From 1 July 2027, the government will replace the 50% Capital Gains Tax discount with a discount based on inflation and introduce a minimum 30% tax on gains. The CGT reforms will only apply to gains arising after 1 July 2027.
It changes the CGT calculation method for every individual, trust, and partnership holding CGT assets in Australia. Property, shares, ETFs, managed funds, and pre-1985 assets are all affected. If you invest in any of these, you need to understand what is changing and why it matters for your decisions.
What the New System Does
From 1 July 2027, two things happen simultaneously.
First, the 50% CGT discount is replaced by cost base indexation for assets held longer than 12 months. This method adjusts the asset’s original cost base for inflation, so only the real gain above inflation is taxed.
Second, a 30% minimum tax rate will apply to net capital gains calculated under the indexation method. The stated intention is to align the tax rate with the average tax rate paid by workers during their working lives.
So the gain is first reduced by inflation, then taxed at a minimum of 30%. If your marginal rate is already above 30%, your marginal rate applies.
The 30% floor is designed to prevent very low-income earners or trust distribution arrangements from reducing the effective CGT rate to minimal levels.
One Important Exemption
Recipients of means-tested income support payments, including Age Pension and JobSeeker recipients, will be exempt from the minimum tax rate.
Also, there is no change to the main residence CGT exemption. Superannuation funds, including SMSFs, are expected to retain their existing one-third CGT discount on directly held assets.
Which Assets Are Affected
This is where a lot of people have been caught off guard. The CGT reform is not limited to property.
Although it was initially speculated that the removal of the CGT discount would only apply to investment properties, the announced measure will affect all asset classes other than new residential property. CGT will also apply to pre-CGT (pre-1985) assets in relation to gains accrued after 1 July 2027.
In plain terms, the change applies to:
- Investment properties (established, not new builds)
- Shares and ETFs held by individuals
- Managed funds
- Partnerships and trusts holding CGT assets
- Pre-1985 assets for gains accruing from 1 July 2027 onward
Negative gearing reforms do not apply to shares, ETFs, managed funds, or commercial property. But the CGT indexation changes do.
Companies were already excluded from the 50% discount and remain unaffected by the change.
The Market-Wide Impact
On the Property Market
CBA economists estimate that the combined effect of restricting negative gearing and replacing the CGT discount will see established dwelling prices settle just under 3% lower than they otherwise would have been. The CGT change reinforces this by reducing the tax advantage attached to strong nominal capital gains.
The CGT change adds an incentive for investors to think carefully before selling established properties, because selling triggers the split treatment and the 30% minimum tax on post-2027 gains. Grandfathered investors have a stronger incentive to hold existing properties because selling would mean losing access to the previous tax treatment. This lock-in effect could partly cushion prices by reducing listings.
On Shares and the Broader Investment Market
FSC modelling indicates the reforms risk undermining Australia’s international competitiveness by materially increasing effective CGT rates relative to other OECD economies. Under the current system, Australia had the sixth lowest effective CGT rate in the OECD for a median 25 to 34-year-old investing $10,000 in shares over 10 years. Under the proposed framework, Australia would fall to 24th lowest.
That is a significant shift in Australia’s competitive position for attracting long-term investment capital. Whether it plays out that way depends on how other OECD countries adjust their own settings over time, but the directional concern from the financial services sector is grounded in real modelling.
On Pre-1985 Asset Holders
CGT will apply to pre-CGT assets for gains accrued after 1 July 2027. For pre-CGT assets, gains arising before 1 July 2027 remain fully exempt.
For any gains accruing after that date, the proposed transitional rule uses the asset’s market value at 1 July 2027 as the deemed cost base, so only post-transition growth is taxed. This is different from how other assets are treated under the transitional rules.
This catches a group of asset holders who, for 42 years, had operated under the assumption that pre-1985 assets would never attract CGT. That assumption no longer holds for any gains generated after July 2027.
How the Transitional Rules Work for Assets You Already Hold
The government proposes a time-apportionment transition method that allocates gains between the old and new systems based on how long the asset was held before and after 1 July 2027. Capital gains relating to the period before 1 July 2027 are assumed to remain eligible for the existing 50% CGT discount. Gains relating to the period after 1 July 2027 use CPI indexation.
So if you bought an investment property in 2020 and sell it in 2030, the gain is split. The portion attributed to the pre-2027 period gets the 50% discount. The portion from 2027 onward goes through indexation and the 30% minimum tax.
The government has also indicated that taxpayers may alternatively be able to use a market valuation method on 1 July 2027. However, final details on this are still subject to the legislation being confirmed.
New Builds: A Different Set of Rules
Investors in new builds will be able to choose the 50% CGT discount or the new arrangements. This is a tax advantage for new-build investors that does not exist for established property buyers. For a high-value asset with strong nominal gains, the 50% discount could still be the better outcome compared to indexation plus the 30% minimum tax.
Note: These measures were announced in the 2026-27 Federal Budget but are not yet law. Final details are subject to the legislation passing Parliament and may change.
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