CGT vs GST: How Do They Differ In Australia?

As the co-founder of ProfitBooks, I’ve had the privilege of working with countless Australian business owners over the years.

Through these relationships, I’ve gained deep insights into the Australian taxation system and its impact on businesses of all sizes.

Two taxes that consistently generate questions from our Australian users are Capital Gains Tax (CGT) and Goods and Services Tax (GST). Despite their similar three-letter acronyms, these tax systems operate under completely different principles.

In this article, I’ll break down CGT and GST in plain language, sharing what I’ve learned through years of supporting Australian businesses with their accounting needs.

Although we’ve discussed all the different tax systems in Australia and how they operate, it is still good to compare these larger tax systems that affect small and big businesses alike.

 

What Is Capital Gains Tax (CGT) In Australia?

 

Capital gains tax, in simple terms, is a tax levied on the profit you make from selling an asset, like stocks, real estate, or valuable items, that has increased in value since you acquired it.

This tax is calculated based on the “capital gain,” which is the difference between the selling price and the original purchase price of the asset.

In simple terms, CGT is levied on the profit you make from selling an asset that has increased in value since you acquired it. This could be anything from shares and property to valuable collectibles.

The tax is calculated on the “capital gain,” which is the difference between what you paid for the asset and what you sold it for.

For example, a ProfitBooks client bought a piece of art for $10,000 and later sold it for $15,000, creating a capital gain of $5,000. The Australian Taxation Office (ATO) taxes the $5,000 gain, not the entire sale amount.

According to the Australian Taxation Office (ATO), which sets the tax regulations and rates, the capital gains tax is dynamic, and the rates can be calculated online.

But what exactly are the rates now?

 

Capital Gains Realizations vs Tax Comparison

(source: Austaxpolicy)

 

The above graph shows you the gains that Aussie companies and individuals have realized. This shows a major spike from 2001 to 2007 (roughly), and after the 2008 financial crash, it is evident that a lot of loss had occurred. Although the gains realizations are large and were growing consistently, the taxes on this actually decreased.

 

(source: Austaxpolicy)

 

As you can see from the graph above, the tax rates on capital gains dropped drastically by the end of the 20th century and have been stable ever since.

The same goes for the Australian GST regime, which has always been stable and around 10% for the most part.

So overall, the CGT rates have been favorable for Australian businesses and people.

Although the rates could have been dropped further after the 2008 financial crash to support the massive losses. But all in all, business seems to be flourishing in the country, and taxes aren’t crazy high.

 

CGT Rates In Australia

One thing our Australian users frequently ask about is how CGT actually works with regular income. CGT isn’t a separate tax with its own rate; rather, capital gains are added to your assessable income and taxed at your marginal tax rate. 

The amount of CGT owed depends significantly on how long the asset has been owned.

Here’s what I’ve learned from supporting our Australian customers: 

• For assets held less than 12 months: You’ll pay tax on the entire capital gain at your regular income tax rate. 
• For assets held more than 12 months: You’ll qualify for the CGT discount, which means you only pay tax on 50% of the capital gain.

 

 

For example, an Australian business owner using ProfitBooks makes $40,000 a year and falls into the 32.5% tax bracket.

If they also realize a capital gain of $60,000 from selling an investment property they’ve owned for over a year, here’s what happens: 

1. The CGT discount applies, so only $30,000 (50% of $60,000) is added to taxable income 
2. Total taxable income becomes $70,000 ($40,000 + $30,000) 
3. Tax is paid according to the tax rates applicable to $70,000 

This 50% discount has been a significant advantage for long-term investors.

I’ve seen several ProfitBooks users strategically time their asset sales to ensure they qualify for this discount. This essentially halves their tax liability and creates substantial savings they can reinvest into growing their businesses.

 

Are There Any Exemptions From CGT?

A simple answer would be NO.

Since 20 September 1985, ATO has been regulating taxes on capital gains. And this continues.

