Maximising Your CGT Discount: Why Timing Your Asset Sale Matters

Delaying the sale may be worthwhile if you sell a CGT asset to qualify for the CGT discount. CGT assets include land, buildings, shares, rights and options, leases, units in a unit trust, goodwill, contractual rights, licences, foreign currency, cryptocurrency, and convertible notes.

Under the discount rules, when you sell or otherwise dispose of an asset (for instance, give the asset away), you can reduce your capital gain by 50% if both of the following apply:

• You owned the asset for at least 12 months, and
• You are an Australian resident for tax purposes.

Regarding the first requirement, you must own the asset for at least 12 months before the ‘CGT event’ (usually a sale) happens. The CGT event is when you make a capital gain or loss. You exclude the day of acquisition and the day of the CGT event when working out if you owned the CGT asset for at least 12 months before the ‘CGT event’ happens.

To be clear:

• If you sell the asset without a contract of sale, the CGT event occurs at the time of sale.
• If there is a contract to sell the asset, the CGT event happens on the contract date, not when you settle. Property sales usually work this way.
• If the asset is lost or destroyed, the CGT event happens when:
  • You first receive an insurance payment or other compensation.
  • If there is no insurance payment or compensation when the loss occurred or was discovered.

You could count an asset’s previous ownership towards your 12-month ownership period if you acquired it:

• Through a deceased estate if the asset was acquired by the deceased on or after 20 September 1985
• If the combined period your spouse and you owned the asset was more than 12 months, you will satisfy the 12-month requirement through a relationship breakdown.
• As a rollover replacement for an asset that was lost, destroyed or compulsorily acquired if the period of ownership of the original asset and the replacement asset was at least 12 months.

From 8 May 2012, the full CGT discount is not available for capital gains made by foreign or temporary residents.

If you held an asset for 11 months and were upon sale on track to make a capital gain of $30,000, then by delaying the sale by one month, you could reduce that gain to $15,000 by taking advantage of the 50% discount. Note that the 50% discount is not available to companies and non-residents. SMSFs and trusts are both eligible (though the discount is 33% for SMSFs).