Budget 2026: the 50% CGT discount ends for gains 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 does not reach back. For an asset you already own on 30 June 2027, the gain up to that date keeps the existing rules, including the 50 per cent discount, and only growth from 1 July 2027 is taxed under the new ones. 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 2027-28 and sells for $800,000 in 2032-33. 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, subject to the new 30 per cent minimum. For an asset already held on 30 June 2027, indexation only runs from 1 July 2027, because the law treats the asset as sold and bought back on that date.

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 only applies to gains that build up from 1 July 2027, and recipients of income support payments the Minister prescribes, such as the Age Pension, are exempt.

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 made before 1 July 2027 keep the discount, whenever you sell

For an asset you hold on 30 June 2027, the law treats it as sold just before 1 July 2027 and bought back on that date. You pay no tax on that deemed sale. Instead the gain is split in two. The part that built up before 1 July 2027 is deferred until you actually sell, and is then taxed under the old rules, generally with the 50 per cent discount. The part that builds up from 1 July 2027 is taxed under indexation and the 30 per cent minimum. You can split the gain using the asset's market value at 1 July 2027 or an apportionment method the Minister sets.

That means there is no deadline to beat. Take a $400,000 gain that has fully built up by 30 June 2027, held by a 39 per cent marginal rate investor. Selling in 2026-27 produces a tax bill of $78,000 (50 per cent discounted, taxed at 39 per cent). Selling in July 2027 produces the same $78,000 on that gain, plus tax on whatever the asset has gained since 1 July. An earlier version of this piece put the cost of waiting at about $62,000. On the law as passed, it is close to nothing.

What is not affected, and what only partly is

• 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 that build up before 1 July 2027 on assets acquired before 20 September 1985 stay outside CGT. Growth from 1 July 2027 is taxed under the new rules, with indexation from that date. (Updated 28 September 2026: this item originally said the treatment after 1 July 2027 had not been specified.)
• Main residence exemption: the family home remains fully exempt from CGT under the existing rules. The change does not affect owner-occupiers.
• New builds: the owner of an eligible new residential dwelling can choose to keep the 50 per cent discount instead of indexation. What counts as new is set by the Minister in a legislative instrument.
• Companies: corporate entities do not receive the 50 per cent discount and are generally left out of the new indexation regime, so they keep paying company tax on the full nominal gain. (Updated 28 September 2026: this item originally said indexation extends to companies in some scenarios.)

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 established property bought after budget night are quarantined (negative gearing change), and the growth from 1 July 2027 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 and materially less attractive for established-property investments. For property held at budget night, negative gearing is unchanged and only growth from 1 July 2027 falls under the new CGT rules.

What investors should do this week

1. Do not rush a sale to beat 1 July 2027. Gains that build up before that date keep the 50 per cent discount whenever you sell. For each asset with a material gain, plan how you will evidence its value at 1 July 2027 instead (a valuation for property, closing prices for shares).
2. For long-hold positions, do nothing in response to this measure. The new indexation rules are friendlier to long holds, and the gain made before 1 July 2027 keeps the discount.
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.

If you want 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), you can ask to be connected with a licensed broker who meets our criteria. The tax advice itself belongs with your accountant.