According to research from The Australia Institute, this exemption represents the single largest tax concession in Australia’s federal budget, worth approximately $46 billion annually. 

Other exemptions include:

• Your personal vehicle 
• Most personal use assets acquired for less than $10,000 
• Pre-CGT assets (acquired before September 20, 1985) 

For small business owners using ProfitBooks, we’ve found the small business CGT concessions to be particularly valuable.

These can reduce or eliminate CGT liabilities when selling business assets. I’ve worked with numerous Australian business owners who leveraged these concessions when retiring or transitioning to new ventures. 

However, some assets are exempt from CGT, like your personal home or vehicle. It is better to refer to ATO’s guide on exemptions from taxes on capital gains to get accurate information.

 

What Is Goods & Services Tax (GST)?

Goods and Services Tax (GST) in Australia is a consumption-based tax system that applies to most goods and services in many countries. It’s designed to replace multiple layers of taxes, streamlining the tax collection process.

Under GST, businesses collect tax from customers at each stage of the supply chain, and the government refunds the tax paid on inputs. This ensures that tax is levied only on the value added at each stage, preventing double taxation.

For example, consider a smartphone’s production process.

The manufacturer buys raw materials, paying GST on them.

When they sell the phone to a distributor, they charge GST on the phone’s value, but they can deduct the GST they paid on raw materials. The distributor, in turn, charges GST when selling to a retailer, who does the same.

Finally, the end consumer pays GST when buying the smartphone.

This way, GST is collected progressively, and the government gets a fair share of the tax without burdening any single entity excessively.

 

GST Rates In Australia

(source: Wikipedia)

 

The GST rates have always been around 10% in the country and worked out to be a success when it comes to taxation systems.

GST is also known as VAT here but is hardly referred to as VAT. Before heading to this section, you can learn more about the VAT or GST regime in Australia so that you have a better idea about the subject.

Since its introduction in the year 2000, the Goods and Services Tax (GST) has seen several noteworthy trends and changes in its rates.

Initially set at 10%, this rate remained unchanged for over a decade, providing a stable source of revenue for the government.

However, in 2010, there was a temporary shift when the government introduced a one-off increase in the rate, raising it to 11%. This increase was aimed to fund flood relief efforts in Queensland and Victoria. Thankfully, this change was temporary, and the rate reverted to 10% after a year.

 

Are There Any Exemptions From GST?

Again, a big fat NO to this question.

Even though no good or service is exempted from GST (referring only to businesses and individuals conducting businesses), you can lodge a GST return. You can refer to our guide on GST to learn how to lodge a return in depth.

GST-free supplies include: 

• Most basic food items 
• Some health services 
• Educational courses 
• Exports 

Input-taxed supplies include: 

• Financial services 
• Residential rent 

We will still briefly discuss how a GST return can be lodged from the Australian Taxation Office’s portal.

 

 

No matter how you signed up for Australian GST, you can easily submit your GST return online. Here’s how:

1. Log in to the ATO portal, and when prompted, choose “Non-resident” from the dropdown menu.
2. Once you’re in your account, you’ll find clear instructions on how to submit and pay your Australian GST.
3. If you’re using the Simplified GST system, access your online business portal. Click the ‘Log in and pay’ GST button, and you can pay using a credit/debit card or an overseas bank transfer.

A crucial tip: Always make sure to provide the correct unique payment reference number (PRN) in the reference field when you make a payment. This ensures your money goes to the right place!

If you’re registered under the Standard GST system, explore your other payment options on the ‘how to pay‘ page. Some of these methods may require you to have an Australian bank account.

 

So, how do CGT & GST compare today?

Obviously, we know by now that both these tax systems are very different, and businesses and individuals are taxed for completely varied reasons.

While one is about taxation on the gains in capital for a business or individual, the other is a tax on EVERYTHING, including the movies you go to watch, the food you have in a restaurant, and even an airline ticket for travel.

