Capital Gains 50% Discount: Holding Period Rules That Bite

TL;DR

The 50% CGT discount is the most valuable tax concession in the personal investment toolkit for individuals and trusts. Hold a CGT asset for at least 12 months before disposal and the assessable capital gain is halved — taxed at 50% of the otherwise-applicable amount. For an investor on the 47% top marginal rate, the discount cuts the effective CGT rate from 47% to 23.5%.

But the rule has sharp edges. The 12-month period is measured from contract date to contract date, not from settlement to settlement, and not based on calendar years. Foreign residents have been excluded from the discount for capital gains on assets acquired after 8 May 2012. Companies do not get the discount at all. And specific events — re-acquisitions, intra-family transfers, unit trust disposals — can reset the holding period clock.

This guide walks through the rule mechanics, the contract-date trap, the foreign resident exclusion, and three worked examples — investment property, shares and crypto — that show where the discount actually applies and where it does not.

How the discount works

The 50% CGT discount is in Division 115 of the Income Tax Assessment Act 1997 (Cth). It is administered by the ATO.

The mechanics:

Calculate the capital gain = capital proceeds − cost base.
Apply any capital losses from the current year and prior years (carried forward) — losses must be applied before the discount.
If the asset was held for at least 12 months, the discounted gain = remaining gain × 50%.
The discounted gain is added to assessable income and taxed at marginal rates.

The 12-month test:

The clock starts on the day you enter into the contract to acquire the asset (CGT event A1 acquisition date), not the settlement date.
The clock stops on the day you enter into the contract to dispose of the asset, not the settlement date.
The 12-month period must be at least 12 months and 1 day in calendar terms — the day of acquisition is not counted.

Worked timing example: contract to buy on 1 March 2024, contract to sell on 1 March 2025. The discount does not apply — that is exactly 12 months, not 12 months and 1 day. Move the sale contract to 2 March 2025 and the discount applies.

This is the single most common error in DIY tax returns. The settlement dates can be 6–8 weeks after the contract dates, and investors who think in settlement-date terms can hit "exactly 12 months" of contract-date ownership and lose the discount.

Foreign resident exclusion

Capital gains on assets acquired by a foreign resident on or after 8 May 2012 are not eligible for the 50% discount. The rule was tightened in 2013 to also remove the discount apportioned for any period a resident-acquirer was a foreign resident.

The current rule is in Division 115-115 of the ITAA 1997. For an Australian-resident individual who held an asset partly as a foreign resident:

The discount is proportional to the days of Australian residency over the total holding period.
A taxpayer who held an asset for 1,000 days (Australian resident for 800, foreign resident for 200) gets 80% of the standard 50% discount = 40% effective discount.

This is the so-called "days resident" test and it catches people who left Australia for 1–2 years for an overseas posting. The rule does not apply to assets acquired before 8 May 2012 — those are grandfathered with the full discount.

Companies do not get the discount

The 50% CGT discount applies only to individuals, complying super funds (33.33% discount), and trusts that distribute the gain to individual beneficiaries.

Companies pay CGT at the company tax rate (25% or 30% depending on size) on the full capital gain. There is no discount. This is a frequent point of confusion for property investors who are considering buying through a company structure: the structure offers no CGT benefit on the eventual sale, only the short-term cash-flow benefit of the lower company tax rate on rental income.

A common structure is a unit trust with the units held by individuals or super funds. The trust calculates the capital gain on disposal of the underlying asset, and the gain is distributed to the unitholders, who claim the 50% discount on their distributed share if eligible. This is why many property syndicates and SMSF investment vehicles use unit trusts rather than companies.

Official source

Income Tax Assessment Act 1997 (Cth) Division 115 — the legislated 50% discount framework.
the ATO — Capital gains tax — Working out your capital gain — operational reference.
the ATO — Foreign residents and capital gains tax — the post-8-May-2012 exclusion rule.
ASIC's MoneySmart — Capital gains tax — independent overview.
the ATO — Trans-Tasman portability and CGT — for movements between Australia and New Zealand.

