had a $3,000 loss from another investment, you only pay tax on $2,000.
| Capital Gain | Capital Loss | Net Gain Subject to CGT |
|---|---|---|
| $5,000 | $3,000 | $2,000 |
These losses can also be carried forward to future years if they exceed current year gains.
Use Superannuation Contributions Strategically
Another method to reduce CGT is by selling shares and contributing the proceeds to superannuation under the current contribution limits. Contributions to your super may result in lower tax rates compared to personal marginal tax rates.
Under the Small Business Retirement Exemption, individuals over 55 (or meeting specific conditions) can use this method to avoid CGT altogether, especially if selling shares as part of retiring from a business.
To check your eligibility and latest contribution caps, visit the official guide from the Australian Taxation Office.
Time Your Share Sales Carefully
The timing of your asset sale can significantly affect your CGT liability. Consider these tips:
- Sell in a low-income year: If your income is reduced (e.g., during a career break or transition to part-time work), your marginal tax rate may be lower, reducing CGT owed.
- Sell before income increases: If you’re expecting a salary increase or bonus the following tax year, selling now could result in lower tax.
Use the Main Residence Exemption (If Applicable)
While this is rare for shares, some investors hold managerial positions or ownership stakes in companies where share ownership is tied to the sale of a private business. If the shares were acquired under special conditions tied to your primary residence or business, you may qualify for CGT exemptions under small business or main residence rules.
Consult a tax advisor to evaluate if this applies to your situation.
Engage in Trust and Family Tax Planning
For high-net-worth individuals, setting up a family trust to hold investments, including shares, may offer CGT advantages. Trust distributions allow gains to be allocated to beneficiaries in lower tax brackets, potentially reducing total tax payable across the family group.
Note: This strategy requires careful legal and financial setup to comply with ATO rules.
Final Thoughts
Avoiding or reducing capital gains tax on shares in Australia isn’t about dodging tax—it’s about smart planning within the rules. By timing your sales strategically, utilising tax offsets, and possibly restructuring how your assets are held, you can significantly improve your tax outcomes.
Always consult a registered tax advisor or financial planner before making major decisions to ensure you’re complying with current laws and making the best move for your investment goals.
By leveraging these legal strategies, you can keep more of your investment returns—and let your wealth grow faster.