Let’s look at a comparison table to narrow our differences down and locate them at a glance.

 

Capital Gains Tax vs Goods and Services Tax Comparison Table

CGT	GST
Applies to Investments: CGT is mainly levied on the profit made from the sale of assets like real estate, shares, or collectibles.	Applies to Goods and Services: GST is a broad-based consumption tax that applies to most goods and services purchased in Australia.
Individual Liability: It is typically the responsibility of the individual or entity that owns the asset to report and pay this tax.	Business Responsibility: Businesses are responsible for collecting and remitting GST to the Australian Taxation Office (ATO).
Event-Based: CGT is triggered when a specific event occurs, such as selling an asset. It’s not an ongoing tax like GST.	Transaction-Based: This is imposed on each transaction involving goods and services, and it’s typically included in the sale price.
Discounts Available: Individuals may be eligible for discounts or concessions, depending on factors like how long they’ve owned the asset.	No Personal Discounts: There are no individual discounts or concessions for GST. It’s a fixed percentage of the transaction value.
Main Residence Exemption: There’s often an exemption for the sale of your primary residence from CGT.	No Main Residence Exemption: GST is not exempted for the sale of your primary residence; however, the sale of residential property is usually exempt from this.

 

Remember, tax laws can change, so it’s essential to consult the latest information from the Australian Taxation Office or seek advice from a tax professional to ensure compliance with current regulations.

 

Common Misconceptions About CGT and GST

Through years of working with Australian businesses and developing accounting software for their needs, I’ve encountered several misconceptions:

 

CGT Myths 

1. “CGT is a separate tax”: Many people think CGT is a standalone tax with its own return. In reality, it forms part of income tax calculations, with net gains added to taxable income. When a ProfitBooks client first sold business assets, they were expecting a separate CGT bill, but it just increased their income tax assessment. 
2. “Inherited properties are exempt”: While inheritance itself isn’t a CGT event, subsequent sales use market value at death as the cost base. I’ve seen Australian users get caught by this when selling inherited property years later. 
3. “All personal assets are exempt”: In reality, collectibles and personal use assets valued over $500 still attract CGT. A ProfitBooks user was surprised to learn his vintage comic book collection was subject to CGT when he sold it.

 

GST Myths 

1. “GST calculation is simple”: Many businesses incorrectly calculate GST as 10% of total sales rather than 1/11th, leading to overpayments. In ProfitBooks, we’ve built our GST calculator to automatically apply the correct 1/11th formula, saving businesses from this common error. 
2. “Commercial properties always attract GST”: GST depends on the transaction type, not zoning—existing commercial buildings may be input-taxed. We learned this lesson when helping a client with their first office space purchase. 
3. “GST cannot be avoided”: Complex supply chains and cash transactions enable GST leakage. One study estimates the “black economy” represents about 3% of GDP in lost tax revenue.

 

How CGT and GST Compliance Affects Small Businesses

Through our work with Australian small businesses, I’ve seen firsthand how both CGT and GST affect day-to-day operations and long-term planning.

 

Impact of GST Compliance in Australia

GST registration requirements (mandatory if turnover exceeds $75,000) create immediate compliance obligations: 

• Filing regular Business Activity Statements (BAS) 
• Maintaining detailed transaction records 
• Configuring accounting systems to track GST correctly 

The cash flow impact of GST can be significant.

Many of our new Australian clients quickly realize that collecting GST from customers and then holding it until BAS lodgment effectively means they need extra working capital. For businesses with tight margins, this can create real challenges. 

One advantage our clients have found with GST is the ability to claim input tax credits on business purchases.

Using ProfitBooks to track these credits has saved many businesses thousands of dollars. Our software automatically identifies potential GST credits that might otherwise be overlooked.