Worked examples

Example 1 — Investment property held 14 months, $200,000 gain

Contract to purchase: 15 March 2024 at $700,000
Contract to sell: 20 May 2025 at $920,000
Holding period: 14 months, 5 days — eligible for discount.
Cost base: $700,000 + $35,000 stamp duty + $4,500 legal/conveyancing + $20,000 capital improvements = $759,500.
Capital proceeds: $920,000 − $25,000 agent fee − $5,000 marketing − $3,000 legal = $887,000.
Capital gain: $887,000 − $759,500 = $127,500.
Apply 50% discount: $63,750 discounted gain.

The investor on a 37% marginal rate (assume taxable income $150,000 before the gain) adds $63,750 to assessable income. Tax on the discounted gain: 37% × $63,750 + 2% Medicare Levy = $24,863. Effective CGT rate on the $127,500 gain: 19.5%.

If the investor had sold one month earlier (April instead of May 2025), the holding period would have been 13 months — still over 12 months and 1 day, still eligible. The cliff is at 12 months from contract date.

If the investor had sold three months earlier (15 March 2025 — exactly 12 months) the discount would be lost. Tax on the full $127,500 at 37% + 2% Medicare = $49,725. Difference of $24,862 — the discount value of waiting two extra weeks.

Example 2 — Shares held 14 months, $35,000 gain

Contract to buy ASX-listed shares: 5 February 2024 for $50,000.
Contract to sell: 15 April 2025 for $85,000.
Holding period: 14 months, 10 days — eligible.
Capital gain: $85,000 − $50,000 − $250 brokerage at buy − $400 brokerage at sell = $34,350.
Apply 50% discount: $17,175 discounted gain.

Investor on 32.5% marginal rate (taxable income $90,000 before the gain) adds $17,175. Tax: 32.5% × $17,175 + 2% Medicare = $5,924. Effective CGT rate: 17.2%.

The same investor selling at 11 months loses the discount: tax on full $34,350 = $11,847. Discount saving from waiting one extra month: $5,923 — substantial on a moderate gain. The "let me sell now to lock in profit" instinct often costs more than the asset moves in the next 30 days.

Example 3 — Crypto held 18 months, $80,000 gain

Contract to buy 2 BTC: 10 January 2024 at $40,000 each = $80,000 (plus $400 exchange fee = $80,400).
Contract to sell: 15 July 2025 at $80,000 each = $160,000 (less $800 exchange fee = $159,200).
Holding period: 18 months, 5 days — eligible.
Capital gain: $159,200 − $80,400 = $78,800.
Apply 50% discount: $39,400 discounted gain.

Investor on 47% top marginal rate (taxable income $200,000 before the gain) adds $39,400. Tax: 47% × $39,400 = $18,518. Effective CGT rate on the $78,800 gain: 23.5%.

Without the discount, tax = 47% × $78,800 = $37,036 — a saving of $18,518.

The crypto-specific complication: each BTC is treated as a separate CGT asset. If the investor bought the two BTCs on different dates, the holding period is calculated per parcel. A bought on 10 January 2024 and B bought on 15 July 2024 would have different holding periods at sale on 15 July 2025 — A is 18 months (eligible) and B is exactly 12 months (not eligible). FIFO accounting treats the disposal as the earliest acquired first.

The ATO's Crypto asset transactions guidance covers this in detail. Specific identification (selling B first while keeping A) is allowed if the records support it; otherwise the ATO accepts FIFO.

