Firstly, with any investment there are two ways to make money - income and capital gain. Shares give you income in the form of dividends, and may go up in value, so that when you sell them you get more money than when you bought them. Similarly, houses bought for investment give you income in the form of rent, and capital gain when you sell them.
In Australia, both the income and the capital gain are taxed separately.
Broadly speaking, any money you get as income is taxed, generally at the source. If you buy a stock and you don’t give the company your TFN, they will tax your dividend at the highest marginal tax rate. If they have your TFN, they won’t tax it but they’ll send the tax office information about your dividend payment, and you’ll have it already prefilled when you come to do your tax return (unless you fill out your tax return too early).
In Australia we have franking credits - as the company has probably already paid tax on the dividend they give you, you don’t have to pay the tax again on that dividend (income). Because you are on a 37% marginal tax rate, and company tax is currently 30% your share dividends will probably mean you get little extra tax from your dividend income. However, some companies don’t pay much tax (for instance mining companies setting up mines have a lot of expenses they can claim against their tax) so may give dividends without many franking credits. When you get your dividend statement it will tell you just how much tax has already been paid. The dividend income will be added to your other income, and then the franking credits you’ve already paid will be taken off what you need to pay in tax. This is regardless of whether or not you are involved in dividend reinvestment.
If you spent money to earn that income, you can claim it against the income. In the past, your expenses for attending a company’s AGM could be deducted from your income, and if you have a loan for the investment itself, you can claim the interest of that loan as an income deduction. You have to be able to prove to the ATO that your deductions are solely related to the investment (don’t take a holiday at the same time as you go to the AGM). I think attendance at an AGM was taken out in the last budget, but I don’t go to any, so I’m not sure. Many people with investment property have more deductions than income from the property, so they end up with less income than they received from their job - this is called negative gearing. As you plan to buy shares without a loan, I assume you won’t be negative gearing.
Whenever you buy any investment (including in DRPs), you have a base price for that investment - what you paid. Base prices can be adjusted - for inflation, or if the capital value of the investment has changed in any other way. With shares, this can happen if the company decides to have a share split or various other mechanisms. When you sell your investment, the difference between the price you receive and the current base price is the capital gain. Occasionally, companies give you money other than dividends, and the ATO rules whether you have received a dividend or a capital gain (for instance when a company sells part of itself, like the banks are currently doing with their financial services arms) or something else. When you get the statement from the company, it will advise you where the ATO ruling is, so you can work out how to complete your tax return.
If you sell an investment after less than twelve months, you are considered to be playing the market for a living rather than investing. Because of this, capital gains in the first twelve months are considered income, and after twelve months CGT is halved. So, the capital gain is the actual increase between the pile of money you had originally and the pile you received when you sold it (subject to changes in the base price as above).
This (or half of it) is considered to be income, and is treated similarly to other income. However, if you have a capital loss you can only offset it against capital gains, not against other sources of income. To make things more equitable, the loss can be carried forward, and offset against capital gains in future years.
However, like with negative gearing, it’s a bit stupid to want a capital loss. You want your investments to grow, and capital gains are only taxing you for what you have earnt from your investment.
Now, in your particular situation, I don’t understand why you’re bothered about capital gains. Surely you will take your gap year from January to December or something, so that you have two years at a very low marginal tax rate. If you continue to pay super during this time, you can virtually set your own marginal rate. Any capital gains on shares you sell during those two years will be taxed at almost nothing.