Capital gains tax

Definition

Capital gains tax is a type of tax levied on the profit or gain realised from the sale or disposition of certain types of assets, known as capital assets. 

What are capital gains tax?

The tax is applicable when the selling price of the asset exceeds its original purchase price, resulting in a capital gain. Capital assets typically include long-term investments held for a certain period, such as stocks, real estate, and other securities. 

Different tax rates apply to short-term and long-term capital gains. Short-term gains are typically taxed at the individual’s ordinary income tax rates, while long-term gains may qualify for preferential tax rates, which are generally lower than ordinary income tax rates.

Investors may consider various strategies to manage capital gains tax, such as tax-loss harvesting, where capital losses are intentionally released to offset gains, or holding investments for the long term to qualify for lower tax rates.

Capital gains tax rates and regulations can vary significantly between countries, and they may be subject to change based on legislative decisions and economic conditions.

Example of capital gains tax

Let’s consider a simple example to illustrate capital gains tax:

  • Purchase of stock: Investor A purchases 100 shares of a company’s stock for $50 per share, resulting in a total investment of $5,000.
  • Holding period: After holding the stock for more than one year, Investor A decides to sell the shares when the stock price has increased to $70 per share.
  • Calculation of capital gain:

Selling price: 100 shares x $70 per share = $7,000

Purchase price (Basis): 100 shares x $50 per share = $5,000

Capital gain: $7,000 – $5,000 = $2,000

Since Investor A held the stock for more than one year, the capital gain is considered a long-term capital gain.

Assuming a long-term capital gains tax rate of 15%, the tax on the $2,000 gain would be 15% of $2,000, equal to $300.

After accounting for capital gains tax, the net proceeds from the sale would be:

$7,000 (selling price) – $300 (capital gains tax) = $6,700. 

Investor A realised a capital gain of $2,000 from the sale of stock and incurred a long-term capital gains tax of $300. The net proceeds after accounting for the tax are $6,700.

Clever finance tips and the latest news

Delivered to your inbox monthly

Join the 95,000+ businesses just like yours getting the Swoop newsletter.

Free. No spam. Opt out whenever you like.

Our offices:

Disclaimer: Swoop Finance Pty Ltd (ABN 52 644 513 333) helps Australian firms access business finance, working directly with firms and their trusted advisors. We are a credit broker and do not provide finance products ourselves. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Swoop Finance Pty Ltd can introduce applicants to a number of providers based on the applicants’ circumstances and creditworthiness, we may receive a commission or finder’s fee for effecting such introductions. Swoop Finance Pty Ltd does not provide any kind of advice and in giving you information about providers products, we are not making any suggestion or recommendation to you about a particular product. Offers of finance are subject to a separate assessment process by the provider and subject to their terms and conditions. If you feel you have a complaint, please read our complaints section which is contained within our terms and conditions.

© Swoop 2025

Looks like you're in . Go to our site to find relevant products for your country. Go to Swoop