CGT on ETFs in Australia works the same way as CGT on shares — when you sell (redeem) ETF units, any gain is a capital event. However, ETFs also distribute capital gains internally, which can affect your tax position even when you haven’t sold anything.
Two Ways ETFs Generate Tax
1. Selling Your ETF Units (CGT Event)
When you sell ETF units on the ASX, CGT applies to any gain:
- Cost base: Purchase price per unit × units sold, plus brokerage on purchase
- Capital proceeds: Sale price per unit × units sold, less brokerage on sale
- 50% discount: Applies if you held those units for more than 12 months
2. ETF Distributions (Ordinary Income + Embedded CGT)
ETFs distribute income to unit holders throughout the year. Distributions typically include:
| Component | Tax Treatment |
|---|---|
| Australian dividends | Ordinary income (with franking credits) |
| Interest income | Ordinary income |
| Foreign income | Ordinary income (FITO may apply for foreign tax) |
| Australian capital gains (short-term, <12 months) | Taxable in full at marginal rate |
| Australian capital gains (long-term, >12 months) | 50% discount passes through to individual |
| Tax-deferred amounts | Reduces the cost base of your units |
The ETF provider sends you an AMMA statement (Annual Member / Attribution Managed Investment Trust statement) each year, which breaks down the distribution components. You report each component in your tax return — it is not simply “income.”
The Cost Base Adjustment for Tax-Deferred Distributions
Some ETF distributions include a tax-deferred component — a return of capital that is not taxable in the year received but instead reduces your cost base. This means you will pay more CGT when you eventually sell the units.
Example:
- You purchase 1,000 units at $50.00 each → cost base $50,000
- ETF distributes $500 as tax-deferred return of capital
- Adjusted cost base: $50,000 − $500 = $49,500
If you do not adjust your cost base, you will understate your capital gain when you sell.
Dividend Reinvestment Plans (DRPs) in ETFs
Some ETFs offer a DRP where your distribution is used to buy additional units. Each DRP creates a new parcel with its own acquisition date and cost base. These must be tracked separately.
Common ASX ETFs and Their Tax Characteristics
| ETF | Issuer | Notes |
|---|---|---|
| VAS — Vanguard Australian Shares Index | Vanguard | Australian dividends, franking credits |
| VGS — Vanguard MSCI International Shares | Vanguard | Foreign income, foreign tax offsets |
| NDQ — BetaShares Nasdaq 100 | BetaShares | US equities, foreign income |
| A200 — BetaShares Australia 200 | BetaShares | Australian dividends, franking credits |
| DHHF — Diversified All Growth | BetaShares | Mixed: Aus + international exposure |
General characteristics only — always refer to the ETF’s AMMA statement for actual distribution breakdown.
Related Articles
- CGT on Shares in Australia
- The 50% CGT Discount
- CGT Record-Keeping Requirements
- Capital Gains Tax Australia hub
Frequently Asked Questions
Do I pay CGT when an ETF distributes capital gains? Yes. When an ETF distributes capital gains to you, those are included in your taxable income — even if you reinvest them. Long-term capital gains distributed may attract the 50% discount; short-term gains do not.
Does the 50% CGT discount apply to ETFs? Yes, in two ways: (1) When you sell ETF units held for more than 12 months, your gain qualifies for the 50% discount. (2) When the ETF distributes long-term capital gains, the discount passes through to you as an individual investor.
How do I know what tax my ETF distributions include? Your ETF provider will send you an AMMA statement after 30 June each year. This breaks down each component of the distribution for tax purposes. You can also find this in your online brokerage account.
This article provides general tax information for FY2025–26. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.