What is the 12 month rule for capital gains tax?

The 12-month rule for capital gains tax refers to a provision made for a discount: Under this provision, a person can get a 50% discount if the asset was owned for 12 months before being sold, exchanged, or gifted. The person who sold the asset must also be an Australian resident for tax purposes.

The idea behind the exemption is to reward long-term investments,” says Chapman. “Short-term investments are not regarded as being especially helpful to the economy, whereas people acquiring an asset and keeping it over the longer term are contributing to economic stability. The theory is that tax rates should be reduced on those longer-term investments because they are desirable.”

For example, flipping properties is not regarded by the Australian Taxation Office as being particularly constructive. It’s more about chasing profits and so the discount does not apply for those properties held for less than 12 months.