Capital Gains Tax Changes In Australia

What Replaces The 50% Discount & What It Means For Your Assets

From 1 July 2027, the 50% CGT discount ends for individuals, trusts and partnerships. It is replaced by cost base indexation plus a 30% minimum tax rate on capital gains. Gains that accrued before that date keep the existing discount. Super funds, companies and the main residence exemption are unaffected.

Quick Summary

The reform is law, but it doesn’t start until 1 July 2027, the gains you’ve already accrued are protected and it applies to shares as well as property. The work now is knowing what you hold, in whose name, and what it’s worth at the transition date.

Table Of Contents

• What Exactly Is Changing?
• When Do The Capital Gains Tax Changes Take Effect?
• Are Existing Assets Grandfathered?
• How Is A Gain Split Across 1 July 2027?
• What Is Cost Base Indexation?
• What Is The 30% Minimum Tax Rate?
• Capital Gains Tax Changes For Shares & ETFs
• Capital Gains Tax Changes For Property
• The Negative Gearing Restriction
• What Changes For Family Trusts?
• What Changes For SMSFs & Super Funds?
• Who Is Exempt From The Changes?
• What To Do Before 1 July 2027
• Common Misunderstandings
• Final Thoughts
• Frequently Asked Questions (FAQ)

What Exactly Is Changing?

Two measures were announced in the 2026–27 Federal Budget on 12 May 2026 and are now law. From 1 July 2027, the Government will limit negative gearing for residential property investments to new builds, and replace the 50% CGT discount for individuals, trusts and partnerships with cost base indexation and a 30% minimum tax rate on capital gains (ATO).

The scope is wider than the housing framing suggests. The removal of the CGT discount applies to all CGT assets held by individuals, trusts and partnerships, including pre-1985 assets, not just residential property (Baker McKenzie).

Until 30 June 2027, nothing changes. Australian resident individuals who own an asset for 12 months or more remain entitled to a CGT discount of 50%, meaning tax is paid on only half the net capital gain (ATO).

When Do The Capital Gains Tax Changes Take Effect?

Three dates matter, and they are not the same date.

Date	What it triggers
7:30pm AEST, 12 May 2026	Cut-off for the negative gearing grandfathering. Established residential property acquired from this time is caught by the new rules
1 July 2027	The 50% CGT discount ends. Indexation and the 30% minimum tax begin. Negative gearing restrictions begin
30 June 2027	The last day on which a disposal falls wholly under the existing CGT rules

For CGT purposes the relevant date is generally the contract date, not the settlement date. An asset sold under a contract signed on 28 June 2027 that settles in August 2027 is still assessed under the old rules.

The negative gearing cut-off also works on contract date. A property under contract before 7:30pm on 12 May 2026 is grandfathered even if settlement had not occurred by then (Baker McKenzie).

Are Existing Assets Grandfathered?

Partly, and the distinction matters more than most commentary suggests.

Assets Are Not grandfathered But Gains are

Transitional arrangements limit the new regime to gains arising on or after 1 July 2027. The existing 50% CGT discount continues to apply to gains that accrued before that date. For an asset held before 1 July 2027 and sold afterwards, the 50% discount applies to the gain accrued up to that date, while indexation and the minimum tax apply to the gain accruing from 1 July 2027, with the asset’s value at that date forming the cost base for the new portion.

Pre-1985 assets follow the same logic. Gains derived from pre-1985 assets before 1 July 2027 remain outside the CGT regime, but growth after that date is assessable. After 42 years, the blanket pre-CGT exemption is prospective only.

Negative gearing grandfathering works differently and is genuinely asset-based. A property acquired before 7:30pm AEST on 12 May 2026 remains subject to the current rules and is unaffected until it is sold.

How Is A Gain Split Across 1 July 2027?

An asset bought in 2015 and sold in 2032 has a single nominal gain that must be divided between two tax regimes.

The gain accrued to 30 June 2027 is assessed under the existing discount rules. The gain from 1 July 2027 onward is assessed under indexation and the 30% minimum tax, using the asset’s value at the transition date as its cost base for that portion.

Two practical consequences:

Evidence of value at 1 July 2027 becomes important. For listed shares and ETFs the market price is a matter of record. For property, unlisted assets and business interests it is not, and reconstructing a value years after the fact is harder and more contestable than documenting it at the time.

The split is not fixed by how long you held the asset overall. What matters is how much of the growth sat either side of the line. A high-growth asset that keeps growing after 2027 carries a larger post-reform portion. A low-growth asset may find that indexation shelters most of its post-reform gain.

What Is Cost Base Indexation?

Indexation adjusts the purchase cost of an asset for inflation so that tax applies to the real gain rather than the full nominal gain. Australia used a version of this system until September 1999, when it was replaced by the 50% discount.

The practical difference:

• The 50% discount – halves the taxable gain regardless of inflation or holding period, provided the asset was held over 12 months
• Indexation – reduces the taxable gain by the amount of inflation over the holding period, so its value depends on how long the asset is held and what inflation does

For a low-growth asset held through a period of higher inflation, indexation can produce a smaller taxable gain than the 50% discount would have. For a high-growth asset, it generally produces a larger one. The reform shifts the tax burden toward assets that grow substantially faster than inflation.

What Is The 30% Minimum Tax Rate?

The minimum tax establishes a floor on the tax payable on capital gains, applied after indexation.

