The 2026-27 Federal Budget has delivered the most significant change to capital gains tax in Australia since 1999. From 1 July 2027, the 50% CGT discount for assets held more than 12 months will be abolished and replaced with CPI-based cost base indexation, along with a new 30% minimum tax on realised gains.

The Treasurer described this as restoring the taxation of real economic gains rather than allowing inflation-driven profits to be discounted. For investors, the practical implications are material and urgent.

What is changing?

Under the current rules, individuals who hold a CGT asset for more than 12 months pay tax on only 50% of the capital gain, effectively halving the tax rate on long-term investment gains.

From 1 July 2027, this discount is replaced by:

• Cost base indexation using CPI, which adjusts the purchase price of the asset upward by inflation, reducing the nominal gain but taxing the real (inflation-adjusted) profit; and
• A 30% minimum tax on net capital gains remaining after indexation, applicable even where the taxpayer's marginal rate would produce a lower liability.

The changes apply to individuals, trusts and partnerships. Complying superannuation funds retain their existing CGT treatment for directly held assets, although new reporting may be required for assets held through trusts.

Transitional arrangements – existing investments are protected to a point

The Government has built in transitional protection for existing investors. The key rules are:

• Assets sold before 1 July 2027: Continue under the existing 50% discount regime with no change
• For assets held on 1 July 2027 and sold after that date, the gain is split into two components:
• The gain accrued before 1 July 2027 (subject to the existing 50% discount); and
• The gain accrued from 1 July 2027 onwards (subject to indexation and the 30% minimum tax).
• Pre-CGT assets (acquired before 20 September 1985): Have always been fully exempt from CGT. Under the new rules, gains accruing on pre-CGT assets before 1 July 2027 retain this full exemption. Only gains accruing after 1 July 2027 will be subject to the new indexation regime.
  

To calculate the pre- and post-1 July 2027 gain split, taxpayers will need to determine the market value of their assets as at 1 July 2027. This can be done by obtaining a formal valuation (including using quoted prices for listed securities) or by using an ATO-approved apportionment formula. The ATO has committed to providing tools and guidance to assist.

New residential builds are an exception

The Government has carved out new residential properties from the 30% minimum tax. Investors in new builds - defined as dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings - may choose either the 50% CGT discount or the new indexation regime.

Note that the 'new build' category is defined specifically: it includes construction on vacant land and demolish-and-replace developments that produce more dwellings than previously existed. Knock-down rebuilds that simply replace one dwelling with one dwelling, and substantial renovations of existing properties, are not eligible. A new build also cannot have been previously sold, unless it was first owned by the builder and occupied for less than 12 months. Importantly, the new-build CGT benefit applies to the first investor purchaser only – subsequent purchasers of the same property do not qualify.

Income support recipients

Age Pension and JobSeeker recipients who realise a capital gain in the same year in which they receive an income support payment will be exempt from the 30% minimum tax. This exemption applies only in the year the gain is realised.

What is NOT changing

Several important CGT concessions remain fully intact under the Budget changes:

• The main residence exemption: The family home is fully protected from CGT and is not affected by any of these measures.
• The four small business CGT concessions (Division 152): The 15-year exemption, 50% active asset reduction, retirement exemption and rollover are all retained unchanged. Businesses selling through a trust continue to have access to these concessions on the final sale.
• The 60% CGT discount for qualifying affordable housing investments is retained.
• Companies are not affected: The CGT discount has never applied to companies, so the indexation reform does not change CGT for corporate investors.
• Superannuation funds, including SMSFs, are expected to retain their existing one-third CGT discount on directly held assets.
  
  

Please contact us if you have any questions - email us or phone our team on 02 9899 3044.