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Capital Gains Tax Audit Insurance

Understanding Capital Gains Tax and CGT Tax Audit Insurance in Australia

Capital Gains Tax (CGT) is a major part of Australia’s tax system, affecting individuals, businesses, and self-managed superannuation funds (SMSFs). It applies when you sell or dispose of a capital asset — such as real estate, shares, cryptocurrency, or business interests — and realise a profit. Although CGT forms part of your income tax, it is calculated separately under specific rules, with various concessions and exemptions available. For example, individuals may be eligible for a 50% CGT discount for assets held longer than 12 months, while small business owners may access generous small business CGT concessions.

Given the significant amounts involved and the complexity of CGT law, the Australian Taxation Office (ATO) has made CGT a key compliance focus. Through data-matching programs, the ATO cross-references information from the Land Titles Office, ASIC, cryptocurrency exchanges, and other third parties to detect undeclared capital gains. Errors, missed disclosures, or incorrect application of CGT concessions can easily trigger a capital gains tax audit, often years after the event. Being audited can result in substantial professional fees for accountants and legal advisors. To protect yourself, many taxpayers and businesses choose to secure tax audit insurance, which covers the cost of professional fees incurred in responding to a CGT audit, including historical document collation, cost base verification, and negotiating with the ATO. Learn more below as we answer some of the most frequently asked questions about CGT audits and tax audit insurance.

FAQs

Capital Gains Tax (CGT) is the tax payable on the profit from the sale of capital assets, such as property, shares, or business interests. It applies to individuals, trusts, companies, and self-managed superannuation funds (SMSFs). Unlike regular income tax, CGT is only triggered when the asset is sold or otherwise disposed of. The ATO places significant focus on CGT due to the complexity of rules and the high value of transactions typically involved.

The ATO conducts audits to verify that CGT obligations are correctly reported. Common triggers include inconsistent reporting between property sales and tax returns, unsubstantiated exemptions (e.g. the main residence exemption), and discrepancies detected through data matching with third parties such as the Land Titles Office or ASIC. The ATO also pays closer attention to taxpayers who regularly sell assets or who have accessed CGT concessions such as the small business 15-year exemption or 50% active asset reduction.
You may be more exposed to a CGT audit if you:
  • Sell high-value assets without keeping accurate records of your cost base
  • Own multiple investment properties or frequently transact in shares
  • Claim exemptions or small business concessions
  • Transfer assets between entities such as SMSFs, trusts, or companies
  • Use hybrid or discretionary trust structures for estate planning
For example, if you sold an investment property but did not report the capital gain, or incorrectly applied the main residence exemption while renting the property, your return may be flagged.
  • Unreported or misreported capital gains from asset sales
  • Incorrect application of the main residence or small business exemptions
  • Transfers between related parties at below-market value
  • Sales of crypto assets without appropriate tax reporting
  • Unsubstantiated cost base claims or missing documentation

Responding to a CGT audit can require significant time from your accountant, legal advisor, or tax agent. You may need to provide historical documents such as purchase contracts, renovation costs, legal fees, and valuation reports to support your cost base.


AuditCover’s tax audit insurance covers professional fees incurred while preparing for and responding to ATO requests. This includes correspondence, document collation, preparation of responses, legal interpretation of complex CGT matters, and negotiations with the ATO. Without insurance, these fees can easily exceed several thousand dollars depending on the scope of the audit.

AuditCover offers dedicated tax audit insurance that includes CGT audits as part of a broader policy. We work with accountants and firms across Australia to simplify the insurance process, providing fast claims response, digital quote and bind, and expert guidance. Our partners benefit from co-branded resources and audit alerts.


How to get protected If you are an individual or business, get a quote via your accountant in under two minutes. If you’re an accountant, join the AuditCover Partner Program to deliver CGT audit protection to your clients and enhance your advisory offering.

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This insurance is issued by Auditcover Australia Pty Ltd (ABN 63 638 872 634, AFSL 535509) on behalf of the insurer HDI Global Specialty SE (ABN 58 129 395 544, AFSL 458776).

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