Capital Gains Tax Considerations: Selling Investment Property vs Shares in Australia
Author: Tepuy Solutions | Date: July 2025
Category: Investment Taxation, Financial Planning
Overview
This article examines the capital gains tax (CGT) implications under Australian tax law when disposing of long-held investment property versus shareholdings. We explore the structural, timing, and ownership flexibility of each asset class, including strategic tax planning options, parcel sales, ownership restructuring, and the use of trusts. The analysis aims to inform long-term investors about optimal exit strategies that balance return maximisation with tax efficiency.
1. Introduction
Investment properties and shares are two of the most common assets held by Australian investors. While both are subject to CGT, the taxation mechanics, flexibility, and planning strategies differ significantly. The nuances of ownership structures, holding periods, partial disposals, and ability to manage taxable events shape the after-tax outcomes of each investment.
2. Capital Gains Tax Basics in Australia
- Capital gains are added to your assessable income in the year of the asset's disposal.
- A 50% CGT discount applies to individuals and trusts if the asset is held for more than 12 months.
- Companies do not receive the 50% discount.
- CGT applies to the difference between the asset’s cost base and its sale proceeds, minus applicable costs (e.g., legal, stamp duty, brokerage, agent fees).
3. Selling Investment Property: Tax Implications
3.1 Full vs Partial Disposal
Investment property must typically be sold in full. Partial sales are not practically viable unless the land title is subdivided, which involves council approvals, significant costs, time delays, and capital gains events on each subdivided title. Thus, investors cannot "sell part of a house" to realise a partial gain for tax smoothing.
3.2 One-Off CGT Event
Property sales create a single, large CGT event. This can push the investor into the top marginal tax bracket in the year of sale. For example, if an individual realises a $400,000 gain, $200,000 (after CGT discount) may be added to their income and taxed at rates up to 45% plus Medicare levy.
3.3 Ownership Transfers Midway: ATO Risks
Changing ownership mid-way (e.g., transferring a share to a spouse on a lower tax bracket) triggers a CGT event at the time of transfer, based on market value. No "rollover relief" exists for personal investment properties (unless under family law / divorce / death). Therefore, transferring 50% of a property to a spouse after many years does not reset ownership and may result in an immediate capital gain. Some investors use family discretionary trusts or tenants-in-common arrangements early on to split ownership and manage future tax. However, retrospective restructuring is generally ineffective or costly.
3.4 Deductions and Depreciation Recapture
Capital works and depreciation claimed over the years reduce the cost base, thus increasing the capital gain. The more depreciation claimed, the higher the gain upon sale. This makes long-term property holding slightly more tax-inefficient than it appears.
4. Selling Shares: Tax Implications
4.1 Parcel-Based Flexibility
Shares can be sold in portions (known as "parcels"), offering significant tax planning flexibility. This allows CGT gains to be spread over multiple financial years, disposal of lowest-gain or highest-cost-base parcels to reduce tax, and tactical realisation of losses to offset gains (loss harvesting). Most brokers use FIFO (first-in-first-out) by default, but the ATO allows specific identification of parcels if proper records are maintained.
4.2 CGT Discounts and Structures
Individuals receive the 50% CGT discount after 12 months. Shares held by companies pay full corporate tax (no CGT discount). Trusts can distribute capital gains and allow streaming to lower-income beneficiaries. SMSFs in accumulation phase pay 15% CGT, and 0% in pension phase (a major advantage).
4.3 Ownership Flexibility
Unlike property, shares can be easily transferred between parties or entities at market value. Transfers trigger CGT events, but can be used strategically: selling to a family trust early in the holding period, holding in superannuation for concessional CGT treatment, or structuring to allow income splitting. Moreover, shares can be gifted, inherited, or transferred more easily without disrupting the asset itself.
5. Strategic Comparison Table
| Feature | Investment Property | Shares |
|---|---|---|
| CGT Discount | 50% after 12 months | 50% after 12 months |
| Partial Disposal | Not feasible (unless subdivided) | Easy, parcel-by-parcel |
| Year-by-Year Control | None – one-time event | Yes – multi-year disposal flexibility |
| Ownership Change Flexibility | Costly, triggers CGT | Easier to restructure |
| Holding in Trusts | Requires careful planning from start | Easier to structure |
| Use of Super | Not practical | Common and tax-effective |
| Upfront/Exit Costs | High (stamp duty, agent, legal, etc.) | Low (brokerage only) |
| Cost Base Reductions | Yes (via depreciation) | Minimal |
| CGT Planning Options | Limited | Extensive (e.g. parcel selection, timing) |
6. Key Tax Planning Takeaways
- Selling property is rigid: a one-time, high-impact CGT event with limited flexibility.
- Selling shares offers timing, parcel, and ownership structure strategies that can reduce tax.
- Long-term property investors must plan the ownership structure from day one (e.g., joint ownership, trusts) to gain tax efficiency.
- Share investors have more post-facto planning tools.
7. Final Notes and Recommendations
For investors considering exiting long-held investments:
- Use multiple-year planning if possible—especially for property sales, coordinating with income years of lower taxable income.
- Model the after-tax proceeds, not just headline gains.
- Consider the implications of trust distributions, loan balances, and depreciation clawback.
- Consult with a tax professional before making structural changes.
Disclaimer
This article provides general information based on current Australian taxation law (as of July 2025). It is not financial or tax advice. Investors should seek independent tax advice based on their individual circumstances.