Short term vs long term capital gains in Australia

In Australia, the length of time you hold shares before selling directly affects how much tax you pay on any profit. Shares held for more than 12 months qualify for the 50% CGT discount, which can cut your tax bill in half compared to a short-term sale.

This distinction between short-term and long-term capital gains is one of the most important concepts for Australian share investors to understand. It influences trading decisions, tax planning, and portfolio strategy.

Disclaimer: This article is for informational purposes only and does not constitute financial or tax advice. Consult a qualified tax professional before making investment decisions based on tax considerations.

The 12-month rule

The ATO draws a clear line at 12 months:

• Short-term capital gain: You held the shares for 12 months or less before selling. The full gain is added to your assessable income.
• Long-term capital gain: You held the shares for more than 12 months before selling. Only 50% of the gain is added to your assessable income (for individual taxpayers).

The holding period is measured from the contract date of purchase (the trade date when your order was executed) to the contract date of sale. Settlement dates are not used.

To qualify for the discount, you must hold the shares for more than 12 months. If you bought shares on 1 March 2025, you would need to sell on 2 March 2026 or later to qualify. Selling on 1 March 2026 (exactly 12 months) does not qualify.

How short-term gains are taxed

Short-term capital gains receive no discount. The entire gain is added to your assessable income for the financial year and taxed at your marginal tax rate.

Worked example: short-term gain

Emma buys 1,000 shares of Fortescue (FMG) at $18.00 per share in September 2025 and sells them in February 2026 at $24.00 per share.

• Cost base: 1,000 x $18.00 = $18,000 (plus $19.90 in brokerage = $18,019.90)
• Net proceeds: 1,000 x $24.00 = $24,000 (minus $19.90 brokerage = $23,980.10)
• Capital gain: $23,980.10 - $18,019.90 = $5,960.20

Emma held the shares for about five months, so no CGT discount applies. The full $5,960.20 is added to her assessable income.

If Emma's marginal tax rate is 30% (plus the 2% Medicare levy), she would pay approximately $1,907.26 in tax on this gain.

How long-term gains are taxed

Long-term capital gains are eligible for the 50% CGT discount. After applying the discount, only half the gain is added to your assessable income.

Worked example: long-term gain

Using the same numbers as above, but this time Emma bought the shares in September 2024 and sold them in February 2026 (holding period of approximately 17 months).

• Capital gain before discount: $5,960.20 (same calculation)
• 50% CGT discount applied: $5,960.20 x 50% = $2,980.10
• Assessable amount: $2,980.10

At the same 30% marginal rate (plus 2% Medicare levy), Emma would pay approximately $953.63 in tax.

The difference: $1,907.26 vs $953.63. By holding for more than 12 months, Emma saves over $950 in tax on the same profit.

Side-by-side comparison

Here is how a $10,000 capital gain is taxed at different marginal rates for short-term versus long-term holdings:

The higher your income, the more valuable the CGT discount becomes in absolute dollar terms.

SMSFs get a different discount

Self-managed super funds receive a CGT discount of 33.33% (one third) rather than 50%. This means two thirds of the capital gain is included in the fund's assessable income, which is then taxed at the super fund rate of 15%.

Worked example: SMSF capital gain

An SMSF sells shares with a capital gain of $12,000, held for more than 12 months.

• Discount: 33.33% of $12,000 = $4,000
• Assessable amount: $12,000 - $4,000 = $8,000
• Tax at 15% super fund rate: $8,000 x 15% = $1,200

For comparison, an individual in the 32% marginal bracket (30% plus 2% Medicare levy) with the same gain would pay: ($12,000 x 50%) x 32% = $1,920.

Companies get no discount

Companies (including corporate trustees) are not eligible for any CGT discount. The full capital gain is taxed at the company tax rate of 25% or 30%, depending on the company's size and type.

This is one reason many individual investors hold shares in their personal name rather than through a company structure, particularly for long-term holdings.

Practical implications

Trading vs investing

The CGT discount creates a meaningful tax incentive to hold shares for longer than 12 months. Frequent trading (buying and selling within a few weeks or months) means every profitable trade is taxed at your full marginal rate.

This does not mean you should never sell before 12 months. If a share has dropped significantly and you want to cut your losses, waiting for a discount on a gain you do not have makes no sense. Similarly, if a stock has risen dramatically and you believe it is overvalued, the tax cost of selling early may be worth it.

But if you are on the fence about selling a profitable position, checking how close you are to the 12-month mark is always worthwhile.

Tax-loss harvesting timing

When using capital losses to offset gains, remember that losses are applied before the CGT discount. This means a $5,000 loss offsets $5,000 of a long-term gain at its full (pre-discount) value, not just $2,500.

EOFY planning

As the end of the financial year approaches (30 June), review your portfolio for holdings approaching the 12-month mark. If you are planning to sell a profitable position, waiting a few extra days to cross the threshold can make a significant difference to your tax bill.

Tracking your holding periods

Knowing exactly when you bought each parcel of shares is essential for determining whether the CGT discount applies. This is straightforward if you bought all your shares at once, but it gets more complicated when you have made multiple purchases of the same stock over time.

For example, if you bought 200 shares of CBA in January 2025 and another 300 shares in August 2025, each parcel has its own acquisition date and cost base. When you sell, you need to know which parcel (or parcels) you are disposing of.

TrackMyShares tracks each purchase as a separate tax lot, so you can see at a glance which parcels qualify for the CGT discount and which do not. The tax reports automatically classify your gains as short-term or long-term based on the actual holding period of each lot. You can also view your portfolio on any past date to see how your holdings and their values looked at a specific point in time.

For a detailed walkthrough of the CGT calculation process, see our guide on how to calculate capital gains on shares in Australia. You can also use the CGT calculator to quickly estimate the tax impact of a potential sale.

To understand how capital gains interact with your overall tax position, including marginal rates and dividend income, read how much tax do you pay on shares in Australia.

Sign up for free and let TrackMyShares track your holding periods and CGT discount eligibility automatically.