7 Legal Ways to Reduce Capital Gains Tax in Australia
You can’t avoid CGT. But reducing it legally? That’s not just allowed it’s expected. Here are the seven strategies to reduce capital gains tax that actually work, with real dollar examples for each.
50%
Max discount available
7
Strategies covered
$33k+
Potential saving
Johan Petrovic
Property Investment Adviser · QPIA · 17 years in practice
Specialist in tax strategy for residential investors · Melbourne, VIC
Hold for More Than 12 Months to reduce capital gains tax
The most powerful move available to any Australian investor
If you do nothing else on this list, do this. Selling a CGT asset before the 12-month mark means your entire gain is taxed at your full marginal rate. Sell after 12 months and only half the gain is included in your income that’s the 50% CGT discount.
💰 Real Dollar Comparison $300,000 gain, 37% marginal rate
Under 12 months (full rate) | $300,000 × 39% = $117,000 tax |
Over 12 months (50% discount) | $150,000 × 39% = $58,500 tax |
Your saving |
That difference comes from waiting a few extra weeks before signing a sale contract. Nothing else on this list comes close to that leverage.
The 12 months is measured from the date of contract to the date of contract not settlement dates. For a property purchase, that’s the day you exchanged to buy, not the day you got the keys. Confirm the exact dates with your conveyancer before committing to a sale timeline.
Important from 2027: The 50% discount is being replaced from 1 July 2027 with cost-base indexation and a 30% minimum tax. For assets sold before that date, the current 50% rule fully applies. The 12-month holding requirement isn’t going away only the size of the benefit changes for post-2027 gains.
Let’s be clear upfront: you cannot avoid capital gains tax in Australia. The ATO has seen every angle, and the penalties for genuine avoidance are severe.
Reducing it legally? That’s not just allowed it’s expected. The tax system is full of legitimate tools specifically designed to lower your CGT bill, and most investors use fewer of them than they should.
Here are seven strategies that actually work. No grey areas. No clever schemes. Just the rules, applied correctly with real dollar examples for every one.
Let’s be clear upfront: you cannot avoid capital gains tax in Australia but you can reduce capital gains tax. The ATO has seen every angle, and the penalties for genuine avoidance are severe.
Hold for More Than 12 Months
The most powerful move available to reduce capital gains tax
If you do nothing else on this list, do this. Selling a CGT asset before the 12-month mark means your entire gain is taxed at your full marginal rate. Sell after 12 months and only half the gain is included in your income that’s the 50% CGT discount.
💰 Tax-Loss Harvesting Before 30 June
Property gain (held 12+ months) | $200,000 |
Share losses crystallised before 30 June | −$20,000 |
Net gain → 50% discount → taxable | $90,000 |
Tax saving vs no losses applied |
That difference comes from waiting a few extra weeks before signing a sale contract. Nothing else on this list comes close to that leverage.
The 12 months is measured from the date of contract to the date of contract not settlement dates. For a property purchase, that’s the day you exchanged to buy, not the day you got the keys. Confirm the exact dates with your conveyancer before committing to a sale timeline.
Important from 2027: The 50% discount is being replaced from 1 July 2027 with cost-base indexation and a 30% minimum tax. For assets sold before that date, the current 50% rule fully applies. The 12-month holding requirement isn’t going away only the size of the benefit changes for post-2027 gains.
Apply Capital Losses Before the 50% Discount
The ATO’s ordering rule actually works to reduce capital gains tax
Most investors know that capital losses offset capital gains. Fewer know that losses must be applied before the 50% CGT discount not after. This ordering is mandated by the ATO and it benefits you.
Here’s why it matters: a $20,000 capital loss applied against a $200,000 gross gain (held 12+ months) reduces the gain to $180,000. After the 50% discount, you’re taxed on $90,000 instead of $100,000. At 37% + 2% Medicare, that’s a saving of $3,900 from a $20,000 loss.
If the loss were applied after the discount instead, you’d only reduce the taxable gain by $10,000 saving half as much tax. The ATO’s prescribed order gives you double the benefit per dollar of loss.
💰 Tax-Loss Harvesting Before 30 June
Property gain (held 12+ months) | $200,000 |
Share losses crystallised before 30 June | −$20,000 |
Net gain → 50% discount → taxable | $90,000 |
Tax saving vs no losses applied |
If you hold shares, ETFs, or crypto sitting at a loss and you’ve realised gains this year selling the loss-making assets before 30 June crystallises those losses for use in the same financial year. This is tax-loss harvesting. It’s legal and widely used by Australian investors.
Wash sale warning: The ATO targets arrangements where you sell purely to generate a loss and immediately repurchase the same asset. If the ATO considers the dominant purpose was tax avoidance, the loss can be disallowed under the general anti-avoidance provisions. Wait a reasonable period before repurchasing, or buy a genuinely similar-but-different asset.
Time the Sale for a Lower-Income Year
Your CGT rate isn’t fixed it moves with your total income
Capital gains tax is added to your other taxable income for the year and taxed at your marginal rate. That means the same gain produces a different tax bill depending on which financial year you sell in.
💰 Same Gain, Different Years
Taxable gain (after 50% discount) | $200,000 |
High-income year ($180k salary): 45% + Medicare | −$20,000 |
Lower-income year ($75k salary): 32.5% + Medicare | $90,000 |
Saving from timing |
Natural lower-income years worth targeting: the year you retire or reduce hours, the year you take parental leave, a gap year between jobs, a year of early business losses, or any year you make large concessional super contributions.
If you’re a dual-income household, consider which partner sells the lower-income earner pays less CGT on the same gain. This requires the asset to be in their name or jointly held, so it needs to be planned well in advance.
