The 12-month CGT discount rule for Australian investors, explained

If you hold shares for more than 12 months and then sell at a gain, you only pay tax on half of it. That is the simple version of the CGT discount. The problem is that "more than 12 months" is a tighter rule than most investors realise, and applying it correctly across multiple parcels, DRPs, and partial sales is where people lose thousands.

This post walks through exactly how the rule works in FY2025-26, when it applies, how to count the days, and the worked examples that matter most.

Who gets the 50% discount

The CGT discount (in Division 115 of the Income Tax Assessment Act 1997) is:

• 50% for individuals and most trusts.
• 33.33% for complying super funds and SMSFs on capital gains.
• 0% for companies. Companies get no discount regardless of holding period.

For the rest of this post, assume you are an individual investor unless otherwise stated.

The 12-month holding rule

You qualify for the discount if you held the asset for more than 12 months before the CGT event (usually, the sale).

The key word is "more than". Exactly 12 months is not enough. The ATO counts this from the day after you acquired the asset to the day before the CGT event. You need the period between those two endpoints to be at least 365 days (or 366 in a leap year).

Worked example 1: boundary case

You buy 100 shares of CBA on 15 March 2025. You sell them on 15 March 2026.

• Acquisition day: 15 March 2025.
• Count starts: 16 March 2025.
• CGT event day: 15 March 2026.
• Count ends: 14 March 2026.
• Days held: exactly 364.
• Result: no discount. You needed to wait one more day.

If you sold on 16 March 2026 instead:

• Count ends: 15 March 2026.
• Days held: 365.
• Result: 50% discount applies.

In a leap year, the minimum is 366. If you bought on 29 February 2024 (a leap day), count carefully.

What counts as "acquisition"

The date that starts the clock matters. Here is what starts a new 12-month period:

• Buying on market. The trade date (not settlement) is the acquisition date.
• DRP or DRIP allocation. Each DRP creates a new parcel with its own acquisition date (the DRP allocation date on the statement).
• Bonus issue. Generally takes the acquisition date of the original parcel (important for the 12-month rule).
• Rights issue taken up. Take-up date is the new acquisition date for those shares.
• Inheritance. For inherited shares, the holding period depends on when the deceased acquired them and whether they were pre- or post-CGT assets. Outside the scope of this post.
• Corporate actions (mergers, demergers, spinoffs). The rules here are specific to the scheme. Most scrip-for-scrip rollovers preserve the original acquisition date, but some capital reductions do not.

What counts as "disposal" (the CGT event)

For listed shares, the CGT event almost always occurs on the contract date (your trade date on a market sale), not settlement. For contractual disposals off-market, it is the date the contract is signed.

Some nuances:

• Off-market share buybacks. Date of acceptance of the offer.
• Company liquidation. CGT event C2 triggers when the shares are cancelled. Date depends on the liquidator's declaration.
• Takeovers. Date can be the scheme implementation date, depending on the type of rollover.

When in doubt, check the scheme booklet or the ATO's Class Ruling for the specific corporate action.

The 50% is applied, not on the tax, but on the gain

A common misconception: the discount reduces your tax by 50%. It does not. It reduces the taxable gain by 50%. You then pay tax on the reduced gain at your marginal rate.

Worked example 2: discount applied correctly

Your marginal tax rate (excluding Medicare) is 37%. You sell shares for a $20,000 gain after holding for 14 months.

• Gross capital gain: $20,000.
• Discount (50%): $10,000.
• Taxable capital gain: $10,000.
• Tax (37%): $3,700.
• Effective tax rate on the original gain: 18.5%.

If you had sold after only 11 months:

• Gross capital gain: $20,000.
• Discount: none.
• Taxable capital gain: $20,000.
• Tax (37%): $7,400.
• Effective tax rate: 37%.

The three extra months cost you $3,700 in this example.

The order of operations: losses first, then discount

This is the rule most DIY spreadsheets get wrong. Under ITAA97 subdivision 102-5, you apply capital losses to your capital gains before the 50% discount is applied. Applying the discount first and then subtracting losses gives a bigger tax deduction than you are entitled to.

Worked example 3: losses applied in the right order

In FY2025-26 you have:

• A discount-eligible capital gain of $30,000 (held >12 months).
• A non-discount capital gain of $10,000 (held <12 months).
• A capital loss of $8,000.

Correct order:

1. Apply losses against capital gains before discounting. You can choose which gains to apply them against. Applying against non-discount gains first is usually better because they are not discounted.
2. Loss of $8,000 against non-discount gain of $10,000. Remaining non-discount gain: $2,000.
3. Apply 50% discount to the discount-eligible gain: $30,000 × 50% = $15,000 taxable.
4. Total net capital gain: $2,000 + $15,000 = $17,000.

Wrong order (common spreadsheet mistake):

1. Apply 50% discount first: $30,000 × 50% = $15,000.
2. Total gains: $15,000 + $10,000 = $25,000.
3. Subtract $8,000 loss: $17,000.

Same answer in this case, but it is coincidental. If you had carried-forward losses from a prior year and mixed short and long-term parcels differently, the two orders produce different outcomes. Always follow the legislated order.

FIFO vs specific identification

When you sell a partial holding and you have multiple parcels, which parcel did you actually sell? This determines the cost base and whether the 12-month rule applies.

The ATO accepts:

• FIFO (first in, first out). The default if you do not specify.
• Specific identification. You can choose which parcels to sell, but you must record the choice at the time, not construct it retroactively.

Worked example 4: parcel selection changes the tax outcome

You hold three parcels of VAS:

On 1 May 2026 you sell 100 shares at $110.

