The Federal Budget Capital Gains Tax changes announced in May 2026 mark one of the biggest shifts to how capital gains are taxed in a generation. From 1 July 2027, the 50% CGT discount that investors, business owners and private clients have relied on since 1999 is being replaced with cost base indexation and a new 30% minimum tax on real gains.
If you hold an investment property, shares or a stake in a business, this changes how much tax you’ll pay when you eventually sell, and when you sell matters.
This piece covers what’s actually changing, who it affects, what’s grandfathered, and what’s worth doing before 1 July 2027 arrives.
This article does not take into account your personal circumstances, so seek advice from a qualified professional before acting on anything discussed here.
The 2026-27 Federal Budget Capital Gains Tax Changes at a Glance
- The 50% CGT discount is being replaced by cost base indexation (adjusting what you paid for an asset in line with inflation) for gains that arise from 1 July 2027.
- A new 30% minimum tax rate applies to those inflation-adjusted gains. If your marginal tax rate would otherwise be lower, you’re lifted to 30%; if you’re already in a higher bracket (e.g. the 37% or 45% brackets), you keep paying your marginal rate — the floor doesn’t bring you down to 30%.
- The changes apply to Australian resident individuals, trusts and partnerships. If you’re a foreign or temporary resident for any part of the time you hold the asset, you lose access to indexation altogether. Companies aren’t affected, since they’re already taxed differently, and superannuation funds keep their existing discount arrangements.
- Capital Gains that build up before 1 July 2027 are grandfathered under the current 50% CGT discount. Only the portion of the gain from after that date falls under the new rules.
- Your main residence, certain government income support payments, and buyers of new-build residential property are all treated differently. More on that below.
Why the 50% CGT Discount Is Being Replaced
The government’s stated reasoning is fairness rather than revenue for its own sake: under the current flat 50% discount, an asset held for a year earns the same tax break as one held for twenty, regardless of how much of the gain is simply inflation rather than a real increase in value.
Cost base indexation is meant to tax people on what they’ve actually gained in real terms, not on numbers that have been inflated by the cost of living over the years they held the asset.
How Indexation and the Minimum Tax Actually Work
Under the new rules, the cost base of an asset (broadly, what you paid for it plus eligible costs) is adjusted upward for inflation between the date you acquired it and the date you sell. You’re then taxed on the gain above that adjusted cost base, at a minimum rate of 30%.
That’s a real change from the current system, where you halve the raw gain and pay tax at your marginal rate on what’s left. Depending on how long you hold an asset and how much inflation moves in that time, the new approach can land higher or lower than the old one. It isn’t automatically worse, and it isn’t automatically better.
A simple example
Say you buy a parcel of shares for $200,000 in September 2027 and sell them five years later for $320,000, achieving a $120,000 capital gain. If inflation averages around 3% a year over that period, your cost base is indexed up to roughly $231,800, so your taxable gain becomes about $88,200 instead of the full $120,000.
What you pay on that $88,200 depends on your own tax bracket – the 30% is a floor, not a flat rate everyone pays. Take someone on a 37% marginal rate, which covers plenty of business owners and private clients. The 30% minimum never comes into it: they just pay 37% on the $88,200, which works out to about $32,634.
Compare that with today’s rules on the same numbers: half the $120,000 gain, or $60,000, is taxed at your marginal rate. At 37%, that’s $22,200. So for this seller, the new rules mean around $10,400 more tax on the same sale. Losing the 50% discount costs more than indexation gives back, at this level of inflation and holding period.
It plays out differently if you’re selling in a low income year – retired, between jobs, income well down for the year. Say your other income means this capital gain would otherwise land at an average tax rate of around 23%. That’s below the 30% floor, so the new minimum tax tops you up to $26,460 on the same $88,200. This is approximately $6,200 more than your income alone would suggest. That’s the scenario the minimum tax was actually built for – someone timing a sale into a lean income year to get a much lower rate on it.
Either way, the outcome depends on your income in the year you sell, how long you’ve held the asset and how much inflation moves in the meantime.
Please note: This is a simplified illustration of the mechanics, not a forecast of your own outcome. Actual indexation factors will be set by the ATO closer to 1 July 2027.
If You Already Own the Asset: How the Transition Works
If you bought an asset before 1 July 2027 and you’re still holding it when the new rules start, you don’t lose the discount you’ve already earned. The gain is split in two:
- The portion that built up before 1 July 2027 keeps the 50% discount, taxed at your marginal rate as usual.
- The portion that builds up from 1 July 2027 onward is taxed under the new indexation and minimum tax rules.
