CGT on investments: what to keep, how it's taxed, and franking credits explained

What actually triggers tax

• Buying an investment isn't a tax event on its own. Selling it, swapping it for something else, or otherwise disposing of it is.
• For shares, ETFs and managed fund units: selling, or a buyback, merger or takeover that cashes you out.
• For crypto: selling for cash, swapping one coin or token for another, using it to pay for something, and some staking, airdrop and gifting situations can all be a disposal in their own right.
• Moving an investment between your own accounts (for example, to a different broker) generally isn't a disposal, but check with us before assuming that for anything more complicated, like moving assets into a trust or SMSF.

Records to keep from day one

• A contract note or confirmation for every buy and sell: date, quantity, price and any brokerage.
• Dividend and distribution statements, including any dividend reinvestment plan (DRP) statements — each reinvested amount buys a new parcel with its own cost base and acquisition date, easy to lose track of over the years.
• Paperwork for any corporate action: a stock split, consolidation, bonus issue, merger or demerger can change your cost base or create a new holding, and the ATO's treatment differs for each.
• The annual tax statement for every managed fund or ETF you hold (sometimes called an AMMA or AMIT statement) — the actual cash you received isn't the full tax story (see below).
• A full transaction history from every crypto exchange and wallet you've used. Exchanges close down or lose records; don't rely on them to keep yours for you.
• Keep everything for five years after you dispose of the asset — which could be decades after you bought it, so a simple spreadsheet from the first purchase saves a scramble later.

Working out the gain or loss

Your cost base is what you paid, plus incidental costs like brokerage and stamp duty. Each parcel you bought is tracked separately — if you bought the same share or ETF at different times and only sell part of your holding, you can choose which parcel you're selling (as long as your records clearly identify it), which lets you manage which gain or loss you realise.

Capital gain = what you received, less that parcel's cost base. If the result is negative, it's a capital loss instead.

The 50% CGT discount

• Held the asset for more than 12 months before disposing of it? Individuals and trusts get a 50% discount on the gain. Companies don't get this discount.
• Any capital losses (current year or carried forward) have to be applied against the gain first, before the discount — you can't apply the discount first and use the loss elsewhere.
• A capital loss can only offset a capital gain, never your salary or other income, but an unused loss carries forward indefinitely until you have a gain to use it against.

Franking credits and dividend imputation

• Australian companies pay tax on their profits before they pay a dividend — 25% for most small and medium companies, 30% for larger ones. A 'franked' dividend comes with a franking credit attached, representing the tax the company already paid on that profit.
• On your return, you include both the cash dividend and the franking credit in your assessable income (the 'grossed-up' amount), then claim the credit back as a tax offset. The system is designed so that profit isn't taxed twice — once in the company, once in your hands.
• If your marginal tax rate is lower than the company's tax rate, the offset can be more than the tax you owe on the dividend, and the excess is refunded to you. If it's higher, you pay the difference.
• Fully franked, partially franked and unfranked are different: an unfranked dividend has no credit attached at all, usually because the company hasn't paid enough underlying tax to frank it.

The 45-day holding rule

• To claim the franking credit, you generally need to have held the shares 'at risk' for at least 45 days (90 days for certain preference shares), not counting the day you bought or sold.
• A small shareholder exemption covers most everyday retail investors: if your total franking credits for the year are $5,000 or less, the holding period rule doesn't apply to you at all.
• If you trade in and out of larger parcels close to dividend dates and your franking credits exceed that, the rule can start to matter, and the ATO works out which parcel satisfies it on a last-in-first-out basis.

ATO: Franking tax offsets and franking credits ↗

Managed funds and ETFs: it's not just the cash you received

A managed fund or ETF distribution usually isn't one simple number. Its annual tax statement breaks the distribution into components: Australian income, foreign income, franking credits attached to dividends the fund received, capital gains (often already discounted at the fund level), and sometimes a tax-deferred amount.

A tax-deferred amount isn't taxed as income in the year you receive it — instead, it reduces your cost base, so it effectively gets taxed later as a larger capital gain when you eventually sell. It's easy to under-report income by using only the cash distribution instead of the actual tax statement.

Foreign shares

Franking credits only come from Australian companies. Dividends from foreign shares usually have foreign withholding tax deducted before you receive them, and you may be able to claim a foreign income tax offset for that tax in your Australian return, so you're not taxed twice on the same dividend.

Quick checklist

• A contract note or confirmation kept for every buy and sell, including DRP reinvestments.
• The actual annual tax statement for every managed fund or ETF, not just the cash that landed in your account.
• A full, exported transaction history for every crypto exchange or wallet you've used.
• Capital losses applied before the 50% discount, not after.
• Franking credits only claimed where you've genuinely held the shares at risk for 45 days, or your total credits are under the small shareholder exemption.

Investment tax gets complicated fast once DRPs, corporate actions, multiple funds or crypto are involved. Bring your statements and exchange exports to your appointment and we'll work through it with you.