Common pitfalls

Counting from settlement date instead of contract date. The 12-month clock runs contract to contract. A 6-week settlement on the buy and a 4-week settlement on the sell can hide a "12-month settlement-to-settlement" sale that is in fact 13 months 4 weeks of contract-date ownership — eligible. Or vice versa.
Forgetting the +1-day rule. Exactly 12 months is not enough. The ATO interpretation is "more than 12 months" — meaning at least 12 months and 1 day.
Treating the discount as a separate event. The discount applies after losses are netted off. If you have $50,000 of carried-forward capital losses and a $30,000 current-year gain, the loss wipes out the gain — there is nothing left to discount, and the residual $20,000 of loss carries forward.
Assuming companies get the discount. They do not. The 25% / 30% company rate applies to the full gain.
Forgetting the foreign-residency apportionment. An investor who left Australia for 18 months mid-holding will get a reduced discount based on the days-resident ratio.
Selling crypto on FIFO when LIFO would be better. ATO accepts specific identification with adequate records. Investors who bought multiple parcels at different prices can choose which parcel to sell — most often the parcel with the highest cost base (lowest gain) and longest holding period. Careless FIFO selling can disqualify a parcel that would have qualified.
Off-the-plan property and the 12-month clock. For off-the-plan apartments the contract date is the date of signing the off-the-plan contract, not the date of completion. A buyer who signs in 2022, completes in 2024 and sells in 2025 has a 3-year holding period — fully eligible for discount.
Disposals that are not "real" disposals. Some events — entering a deceased estate's CGT cost base inheritance, certain types of trust restructure — do not reset the 12-month clock; they continue the prior holder's clock. Other events do reset it (a fresh acquisition by a beneficiary). The ATO's Cost base modification rules govern this; tax-agent advice is recommended for restructure scenarios.
Forgetting the main residence exemption. The main residence exemption (PPR) applies to the family home. The 50% discount is irrelevant in that case — there is usually no taxable gain at all. The 6-year rule allows a former PPR to retain its exemption for up to 6 years of rental use; see the ATO's PPR exemption guidance.
Holding through a self-managed super fund (SMSF). SMSFs are eligible for a 33.33% CGT discount (not 50%) on assets held for 12+ months. The lower discount reflects the lower 15% tax rate inside super — combined effective rate on a held-12-months gain in accumulation phase is 10%.
Ignoring the small business CGT concessions. Active assets used in a small business can qualify for additional concessions (15-year exemption, 50% active asset reduction, retirement exemption, rollover) that stack with the 50% discount. The combined effect can reduce CGT to nil. Eligibility requires careful tests; tax-agent advice is essential.

CGT events that reset the holding period

Most disposals are CGT event A1 (disposal of a CGT asset). Other events that affect the holding period:

CGT event E1 — creating a trust over an asset. Resets the clock at the trust level.
CGT event B1 — agreement that title passes at a future time. Acquisition date is the date of the agreement.
CGT event K6 — pre-CGT shares converting to post-CGT through a 75%-acquired event. Resets the clock at the K6 trigger date.
Marriage breakdown rollover — relationship breakdown transfers continue the prior owner's holding period (no reset).
Deceased estate — beneficiary inherits the deceased's cost base and the deceased's acquisition date. No reset.

Tax-agent advice is essential for any non-A1 event because the rules are nuanced.

Why the discount exists

The 50% CGT discount was introduced in 1999 to replace the previous indexation method. Under indexation, the cost base of a CGT asset was adjusted upwards for inflation, and only the real (above-inflation) gain was taxed. The 1999 reform shifted to a flat 50% discount on the nominal gain, on the rationale that for assets held longer than 5 to 7 years the 50% discount is roughly equivalent to the indexation method.

The trade-off:

Indexation method (pre-1999): complicated, reflected actual inflation, less generous in low-inflation periods.
50% discount (post-1999): simpler, fixed concession, more generous when inflation is low, less generous when inflation is high.

Treasury's Re:think Tax Discussion Paper and several reviews since have flagged the 50% discount as a candidate for reform — most often a reduction to 33% — but no proposal has been legislated. The discount remains the dominant feature of the personal investment tax landscape.

Carry-forward losses and the discount

Capital losses are applied before the discount. The order of operations:

Net the current-year capital gains and losses across all CGT events.
Apply any carried-forward capital losses from prior years.
If the result is positive, separate it into the discount-eligible gain (assets held 12+ months) and the non-discount gain.
Apply the 50% discount to the eligible portion only.
Add the result to assessable income.