• FIFO selects parcel A. Gain = ($110 - $90) × 100 = $2,000. Held >12 months → 50% discount = $1,000 taxable.
• Specific identification can select parcel C. Gain = ($110 - $100) × 100 = $1,000. Held <12 months → no discount = $1,000 taxable.
• Specific identification can select parcel B. Gain = ($110 - $95) × 100 = $1,500. Held >12 months (barely) → 50% discount = $750 taxable.

Parcel B is the optimal choice here. FIFO is not always best. But the choice must be recorded at the time of sale.

For more on parcel selection, see cost basis methods for stocks.

DRPs and the 12-month rule

Every DRP allocation is a new parcel with its own acquisition date. This is both a feature and a trap.

Feature: if you have been reinvesting for years, most of your holdings are well past 12 months and qualify for the discount.

Trap: the most recent DRPs (the last 3-4 quarters for a typical Australian dividend payer) are inside the 12-month window. If you sell your entire holding, the recent DRP parcels do not qualify for the discount on the portion they contribute.

Worked example 5: partial sale with DRPs

You held 1,000 CBA shares for five years and reinvested dividends for the last 18 months. The original 1,000 plus DRPs means you now have roughly 1,040 shares across 7 parcels (the original plus 6 quarterly DRPs).

The 2 most recent DRPs (say 6 shares total) are under 12 months old. The other 1,034 shares qualify for the discount.

If you sell 100 shares at a gain:

• FIFO: sells the original 1,000-share parcel first. All 100 qualify for the discount.
• Specific identification selecting oldest first: same result, easy.
• Specific identification selecting recent DRPs first: some of those shares would be under 12 months old and would not qualify. Usually the wrong choice.

Your tax reporting tool should handle this automatically. TrackMyShares tracks each DRP as a separate parcel with its own acquisition date and applies the discount only to eligible parcels.

Bonus issues, rights issues, and takeovers

• Bonus issues take the acquisition date of the original parcel for the purpose of the 12-month rule. The cost base per share is diluted, but the discount eligibility is preserved.
• Rights issues taken up create new parcels with a new acquisition date (the date the new shares are issued to you). The 12-month clock starts then.
• Takeovers under scrip-for-scrip rollover relief preserve the original acquisition date for the new shares, provided the rollover conditions are met. If you received cash instead of scrip, that portion is a CGT event.
• Demergers (for example, BHP demerging South32 in 2015) generally split the cost base across the original and new shares, preserving the acquisition date on both. The ATO issues Class Rulings for significant demergers.

For the specific scheme of any listed corporate action, the ATO Class Ruling for that scheme is the source of truth.

The discount for trusts, super funds, and companies

• Resident individuals: 50% discount.
• Resident trusts: 50% discount at the trust level (most common); the beneficiary gets their share of the gross discounted gain.
• Complying superannuation funds (including SMSFs): 33.33% discount on capital gains. The remaining 66.67% is taxed at 15% in accumulation phase, and 0% in pension phase (for segregated pension assets).
• Companies: no discount. Gains are taxed at the company rate (25% or 30% depending on size).

For SMSF specifics, see SMSF trustees: how to report share income and CGT for 2026.

Foreign-resident and temporary-resident changes

Foreign residents cannot claim the 50% discount on capital gains accrued on or after 8 May 2012. If you are a foreign resident for part of the holding period and an Australian resident for the other part, the discount is apportioned based on the days of Australian residency.

Temporary residents follow more complex rules; CGT on foreign assets is usually disregarded, but specific advice is needed.

Interaction with the wash sale anti-avoidance rule

Australia does not have a 30-day wash sale rule like the US, but the ATO can apply the general anti-avoidance rule (Part IVA) if it looks like you sold purely to create a tax loss and immediately bought back the same asset. This has a direct bearing on the discount: selling a discount-eligible long-term parcel and rebuying it to "reset" the cost base does not give you a new acquisition date for tax purposes.

For the detail, see the wash sale rule in Australia.

Cost base adjustments that change the gain

The discount is applied to the gain, and the gain is proceeds minus adjusted cost base. Things that adjust cost base:

• Brokerage on purchase (adds to cost base).
• Brokerage on sale (reduces proceeds).
• DRPs (each DRP amount becomes the cost base of those new shares).
• Capital returns (reduce cost base; if cost base is reduced below zero, excess is a gain).
• Tax-deferred distributions from AMIT funds (reduce cost base).
• AMIT upward adjustments (rare, but can increase cost base).

See how to read an AMMA statement for the AMIT specifics.

What to record now (before 30 June)

If you want to apply the discount correctly in your FY2025-26 tax return:

1. Acquisition date for every parcel, including each DRP. Trade date, not settlement.
2. Cost base per parcel, adjusted for any AMIT, DRP, or capital return events.
3. Disposal date on every sale (CGT event date, not settlement).
4. Parcel selection method for each sale (default FIFO, specific identification only if recorded at the time).
5. Capital losses carried forward from prior years.

TrackMyShares tracks this automatically per parcel and applies the discount only where eligible. See the CGT calculator for a standalone check and how to calculate capital gains on shares for more worked examples.

Common mistakes summary

• Counting "12 months" as a calendar anniversary instead of strictly more than 365 days.
• Applying the discount before losses instead of after.
• Forgetting that each DRP is a separate parcel.
• Using original purchase price instead of adjusted cost base.
• Assuming FIFO is always optimal for parcel selection.
• Claiming the discount on shares sold by a company (no discount for companies).
• Not adjusting for foreign-resident or part-year-resident status.

Get these right, and you keep more of the gain. Get them wrong, and you overpay, or worse, you underpay and get an ATO amendment notice later.

For the full EOFY checklist that sits around this rule, see the EOFY 2026 share investor checklist. If you would rather not track all of this manually, start a free trial and import your transactions; the CGT report handles the discount rules automatically.

This post is general information, not tax advice. For your specific situation, talk to a registered tax agent.