Budget 2026: the 50% CGT discount is gone from 1 July 2027. Here is what replaces it.

The 50 per cent capital gains tax discount, which has applied to individuals, trusts, and partnerships since 1999, will be replaced from 1 July 2027 with two separate mechanisms: cost-base indexation against inflation, and a 30 per cent minimum tax rate on the indexed gain. The change applies to assets sold on or after 1 July 2027, regardless of when they were acquired. Assets held in superannuation funds continue to use the existing super CGT rules (currently a 33.3 per cent discount), which are not affected.

This article walks through the new mechanism, the dollar impact by holding period, the interaction with the negative gearing changes, and what investors should do this week.

How cost-base indexation actually works

Cost-base indexation is not a new concept in Australian tax law; it was the CGT rule from 1985 to 1999 before being replaced by the simpler 50 per cent discount. Indexation increases the cost base of an asset by the rate of CPI inflation between purchase and sale, so the assessable gain is the nominal gain less the inflation component.

In practice: an investor buys an asset for $500,000 in 2025-26 and sells for $800,000 in 2030-31. CPI inflation over the holding period totals 14 per cent. The indexed cost base is $500,000 multiplied by 1.14 = $570,000. The assessable gain is $800,000 minus $570,000 = $230,000, rather than the nominal $300,000. That assessable gain is then taxed at the investor's marginal rate, with the new 30 per cent minimum tax rate applying to the gain regardless of the investor's actual marginal rate.

The 30 per cent minimum tax rate: who it bites

The 30 per cent minimum tax rate is the floor on the tax rate applied to indexed capital gains. For an investor whose marginal rate is 39 cents or 47 cents in the dollar, the marginal rate is higher than 30 per cent and applies as normal. For an investor whose marginal rate is below 30 per cent (income under about $45,000 in 2026-27 dollars, or income earned through certain trust structures), the gain is taxed at 30 per cent rather than the marginal rate.

The minimum-rate provision is the mechanism that closes the trust-distribution avoidance route. Under the old rules, a discretionary trust could distribute capital gains to a low-income beneficiary (a student child, a non-working spouse, a pensioner relative), have the 50 per cent discount applied, and have the discounted gain taxed at the beneficiary's low marginal rate. Under the new rules, the 30 per cent minimum applies regardless, removing most of the benefit. The companion measure (the 30 per cent trustee tax from 1 July 2028 on undistributed trust income) closes the alternative of simply retaining gains in the trust.

The dollar comparison: by holding period

Whether the new rules are better or worse than the old 50 per cent discount depends almost entirely on the holding period, because indexation rewards long holds and the discount rewarded any hold over 12 months equally.

Take a $400,000 nominal gain on a property bought in 2027-28 for $800,000 and sold at various dates by a 39 per cent marginal-rate investor:

• 2-year hold (gain realised 2029-30), CPI inflation 5 per cent: old rules: $400k discounted to $200k, taxed at 39% = $78,000. New rules: indexed cost base $840k, gain $360k, taxed at 39% = $140,400. New rules cost $62,400 more.
• 5-year hold (gain realised 2032-33), CPI 13 per cent: old rules tax $78,000. New rules: indexed cost base $904k, gain $296k, taxed at 39% = $115,440. Cost $37,440 more.
• 10-year hold (gain realised 2037-38), CPI 28 per cent: old rules tax $78,000. New rules: indexed cost base $1.024m, gain $176k, taxed at 39% = $68,640. Saves $9,360.
• 15-year hold (gain realised 2042-43), CPI 45 per cent: old rules tax $78,000. New rules: indexed cost base $1.160m, gain $40k, taxed at 39% = $15,600. Saves $62,400.

The cross-over point, at a 39 per cent marginal rate and around 2.5 per cent average annual CPI, sits at approximately seven to eight years of holding. Hold less than that, and the new rules cost more. Hold longer, and the new rules are friendlier than the old, sometimes substantially so. The longer the hold, the better the indexation.

Gains realised before 1 July 2027: the discount still applies

For assets sold before 1 July 2027, the existing 50 per cent CGT discount continues to apply. This creates a real planning window for investors holding assets with large embedded gains who were considering selling in the next two to three years. Realising the gain in 2026-27 (lodged October 2027 at the latest) captures the 50 per cent discount; realising on or after 1 July 2027 uses the new indexation plus 30 per cent floor.

For a $400,000 nominal gain held by a 39 per cent marginal investor: selling in 2026-27 produces a tax liability of $78,000 (50 per cent discounted, taxed at 39 per cent). Selling on 1 July 2027 produces approximately $140,400 (if the holding period to that date is short and indexation is small). The window is worth approximately $62,000 of tax on this example. For a portfolio with $1 million of embedded gains, the gap is closer to $155,000.

What is not affected

• Assets held in superannuation: the super CGT rules (currently a 33.3 per cent discount on assets held 12+ months) are unchanged.
• Pre-1985 assets: gains on assets acquired before 20 September 1985 remain entirely outside CGT if sold before 1 July 2027 (the same as today). Treatment after 1 July 2027 was not specified in the budget papers; we will update when the bill is tabled.
• Main residence exemption: the family home remains fully exempt from CGT under the existing rules. The change does not affect owner-occupiers.
• Companies: corporate entities do not currently receive the 50 per cent discount and continue to pay tax on the full nominal gain at the company rate. The new indexation rule extends to companies in some scenarios; the detail is in the budget papers.

How this interacts with the negative gearing change

The two measures are deliberately paired. Under the old regime, an investor could negatively gear a property (claiming losses against wage income each year) and then exit with a 50 per cent CGT discount on the gain. The combination was the single largest individual tax expenditure in Australian tax law, with most of the benefit accruing to the top decile of income earners.

Under the new regime, both legs of the trade are weakened: losses on new established-property purchases are quarantined (negative gearing change), and the eventual gain is taxed under indexation plus 30 per cent (CGT change). The combination is roughly revenue-neutral over the very long run for new-build investments, materially less attractive for established-property investments, and unchanged for property held at budget night.

What investors should do this week

1. Identify any assets with material embedded gains that you were planning to sell in the next 2-3 years anyway. Model the after-tax outcome of selling before 30 June 2027 versus after. This is a one-page calculation per asset.
2. For long-hold positions, do nothing in response to this measure. The new indexation rules are friendlier to long holds, and the planning window is irrelevant.
3. For short-hold or flip-style strategies, reassess. The new rules disadvantage holds under 7-8 years substantially, particularly in low-inflation environments. The case for switching to a buy-and-hold approach is now stronger.
4. For trust-held assets, take advice on whether the existing structure still makes sense under the new minimum-rate regime. Some trusts will retain a use; others will be more efficient distributed or unwound.
5. For super-held assets, the rules do not change. No action needed in this category.

Our team can refer you to ALG, our credit-licensed broker partner, for any borrowing-side modelling around an asset sale or replacement (for example, paying out a mortgage with sale proceeds, or recycling capital into a new investment loan). The tax advice itself belongs with your accountant.