 

Impact of CGT on Business Strategy

For Australian business owners using our platform, CGT considerations often influence major decisions: 

• Whether to sell or hold business assets 
• Timing of asset disposals to maximize concessions 
• Business structure choices (companies, trusts, or sole traders) 

The small business CGT concessions have been particularly valuable for many business owners I’ve worked with. These concessions can reduce or eliminate CGT when selling business assets, particularly for retirement planning. 

In our experience supporting Australian businesses, maintaining good records for both GST and CGT is essential.

With ProfitBooks, we’ve designed features specifically to help small businesses track both GST obligations and the cost base of business assets for future CGT calculations.

 

FAQs: Common Questions About CGT and GST in Australia 

What is the fundamental difference between CGT and GST in Australia? 

CGT taxes the profit made from selling assets that have increased in value, while GST is a 10% consumption tax applied to most goods and services purchased in Australia. Based on feedback from our Australian users, CGT affects occasional transactions like property or share sales, while GST impacts nearly every business transaction.

 

What is the current capital gains tax rate in Australia? 

CGT isn’t a separate tax with its own rate; rather, capital gains are added to your assessable income and taxed at your marginal tax rate. For assets held longer than 12 months, individuals can apply a 50% discount to the capital gain before adding it to their taxable income. This discount has significantly reduced tax liability for many Australian ProfitBooks users when selling long-term business assets.

 

Do I need to register for GST as a small business owner? 

You must register for GST if your business turnover is $75,000 or more annually or if you provide taxi or ride-sourcing services, regardless of turnover. If your turnover is below this threshold, registration is optional. Many of our Australian startup clients initially operate below the threshold but voluntarily register to claim GST credits on their business purchases.

 

Is my primary residence exempt from Capital Gains Tax? 

Yes, in Australia, the family home (primary residence) is generally exempt from CGT. This exemption is the single largest tax concession in Australia’s federal budget, forgoing approximately $46 billion annually. Many of our Australian users have benefited from this exemption when selling their homes, even when they’ve appreciated significantly in value.

 

How do capital losses affect my tax return? 

Capital losses can be offset against capital gains, reducing your overall CGT liability. If your total capital losses exceed your capital gains in a financial year, the net capital loss can be carried forward indefinitely to offset future capital gains. However, capital losses cannot be offset against other types of income. In ProfitBooks, we track capital losses automatically so they can be applied to future gains. 

 

Summing Up: Maximizing Savings Using CGT Concessions

If you’re an Australian small business owner, understanding CGT concessions could save you significant tax when you eventually sell your business or business assets.

Here’s what I’ve learned from working with our Australian clients: 

Small businesses in Australia can access four main CGT concessions: 

1. 15-Year Exemption: If you’ve owned an active business asset for at least 15 years and are retiring or permanently incapacitated, you may be eligible for a complete CGT exemption. I’ve seen this benefit several ProfitBooks users who held onto their business premises long-term. 
2. 50% Active Asset Reduction: This reduces your capital gain by 50% for active business assets on top of the general 50% CGT discount. Effectively, this can reduce your taxable gain to just 25% of the original amount. 
3. Retirement Exemption: This provides up to $500,000 in lifetime CGT exemptions. For those under 55, the exempt amount must be contributed to a superannuation fund. 
4. Replacement Asset Rollover: You can defer CGT if you reinvest the proceeds in another active business asset within two years.

To qualify for these concessions, your business generally needs an aggregated turnover below $2 million or net assets under $6 million. The asset must also be an “active asset” used in your business.

 

So, what’s the conclusion?

In ProfitBooks, we’ve built asset-tracking features that help maintain the records needed to claim these concessions. Proper documentation of asset usage throughout its lifecycle is crucial for CGT planning.

Start using it for FREE now!

 

 

Also Read:

What Is VAT or GST In Australia?

What Taxes Do Small Businesses Pay In Australia?

Top 4 Accounting Software In Australia

GST- A Guide For Small Business Owners