The 50% CGT discount was introduced in September 1999. It is being replaced from 1 July 2027.
These changes are now law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026. This article does not constitute tax advice. Speak with a registered tax adviser before making any decisions.
How the New System Works
The 2026-27 Federal Budget, announced on 12 May 2026, replaces the 50% Capital Gains Tax (CGT) discount with a new system built around cost base indexation and a 30% minimum tax on gains. The change takes effect from 1 July 2027, and it affects property investors, share investors and trust beneficiaries differently depending on what they own and when they bought it.
The new approach has two parts.
Cost base indexation means you only pay tax on your real gain, not the inflation component. The adjustment uses CPI, similar to how things worked between 1985 and 1999. The ATO will provide guidance and tools to support the calculation.
A 30% minimum tax applies to real capital gains accruing from 1 July 2027. Even if your marginal tax rate is low in the year you sell, the effective rate on your gain cannot fall below 30%. If your gain would otherwise attract just 14% tax based on your other income, you pay additional tax to bring the rate up to 30%. The minimum tax calculation excludes the Medicare levy.
There is an exception. People receiving means-tested income support payments, including the Age Pension and JobSeeker, are exempt from the minimum tax in any financial year where they receive such a payment.
One important addition during parliamentary passage: the small business 50% active asset reduction turnover threshold has been increased from $2 million to $10 million from 1 July 2027, meaning more small business owners can still access this concession when exiting.
Who Is and Isn't Affected Right Now
This is where it gets specific, and where getting the dates right matters.
Properties and Assets You Already Own
If you owned a CGT asset before 1 July 2027, you will not lose the 50% discount on gains that accrued before that date. The reform only applies to gains accruing after 1 July 2027. A deemed sale and reacquisition occurs for all existing assets at their market value just before 1 July 2027, which is how the pre- and post-reform gains are separated.
Here is how the transitional split works. Say you bought an asset in 2022 for $800,000 and sell it in 2032 for $1,600,000.
The gain up to 1 July 2027 is $331,371. After applying the 50% CGT discount, the taxable portion is $165,685. The gain after 1 July 2027 is $468,629. After cost base indexation, the taxable portion is $319,958. The total taxable capital gain is $485,643, compared to $400,000 if the 50% discount applied to the full gain. At a 47% marginal tax rate, that is $228,252 in tax versus $188,000 under the old system.
Pre-1985 assets are also affected. Gains on pre-CGT assets that accrued before 1 July 2027 remain exempt. But from 1 July 2027 onwards, gains on pre-CGT assets are subject to the new rules. If you hold assets acquired before 20 September 1985, they are now in scope. Get specific advice on these holdings before 1 July 2027.
New Residential Property Investors
If you buy a newly constructed eligible residential property, you get to choose between two systems when you eventually sell.
- Option A: the existing 50% CGT discount
- Option B: cost base indexation plus the 30% minimum tax
This choice is real and worth modelling at the time of sale, not just assumed in advance. Depending on inflation, your return rate and your marginal tax rate at the time, one method can be meaningfully better than the other.
New-build investors also keep their full negative gearing rights.
Established Property Bought After 12 May 2026
If you signed a contract for an existing residential property after 7:30 pm AEST on 12 May 2026, the new negative gearing rules apply from 1 July 2027. Rental losses from that property can no longer be deducted against wages or other income, and carry forward as a quarantined residential property pool.
On the CGT side, the 50% discount disappears for gains accruing after 1 July 2027 on those assets.
What About Shares and Other Assets?
The CGT changes apply across all CGT assets held by individuals, partnerships and trusts, including shares, managed funds, ETFs and other investment assets. This is not limited to property.
The negative gearing changes are limited to residential property only. If you negative gear shares or commercial property, nothing changes for those assets.
The existing 60% CGT discount for qualifying affordable housing is fully retained. The four small business CGT concessions are also unchanged, and the active asset reduction threshold has been increased to $10 million turnover as noted above. The Government has flagged separate consultation on how the CGT reforms interact with start-up tax incentives, with those details still to come.
What This Means in Dollar Terms
Treasury modelling using a $500,000 asset purchased on 1 July 2027, held for 10 years with 2.5% annual inflation and $100,000 in other annual income:
Return per year | Taxable gain (indexation) | Taxable gain (50% discount) | Tax difference |
5% (typical long-run property) | $174,405 | $157,224 | +$8,075 more tax |
2.5% (low return, at inflation) | $0 | $70,021 | $24,858 less tax |
7.5% (high return) | $390,474 | $265,258 | +$58,851 more tax |
The pattern is clear: if your investment barely keeps pace with inflation, you pay less tax under the new rules. If your investment performs well, you pay considerably more. For most long-held residential property and growth shares, the new system will mean a higher tax bill at sale.
Two Key Dates to Put in Your Diary
7:30 pm AEST, 12 May 2026. The grandfathering cutoff for negative gearing. Contracts signed before this moment keep the old negative gearing rules for the life of that investment.
1 July 2027. Both the CGT and negative gearing changes commence. New purchases of established residential properties between now and 30 June 2027 can still be negatively geared during that window, but not from 1 July 2027 onward.
If you are sitting on existing investments and wondering whether to sell before 1 July 2027, the CGT reform only touches gains accruing after that date. There is no general tax incentive to rush a sale before then, though specific situations, particularly pre-CGT assets, are worth reviewing with your adviser before that date.
What's Worth Talking Through With Your Accountant
Bring these questions to your next conversation with your tax agent:
- Selling an asset soon? Get a proper market valuation as at 1 July 2027. It directly determines how your gain gets split between the old and new rules, and is worth the cost of getting right.
- Holding pre-CGT assets? These are now subject to the new rules for gains accruing from 1 July 2027. If you have never had a CGT exposure on these assets before, you now do. Review them specifically.
- Buying a new build? At the time of sale you can choose between the 50% discount and indexation. Your marginal tax rate and rate of return at that point will determine which works better. Note that this choice is available only to the first investor-purchaser. Subsequent buyers of the same property do not have access to the 50% CGT discount or negative gearing.
- Small business owner? The 50% active asset reduction now applies to businesses with up to $10 million aggregated turnover, up from $2 million. If you were previously excluded from this concession, you may now qualify.
How the new rules land depends entirely on your own figures, your assets, your marginal rate, your holding period, and what you plan to do next.
Note that this choice is available only to the first investor-purchaser of a new build. Subsequent purchasers of that same property do not have access to the 50% CGT discount or negative gearing. This measure is also subject to parliamentary approval
Whether you end up paying more or less tax depends entirely on your own figures.
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