The 50% CGT Discount: What It Is, How It Works, and Why It’s More Complex Than You Think

The 50% capital gains tax (CGT) discount is one of the most widely recognised tax concessions available to Australian investors. If you sell an eligible asset — such as an investment property or shares you’ve held for at least 12 months — you may be able to reduce the taxable portion of your capital gain by half. It’s a significant concession, and for many Australians, it plays an important role in long-term investment planning and building wealth outside of superannuation.

However, the simplicity ends there. Despite the discount being discussed frequently in the media, particularly in conversations about housing affordability, the rules are far more nuanced than most people realise. From how long you’ve held the asset, to whether you’ve used your home to produce income, to whether you’ve inherited property — the 50% CGT discount can apply in some situations, not apply in others, and apply only partially in many cases.

There are also specific limitations for foreign residents, companies, trusts and SMSFs, as well as situations where the type of asset or transaction doesn’t qualify at all. Even the order in which you apply capital losses can change the final tax outcome.

In this article, we break down the CGT discount in simple, practical terms so you understand when it applies, when it doesn’t, and what to consider before selling an asset. If you’re planning to dispose of an investment or simply want to understand how the rules work, this guide will help you avoid common traps and approach your tax position with confidence.

What Is The 50% Capital Gains Tax (CGT) Discount?

The 50% CGT discount allows individuals and certain trusts to reduce the taxable portion of a capital gain by half, provided the asset has been held for at least 12 months. This concession encourages long-term investment and rewards those who hold assets over extended periods.

It applies to assets such as:

• Investment properties
• Shares and managed funds
• Cryptocurrency
• Collectables (with limitations)
• Certain business assets

What Doesn’t It Apply To?

Some assets are fully exempt from CGT — for example, most motor vehicles (including vintage cars) — while others do not qualify for the discount at all. This is why understanding your asset type is crucial.

Why Your Home Isn’t Always Fully Exempt

You may assume that your main residence is completely exempt from CGT. In many cases it is — but not always.

There are situations where your home becomes partly subject to CGT, such as when:

• You rent out a portion of your home
• You use part of your home to run a business
• You move out and then rent the property
• You inherit a home where the exemption criteria are not fully met

In these cases, you may end up with a partial CGT liability, and the 50% discount may help reduce the taxable gain.

How Capital Losses Affect The Discount

A common misconception is that you simply halve your capital gain and then apply losses. In fact, it’s the opposite.

The ATO requires the following order:

1. Calculate your capital gain
2. Apply any carried-forward or current-year capital losses
3. Apply the CGT discount last

Because losses reduce the gain before the discount is applied, they effectively dilute the value of the 50% discount. Understanding this order is essential when planning the timing of asset disposals.

What About Small Business CGT Concessions?

If you’re selling a business asset, the rules become more complex again.

Before you apply the 50% CGT discount, you may need to consider:

• The 15-year exemption
• The 50% active asset reduction
• The retirement exemption
• The small business rollover

Depending on which concessions you qualify for, the standard CGT discount may apply after, before, or not at all. These rules are highly specific, so professional advice is crucial when selling business assets.

How Foreign Residency Affects The Discount

Foreign residency is one of the biggest areas where taxpayers unintentionally lose their entitlement to the discount.

• If you are a foreign resident when you acquire an asset (after 8 May 2012): you are generally not entitled to the 50% CGT discount.

• If you owned the asset before you became a foreign resident: You may still be eligible for a partial discount based on the period you were an Australian resident.

• If you reacquire residency: Only the residency periods count towards eligibility.

This means your discount can be pro-rated, depending on your residency timeline.

How Entities Are Treated Differently

Not all taxpayers receive the same discount.

Companies

• Not eligible for the 50% CGT discount
• Benefit instead from a generally lower tax rate (around 30% or 25% for small business entities)

Superannuation Funds & Self-Managed Super Funds (SMSFs)

• Receive only a one-third discount (effectively 33⅓%)
• Pay tax at 15% on discounted capital gains in accumulation phase

Individuals and Trusts

• Eligible for the full 50% discount, provided conditions are met

Understanding the structure in which you hold an asset can dramatically change the tax outcome when you sell.

Capital Gains That Don’t Qualify For The Discount

Even if you’ve held an asset for more than 12 months, the discount may still not apply depending on the nature of the gain.

Gains generally not eligible for the discount include those arising from:

• Granting an easement over land
• Granting a restrictive covenant (for example, agreeing not to compete or not to perform certain actions)
• Entering into or granting contractual rights
• Certain compensation or insurance payments

These are treated differently from traditional asset disposals and fall outside the discount rules.

The 12-Month Rule – Why You Actually Need 367 Days

To qualify for the CGT discount, you must have owned the asset for at least 12 months — but not simply “one year” in the casual sense.

According to the ATO:

• You exclude the day you acquired the asset, and
• You exclude the day you sold the asset

This means the asset must be held for a minimum of 367 days (or 368 days in a leap year) to qualify.

Missing the threshold by even one day can mean losing the entire discount — a costly misstep that can be avoided with careful planning.

Why the CGT Discount Isn’t Always Straightforward

Although widely discussed, the 50% CGT discount involves a set of rules that can quickly become complex depending on:

• Your residency history
• The type of asset
• How you have used the asset
• Whether you inherited the asset
• Whether capital losses apply
• Whether business concessions are involved
• How long you have held the asset
• Whether the gain arises from specific rights or agreements

Because these variables can interact, it’s important not to make assumptions based on general commentary or media discussions.

Wilson Pateras Are Tax Specialists

The 50% CGT discount remains a valuable concession for Australian investors, but it is rarely as simple as “sell and halve the tax.” Whether you’re selling an investment property, ending a long-held share position, or planning to dispose of a business asset, the way the discount applies can materially change your tax outcome.

Understanding the rules — and the exceptions — can make a significant difference to your financial position. But because the rules are nuanced and often interrelated, personalised advice is essential before making decisions.

At Wilson Pateras, we help individuals, families and business owners navigate CGT rules with clarity and confidence. If you’re considering selling an asset, restructuring your holdings, or planning ahead for tax efficiency, our team can provide tailored advice that helps you achieve the best possible outcome.

Contact our team today and let us help you understand the CGT discount, avoid costly mistakes, and make informed decisions that support your long-term financial goals.