Worked example: investor has a $50,000 gain on shares held 14 months and a $20,000 loss on a different parcel held 8 months. The loss is a current-year capital loss that is applied to the gain before the discount. Net gain = $30,000. Apply 50% discount = $15,000 discounted gain.

If instead the loss had been a carried-forward loss from a prior year, the same order applies — losses first, then discount.

A planning point: investors with significant carry-forward losses should consider "selling losing positions" only after carry-forwards are exhausted, because every $1 of current-year loss is matched against a discount-eligible gain at the discounted (50%) rate. Selling losses in years with no current-year gains "wastes" the loss in cash terms — the loss carries forward but has not offset a real tax bill.

Trust distributions and the discount

For trust beneficiaries, the 50% discount is applied at the beneficiary level, not the trust level. The trust calculates the gross capital gain. The trustee resolves to distribute the gain (or part of it) to beneficiaries. Each beneficiary receives a "discount capital gain" attribution and applies the discount according to their own residency and asset-class eligibility.

A practical implication: a discretionary family trust with two beneficiaries — one Australian-resident individual on the 47% top marginal rate and one Australian-resident company — can stream the gain to the individual to capture the 50% discount, leaving the company with a smaller share. This is a common feature of family trust structures and is permitted provided the streaming is allowed by the trust deed and the trustee resolution is made before 30 June.

Streaming rules tightened from 2010-11 onwards (the Trust streaming integrity measures). The trustee resolution must specifically reference the capital gain and identify the beneficiary; default streaming on the basis of "income share" is not enough. Tax-agent involvement is essential for any non-trivial trust structure.

CGT and the main residence exemption

The main residence exemption (PPR) is separate from the 50% discount. The PPR can give a full exemption — no taxable gain at all — for a property used as the family home. The 50% discount is irrelevant in that case.

Where the two interact is for a property that has been partly used as a main residence and partly as a rental:

The taxable proportion is calculated by days-rented over total days held.
The taxable gain (after the rental-day apportionment) then qualifies for the 50% discount if the holding period is over 12 months.
The 6-year rule allows a former PPR to retain its full PPR exemption for up to 6 years of rental use, provided no other property is being claimed as the PPR.

Worked example: a property bought as a PPR on 1 January 2018, rented from 1 January 2022 to 1 January 2025 (3 years), sold on 1 January 2026. The 6-year rule applies — the property remains PPR-exempt. No capital gain is taxable. The 50% discount is not engaged.

Without the 6-year rule (e.g. if another property was claimed as PPR during the rental period), the partial PPR exemption applies and the taxable portion gets the 50% discount. The arithmetic gets complex; tax-agent involvement is recommended for any rental-converted PPR.

What to watch for in the next Budget cycle

The Federal Budget night (the second Tuesday in May) is where CGT-related changes are typically announced. Two items worth flagging:

Discount review. The Treasury Tax Expenditures and Insights Statement publishes the annual cost of the 50% CGT discount (around $19 billion per year as at FY2024-25). Reform proposals have included a 33% discount and a tightening for property held by individuals. No active proposal as of FY2025-26.
Foreign resident rules. The 8-May-2012 exclusion has been broadened over the last decade. Expect continued tightening for non-residents who own taxable Australian property.

We update this article each May after the Federal Budget. The "Updated" date at the top of the page is the version you are looking at.

Related calculators

CGT 50% Discount Calculator — model the discounted gain across a single asset disposal.
CGT 6-Year Rule Calculator — for former main residences kept and rented out.
Crypto CGT Calculator — for digital asset disposals with FIFO accounting.
Negative Gearing Calculator — for ongoing investment property cash flow.
Property Depreciation Calculator — depreciation reduces the cost base, increasing the eventual capital gain.

This article is general information based on the legislated FY2025-26 CGT rules. It is not personal tax advice; speak to a registered tax agent for your specific situation. The figures will be revisited each May after the Federal Budget.