2027 note: The incoming 30% minimum tax on capital gains means a low-income year is less advantageous from 2027 for those currently in the 19% bracket. If you’re in that bracket and planning to sell, doing so before 1 July 2027 preserves the current low effective rate.
Use the Main Residence Exemption & the 6-Year Rule
Your home is exempt and so is a rental property, for up to 6 years
Your family home is completely exempt from CGT. No tax on the gain, no matter how large, as long as you’ve lived there continuously and never used it to produce income.
The less well-known tool is the 6-year absence rule. If you move out and rent the property, you can still treat it as your main residence for CGT purposes for up to 6 years from when you last lived there. That means up to 6 years of rental income and capital growth with no CGT on sale.
💰 6-Year Rule in Action
Moved out, started renting: Jan 2018 | − |
Sold (within 6 years): Nov 2023 | − |
Capital gain over that period | $320,000 |
CGT payable (6-year rule applies) |
The rules: you can only have one main residence at a time. If you buy a new home while renting out the old one, the exemption becomes a choice and you can only apply it to one property at a time. If you moved back into the property before the 6 years were up, the exemption restarts.
A partial exemption applies if you only lived in the property for part of the ownership period. The exempt fraction is: days as main residence ÷ total days owned × capital gain.
Who this helps most: Homeowners who moved interstate or overseas for work, people who upgraded to a new home and kept the old one as a rental for a period, or anyone who lived in a property briefly before renting it out.
Maximise Every Dollar of Your Cost Base
Most investors miss legitimate inclusions worth thousands
Every dollar added to your cost base is a dollar that reduces your capital gain. Most investors include the purchase price but leave out several legitimate additions that together can make a meaningful difference.
📋 Cost Base Checklist — Investment Property
Purchase price | ✓ Always include |
State stamp duty / transfer duty | ✓ Often $15k–$60k+ |
Legal & conveyancing fees at purchase | ✓ Typically $2k–$4k |
Building & pest inspections | ✓ Often missed |
Capital improvements (renovations) | ✓ Can be $10k–$80k+ |
Agent commission at sale | ✓ 2–3% of price |
Legal fees at sale |
Capital improvements renovations, extensions, new bathrooms, structural work are added to the cost base under s110-25(3) ITAA 1997. They permanently reduce your gain. Routine maintenance and repairs are claimed as annual rental deductions they don’t go in the cost base.
The depreciation trap: if you’ve claimed building depreciation on an investment property, those amounts are automatically deducted from your cost base by the ATO. You can’t get the same deduction twice. Make sure your tax agent applies this correctly it reduces the cost base and therefore increases the capital gain.
For shares: Include purchase brokerage, sale brokerage, and any foreign currency conversion costs for international equities. These are often overlooked but fully allowable.
Make Super Contributions to Reduce Your Marginal Rate
Concessional contributions lower the income the gain is added to
This one is indirect but real. Large concessional (pre-tax) super contributions in the year you sell a capital asset reduce your taxable income which can reduce the marginal rate at which the gain is taxed.
💰 Super Contribution in Sale Year
Salary | $130,000 |
Taxable capital gain (after 50% discount) | $120,000 |
Combined without super contribution | $250,000 → top rate 45% |
Make $27,500 concessional contribution | Taxed at 15% in super |
Net tax saving on that $27,500 |
The concessional cap is $30,000 for 2025–26. If you haven’t used the full cap in prior years, the carry-forward rule allows unused amounts to be brought forward (if your super balance is under $500,000) potentially allowing a much larger concessional contribution in the sale year.
Note: the contribution itself is taxed at 15% inside super, which is still well below most investors’ marginal rates. The net benefit is the difference between your marginal rate and 15%.
Use Small Business CGT Concessions
For eligible business owners, the tax savings can be extraordinary
If you’re selling a business, business real property, or goodwill, you may have access to four additional concessions beyond the standard 50% discount. Combined, they can reduce CGT to zero.
📋 The 4 Small Business CGT Concessions
15-year exemption (55+, held 15+ yrs, retiring) | Entire gain — $0 CGT |
50% active asset reduction | Stacks with 50% discount → 25% |
Retirement exemption | Up to $500k lifetime |
Small business rollover |
To access these, you need to satisfy either: the small business entity test (aggregated annual turnover under $2 million) or the maximum net asset value (MNAV) test (net assets of $6 million or less). The asset must also be an “active asset” used in carrying on the business.
The most powerful combination: the 50% CGT discount stacked with the 50% active asset reduction means you’re only taxed on 25% of the original gain. Add the $500,000 retirement exemption on top, and a business owner selling goodwill worth $1 million might pay tax on less than $50,000 of gains.
These rules are complex. The interaction between concessions, eligibility conditions, superannuation contribution caps, and the lifetime CGT cap ($1,865,000 for 2025–26) requires specific advice from a registered tax agent or SMSF specialist. The potential saving makes professional advice very well worth the cost.
What Doesn’t Work Common Myths
Things investors try that the ATO has already closed off.
“I’ll just reinvest the proceeds”
CGT is triggered on disposal not on what you do with the money. Reinvesting immediately doesn’t defer or reduce the tax. The sale is the event.
“I’ll put the property in my spouse’s name”
Transferring an asset between spouses can itself trigger a CGT event. The ATO’s market value substitution rules apply the gain follows the asset, not the name on the title.
“I’ll set up a family trust”
Trusts can be useful structures, but they don’t eliminate CGT. The gain flows through to beneficiaries and is taxed at their rates. From 1 July 2028, discretionary trusts face their own 30% minimum tax changes.
“I’ll gift it to my kids”
A gift is a disposal at market value. CGT applies to the difference between market value and your cost base, even if you received nothing. Gifts to family members don’t reduce or defer CGT they transfer it.
The bottom line
Reducing CGT comes down to five things