<P> CGT operates by having net gains treated as taxable income in the tax year an asset is sold or otherwise disposed of . If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 33.3% for superannuation funds . Capital losses can be offset against capital gains, and net capital losses in a tax year may be carried forward indefinitely . Capital losses cannot be offset against normal income . </P> <P> Personal use assets and collectables are treated as separate categories and losses on those are quarantined so they can only be applied against gains in the same category, not other gains . This works to stop taxpayers subsidising hobbies from their investment earnings . </P> <P> A capital gains tax (CGT) was introduced in Australia on 20 September 1985, one of a number of tax reforms by the Hawke / Keating government . The CGT applied only to assets acquired on or after that date, with gains (or losses) on assets owned on that date, called pre-CGT assets, not being subject to a CGT . In calculating the capital gain, the cost of assets held for 1 year or more was indexed by the consumer price index (CPI). This meant the part of a gain due to inflation was not taxed . Indexation was not used if an asset was held for less than 12 months or a sale results in a capital loss . Also, an averaging process was used to calculate the CGT. 20% of a taxpayer's net capital gain was included in income to calculate the taxpayer's average tax rate, and the rate was then applied to all the taxpayer's gross income (i.e., including the capital gain in full). So if a large capital gain were to push a taxpayer into a higher tax bracket in the tax year of sale, the brackets was stretched out, allowing the taxpayer to be taxed at their average tax rate . </P> <P> From 20 September 1999, the Howard Government discontinued indexation of the cost base and (subject to a transitional arrangement) introduced a 50% discount on the capital gain for individual taxpayers . Assets acquired before 21 September 1985 continued to be CGT - free . For assets acquired between 20 September 1985 and 20 September 1999, the taxpayer has an option of using indexation (up to the CPI as at 30 September 1999) or using the discount method . Also from 21 September 1999, small business CGT concessions were introduced (below), reducing tax on small business owners retiring, and on active assets being sold, and allowing a rollover when selling one active asset to buy another . The CGT discount is not available to companies and superannuation funds obtain a CGT discount of one - third . </P>

When was capital gains tax introduced in australia