Capital gains and losses on shares and crypto

Capital gains tax is the engine underneath both shares and crypto, and once you see how it works the rest falls into place. It is not a separate tax with its own rate. A net capital gain is added to your income for the year and taxed at your marginal rate, and a discount can cut the gain in half if you held the asset long enough. This chapter is the whole engine: what counts as a disposal, how the gain is worked out, the discount, and how capital losses fit in.

What counts as a disposal

A capital gains event happens when you dispose of an asset, and disposal is broader than selling for cash. Selling shares or crypto is the common one, but gifting them is a disposal too, treated as though you sold at market value on the day. For crypto, swapping one coin for another and spending crypto on goods or services are also disposals, each worked out on the value at the time. Other events can trigger it as well, such as a share buy-back, a managed fund switching or redeeming your units, or a company being wound up. The date that matters is the contract date, not the settlement date, and that date decides both the year the gain falls in and whether you have met the holding period for the discount.

Working out the gain or loss

A capital gain is your capital proceeds less the cost base of the asset. Proceeds are what you received, or the market value where you gave the asset away. The cost base is more than the purchase price: it also includes the incidental costs of buying and selling, and brokerage is the one people miss. You cannot claim brokerage as a deduction, because it forms part of the cost base instead, which lifts your cost base and lowers the gain. If your proceeds come in below the cost base you may have a capital loss, worked out on a slightly different figure called the reduced cost base.

The 50% discount

This is the part worth getting right, because it can halve the tax on a gain. An Australian resident individual who holds an asset for at least 12 months before the disposal can reduce the capital gain by 50%, so only half the gain is added to income. The 12 months is measured to the contract date, and you count neither the day you acquired the asset nor the day of the event, so a hold of exactly twelve months to the day falls just short. The discount is for individuals, not companies, and it does not apply where a disposal creates a brand new asset rather than realising one you held.

How capital losses work

Capital losses are narrower than many expect, and knowing the limits keeps you out of trouble. A capital loss can only be used against capital gains, never against your salary or other income. If your losses in a year are bigger than your gains, the unused amount carries forward with no time limit, ready to offset a gain in a future year. There is an order to it that works in your favour: you subtract losses from your gains before applying the 50% discount, and you apply them first to any gains that do not qualify for the discount, which leaves as much as possible of the discounted gain intact.

One limit catches people at the wrong moment. You can only claim a loss on an asset you have actually disposed of. A holding that has fallen in value but that you still own is a paper loss, and a paper loss is not deductible. The rare exception is where a liquidator or administrator declares your shares worthless in writing, which can crystallise the loss before the company is formally wound up.

Parcels bought at different times

Buy into the same company or the same coin on several dates and each parcel is a separate asset with its own cost base and its own acquisition date. When you sell only some of them, you need to be able to identify which parcel you sold, and you are entitled to choose. Keeping each parcel straight is what lets you work the holding period and the gain out correctly, so the record of when you bought what is the record that matters most.

The bottom line

Treat a sale, a swap or a gift as a disposal, work the gain out as proceeds less a cost base that includes your brokerage, and apply the 50% discount where you held for more than 12 months. Use capital losses only against gains, carry the rest forward, and never claim a paper loss on something you still hold. Keep each parcel and its dates on record, and the capital side of an investment return holds together.

General information only, not tax or financial advice. The rules have exceptions and are under review, so check the ATO or a registered tax agent for your situation.