The 2026–27 Federal Budget announced significant reforms to Australia’s capital gains tax (CGT) system, the most substantial changes since the introduction of the 50% CGT discount in 1999. While these measures are not yet law, they could materially impact investors, property owners and business taxpayers from 1 July 2027 onwards.

CGT is the tax you would pay on the profit you make when you sell or otherwise dispose of a capital asset, such as investment property, shares or other capital investments.

CGT was introduced in Australia in 1985 and currently applies to assets acquired after 20 September 1985. Over time, the rules have evolved from indexation and averaging methods to the current 50% CGT discount regime.

What is changing?

The Budget announced the replacement of the current 50% CGT discount with an inflation-based indexation approach and introduced a minimum tax rate on capital gains.

Under the current rules:

  • Individuals, trusts and partnerships are generally entitled to a 50% CGT discount where a CGT asset has been held for at least 12 months.
  • The discount applies to the total increase in value, without adjusting for inflation.
  • Capital gains are taxed at the taxpayer’s marginal tax rate after applying the discount.
  • Pre-CGT assets acquired before 20 September 1985 are generally exempt from CGT.

Under the new rules:

  • The 50% discount will be replaced by cost base indexation.
  • Pre-20 September 1985 assets will become subject to CGT for gains accruing after 1 July 2027.
  • A 30% minimum tax on capital gains will apply to gains accruing after 1 July 2027.
  • The rules will continue to apply to individuals, trusts and partnerships.

What does this mean for existing investments?

Assets purchased and sold before 1 July 2027 will continue to be taxed under the current CGT rules.

However, assets acquired before 1 July 2027 and sold afterwards will require gains to be split into two periods:

  • Gains accrued before 1 July 2027 — eligible for the existing 50% CGT discount; and
  • Gains accrued after 1 July 2027 — subject to the new indexation regime and minimum tax rules.

To determine the gain attributable to each period, taxpayers may need to establish the market value of assets as at 1 July 2027 by:

  • obtaining an independent valuation; or
  • using an ATO-approved apportionment methodology.

Are there any exemptions?

Investors purchasing eligible new residential properties are proposed to retain access to:

  • negative gearing; and
  • the option to choose between the current 50% CGT discount or the new indexation method.

Eligible new builds include:

  • newly constructed dwellings on vacant land; and
  • developments that increase the number of dwellings on a site.

However, substantial renovations or knock-down rebuilds that do not increase housing supply are generally not expected to qualify.

What about existing exemptions?

The following are proposed to remain unaffected:

  • Main residence exemption;
  • Small business CGT concessions;
  • 60% affordable housing CGT discount; and
  • Income support recipients, including Age Pension recipients, will be exempt from the proposed 30 per cent minimum tax on capital gains.

When will the changes apply?

The new CGT indexation regime and 30% minimum tax on capital gains are proposed to apply from 1 July 2027.

Insights

One of the most significant practical challenges will be the transitional valuation process. Taxpayers holding CGT assets at 1 July 2027 may need reliable market valuations or to rely on ATO-approved apportionment methods to determine which portion of the gain falls under each regime.

This could create substantial evidentiary and record-keeping obligations, particularly for long-term investors and property owners.

While the reforms are not scheduled to commence until 1 July 2027, early planning will be essential given the complexity of the proposed rules.

The measures outlined above are proposed reforms only and are not yet law. The final outcome will depend on the passage of legislation and the release of formal guidance by the Australian Taxation Office and Treasury.

If you would like to understand how these proposed changes may affect your investment portfolio or existing assets, please contact our team for tailored advice.