Tax on Shares in Australia: Dividends and Capital Gains

When you own shares in Australia, two types of tax apply: capital gains tax (CGT) on profits when you sell, and income tax on dividends you receive along the way. The rules are manageable once you understand them — and a few deliberate moves, like holding shares for over 12 months, can significantly reduce what you owe the ATO.

General information only. This article does not constitute financial advice. Consider your own circumstances before making investment decisions.

How Capital Gains Tax Works on Shares

CGT in Australia isn’t a separate tax — it’s added to your assessable income for the financial year in which you sell. If you buy CBA shares for $120 and sell them for $145, your capital gain is $25 per share. That gain is included in your taxable income and taxed at your marginal rate, which can reach 45% plus the 2% Medicare Levy.

One crucial point: the ATO calculates CGT on a per-parcel basis. If you’ve bought shares in multiple tranches at different prices, each parcel carries its own cost base. Brokerage fees paid on both buying and selling are included in that cost base calculation — which reduces your taxable gain. Keep records of every transaction. Losing documentation years later is a surprisingly common and costly mistake.

Capital losses work as a direct offset against gains. If you made a $10,000 profit on Macquarie Group but a $3,000 loss on a smaller position, your net assessable gain is $7,000. Losses not used in the current year carry forward indefinitely to offset future gains — they never expire.

The 50% CGT Discount: Why Holding 12 Months Matters

This is the single most impactful tax advantage available to Australian retail investors. Hold shares for more than 12 months before selling, and you only pay CGT on 50% of the net gain. For someone on the 37% marginal rate, that effectively cuts the CGT rate to 18.5% on long-term gains.

Using the CBA example: a $25 gain per share held for 14 months becomes only a $12.50 taxable gain. On 1,000 shares, that’s a $12,500 taxable gain instead of $25,000 — a difference of around $4,625 in tax at the 37% rate.

The 12-month clock starts the day after purchase and ends on the day of sale. Selling even one day early forfeits the entire discount. With ASX settlement running on a T+2 basis, investors approaching the 12-month mark should factor in the settlement date, not just when they place the trade.

The discount applies to individuals and trusts but not to companies. Investors holding shares through a Pty Ltd company lose access to it entirely. In an SMSF during accumulation phase, a reduced discount of 33.3% applies.

Dividend Tax and How Franking Credits Work

Dividends are taxed as ordinary income at your marginal rate — but Australia’s imputation system means you often pay far less than you’d expect.

When an Australian company pays tax at the corporate rate (30% for large companies, 25% for base rate entities) before distributing profits, the shareholder receives a franking credit equal to the tax already paid. You must include both the cash dividend and the grossed-up franking credit as assessable income, but then you apply the credit directly against your tax bill.

Example: a $700 fully franked dividend from a company paying 30% tax comes with a $300 franking credit, making the grossed-up income $1,000. If you’re in the 32.5% tax bracket, you owe $325 on that $1,000 — but subtract the $300 credit and your actual payment is just $25. If your marginal rate is low enough that the credit exceeds your tax liability, the ATO refunds the excess in cash. This is why fully franked shares are particularly attractive to retirees in pension phase, who often pay 0% tax on investment income.

Not all dividends are fully franked. Unfranked dividends from companies with offshore earnings — many international ETFs, for instance — carry no franking credits and are taxed at your full marginal rate.

Reporting Shares Correctly on Your Tax Return

All dividends, capital gains, and capital losses must be declared each year. The good news is that major Australian brokers — CommSec, Stake, Superhero, and Pearler among them — now generate annual tax summaries that pre-populate most figures.

Still, the final accuracy is your responsibility. Cross-check dividend statements from share registries like Computershare or Link Market Services, and verify that every buy and sell transaction is accounted for, including corporate actions like bonus shares, rights issues, and share splits — all of which affect your cost base.

If you hold shares in a family trust, note that the trust’s tax return must distribute income each year to avoid being taxed at the top marginal rate, and the 50% CGT discount can be passed through to individual beneficiaries, not to corporate ones.

Frequently Asked Questions

Do I pay tax on unrealised gains from shares?

No. CGT only applies when you actually sell shares and realise a gain. Shares can sit at a paper profit for years — even decades — with no tax liability until you dispose of them.

Can I offset capital losses from shares against my salary income?

No. Capital losses can only offset capital gains, not ordinary income like wages or salary. However, they carry forward indefinitely and can be applied against gains in any future year.

Are ETFs taxed differently to individual shares on the ASX?

For most purposes, no. ASX-listed ETFs are treated like individual shares — CGT applies on gains when you sell, and the 50% discount applies after 12 months. Distributions can include dividends, interest, and realised capital gains, each with different tax treatment, so review your ETF’s annual tax statement carefully.