Where possible, the value of the asset at 1 July 2027 will be set using quoted market prices or a formula the Treasury is finalising for this purpose, so there’s a clean line between the two periods.
Assets bought before 20 September 1985, which have historically been exempt from CGT altogether, are also brought into the new system. Their cost base is reset to market value as at 1 July 2027, and only gains from that point forward are taxed. If you’re holding a pre-1985 asset, this is worth flagging early, since it’s a genuine change from decades of exemption.
Who's Treated Differently
- Your main residence: The main residence exemption is untouched. If the CGT changes only concern you because of your family home, they largely don’t apply.
- Superannuation: Assets held inside super keep the existing discount arrangements. The new rules are aimed at assets held outside super.
- Income-support recipients: If you receive certain government income support payments (for example the Age Pension or JobSeeker) in the year you realise a gain, you’re exempt from the 30% minimum tax.
- Foreign or temporary residents: If you were a foreign or temporary resident for any part of the ownership period, you lose access to indexation altogether for that gain. This is a trap for expats and returning residents, and it’s worth checking early.
- New-build property: Buyers of newly built residential property can choose between the old 50% discount and the new indexation arrangements when they eventually sell, giving some flexibility that existing property doesn’t get.
- Small business: The small business CGT concessions remain in place. The turnover threshold for the 50% active asset reduction specifically is rising from $2 million to $10 million from 1 July 2027 – but the $2 million turnover threshold (or the $6 million net asset value test) still applies to the other three concessions (the 15 year exemption, retirement exemption and roll over relief)
Should You Sell Before 1 July 2027, or Hold?
This is the question most people actually want answered, and there’s no single right answer.
Selling before the cutoff locks in the current 50% discount on the whole gain. Holding on means part of your gain (the part that builds up from 1 July 2027) will eventually be taxed under the new rules. But you also keep whatever other reasons you had for holding the asset in the first place, including growth prospects, income, or simply not being ready to sell.
The right call depends on your marginal tax rate, how long you’re likely to hold the asset either way, and what inflation does in the meantime, none of which anyone can predict with certainty this far out.
Please Note: The same reforms also change how negative gearing works for residential property bought after 12 May 2026. We will cover that in a separate piece.
Book a tax planning review with your accountant before 1 July 2027 to see where you stand.
What to Do Before 1 July 2027
- Get a clear picture of your current CGT position: what you hold, what you paid, and roughly what it’s worth today.
- If you’re already planning to sell an asset in the next couple of years, work out whether bringing that sale forward changes your tax outcome.
- If you hold a pre-1985 asset, start organising now. Locate your original purchase records and talk to your accountant about whether you’ll need a formal valuation or can rely on the ATO’s valuation method (the exact formula for this is still being finalised by Treasury). If a formal valuation is the right approach, book it in for closer to 1 July 2027, since that’s the date the value actually needs to reflect. A valuation done today won’t be enough on its own and valuers are likely to be in high demand as the date approaches
- Check whether you or your business fall inside the small business CGT concessions, particularly if the turnover threshold change brings you into scope for the first time.
- Talk to your accountant before making any decision based on these changes. General commentary like this can’t account for your personal circumstances.
Talk to Someone Who Can Look at Your Situation
Budget announcements like this tend to generate a lot of headlines and not much clarity about what actually applies to you.
If you’re a business owner, private client or family group working out what these changes mean for property, shares or a business you’re planning to sell, SMA Business Advisory can help you work through it against your tax and compliance position, not just the headline numbers.
Reach out to our team today, and get a plan in place.
Common Questions About the CGT Changes
What are the federal budget capital gains tax changes?
The 50% CGT discount is being replaced with cost base indexation plus a new 30% minimum tax on real gains, starting 1 July 2027, for Australian resident individuals, trusts and partnerships.
Does this affect my home?
No. The main residence exemption is unchanged.
Will this affect my superannuation?
No. Assets held inside superannuation keep their existing discount arrangements.
What happens to assets I already own?
Capital Gains that built up before 1 July 2027 stay under the current 50% discount. Only the growth from 1 July 2027 onward falls under the new rules.
Have the CGT changes passed Parliament?
Yes. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, so these changes are now law with effect from 1 July 2027. Some details, particularly how indexation will be calculated, are still to be confirmed by the ATO.
Please note: A separate proposal – minimum tax on discretionary trusts generally, not specifically their capital gains was proposed alongside this reform but is not yet law. It is still being finalised, with a proposed start of 1 July 2028. That’s a different measure to what’s covered above. We’ll cover that separately once this measure becomes law.
