Under the Australian taxation system capital gains tax (CGT) applies to the capital gain made on the disposal of any asset, except for specific exemptions. The most significant exemption is the family home. Assets which would attract CGT would include but not be limited to assets such as real estate, businesses, goodwill and shares which were acquired on or after 20th September, 1985. The sale of these assets will trigger a CGT event and therefore, will be subject to CGT.

CGT operates by having net gains treated as taxable income in the tax year an asset is sold or otherwise disposed of. It is important to understand that for real estate buy and sale dates are determined by the contract date not the settlement date. If an asset is held for at least one year, then any gain is first discounted by 50% for individual taxpayers, or by 33% for superannuation funds. Capital losses can only be offset against capital gains, and un-deducted net capital losses in a tax year may be carried forward indefinitely. However, capital losses cannot be offset against normal income.

Personal use assets and collectables are treated as separate categories and losses incurred on these assets are quarantined so that they can only be applied against gains in the same category. These capital losses cannot be offset against other capital gains. This works to stop taxpayers subsidising hobbies from their investment earnings.