Under the current system, an investor whose marginal rate is below 30% pays tax on the discounted gain at that lower marginal rate. Under the new system, the post-reform portion of the gain attracts at least 30%, regardless of the investor’s other income.

This has a specific and often overlooked effect: it removes most of the benefit of timing a sale into a low-income year. Deferring a disposal until after retirement, or into a year of reduced income, currently reduces the rate applied to the gain. From 1 July 2027 that strategy is capped on the post-reform portion.

Investors most affected are those who expected to realise gains at a low marginal rate are semi-retired investors, people between roles, and those planning a staged sell-down in retirement.

Capital Gains Tax Changes For Shares & ETFs

Most coverage of the reform focuses on housing. The CGT measure is not limited to property.

The changes apply to all CGT assets held by individuals, trusts and partnerships. That includes listed shares, ETFs, managed funds, crypto assets and business assets held outside superannuation.

Three points specific to share investors:

1. Valuation at the transition date is straightforward. Closing market prices on 30 June 2027 are objectively verifiable, which makes the apportionment simpler than for property or unlisted assets.
2. Parcel-level records matter more. Investors who have accumulated a holding over many years through regular purchases or dividend reinvestment now have parcels with different acquisition dates and different transition-date splits. Records that were adequate before may not be.
3. The negative gearing restriction does not apply to shares. Commercial property and other asset classes such as shares continue to be taxed under the existing arrangements and are unaffected by the negative gearing changes.

Capital Gains Tax Changes For Property

Residential property investors face both measures at once, which compounds their effect.

On the CGT side, the treatment is the same as for any other asset: the 50% discount on pre-2027 gains, indexation plus the 30% floor afterwards. Establishing a defensible market value at 1 July 2027 is more difficult than for listed assets, and a professional valuation at the transition date is worth considering for significant holdings.

One carve-out applies. Investors in new residential property will be permitted to choose, on disposal, between applying the current 50% CGT discount or adopting the new indexation and minimum tax regime.

The main residence exemption is unchanged. An owner-occupied home that qualifies for the full exemption is not affected by any of this.

The Negative Gearing Restriction

From 1 July 2027, losses from established residential properties acquired from 7:30pm AEST on 12 May 2026 will only be deductible against rental income or capital gains from residential property. Losses that cannot be used in a year may be carried forward and applied against future residential property income or gains.

What this does not affect:

• Properties acquired before the cut-off, which remain under the current rules until sold
• Eligible new builds, which are excluded from the limitation
• Widely held trusts, superannuation funds, build-to-rent developments and private investors supporting government housing programs
• Commercial property, shares and other asset classes

The economic effect is that negative gearing on an established property bought after May 2026 produces a quarantined loss rather than an offset against salary. The deduction is not lost, but the timing of its benefit moves, potentially by many years.

What Changes For Family Trusts?

Trusts are explicitly within scope. The removal of the 50% discount applies to assets held by individuals, trusts and partnerships alike.

This narrows one of the classic reasons for setting up a family trust to hold growth assets.. Distributing a discounted capital gain to a beneficiary on a low marginal rate has been an effective strategy; with a 30% floor applying to the post-reform portion, the differential largely disappears for gains, though it is unchanged for ordinary income.

What has not changed:

• Trusts remain effective for splitting income across beneficiaries in different tax brackets
• Asset protection and succession benefits are untouched
• Trustees must still document resolutions before year-end, and the ATO continues to scrutinise distributions under Section 100A where income is directed to low-rate beneficiaries without genuine benefit flowing to them

Anyone currently weighing whether to hold growth assets in a trust should run that decision on the post-2027 rules, not the current ones (ATO).

What Changes For SMSFs & Super Funds?

Very little, which is the most strategically significant point in the whole reform.

The changes apply to individuals, trusts and partnerships. At this stage there is not expected to be any change to the CGT discount for superannuation funds.

Complying super funds continue to apply a one-third CGT discount in accumulation phase, and assets supporting a retirement-phase pension continue to have earnings taxed at 0%.

The relative advantage of holding growth assets inside superannuation therefore widens from 1 July 2027, with consequences for how superannuation investment strategies are set.. Investors with contribution capacity should weigh that against the constraints: preservation rules, the contribution caps, and Division 296, which from 1 July 2026 applies an additional 15% tax on the proportion of earnings attributable to a total super balance above $3 million (ATO).

For 2026–27 the general concessional contributions cap is $32,500 and the general non-concessional cap is $130,000, with up to $390,000 available under the bring-forward rule (ATO).

Who Is Exempt From The Changes?

Who or what	Position
Main residence	Exemption unchanged
Superannuation funds	CGT discount not expected to change
Companies	Never had the CGT discount; unchanged
Income support recipients, including Age Pension recipients	Exempt from the minimum tax
New residential property investors	May choose between the old and new regimes on disposal
Property acquired before 7:30pm 12 May 2026	Grandfathered from the negative gearing changes

Before And After Compared

Feature	To 30 June 2027	From 1 July 2027
Discount for individuals	50% on assets held 12 months or more	None
Inflation adjustment	None	Cost base indexation on assets held 12 months or more
Minimum tax rate	None — taxed at marginal rates	30% floor on the post-reform portion
Trusts and partnerships	50% discount available	Same treatment as individuals
Complying super funds	One-third discount	Unchanged
Companies	No discount	Unchanged
Value of selling in a low-income year	High	Limited by the 30% floor
Pre-1985 assets	Exempt	Post-2027 growth assessable

Case Example 1: Long-Held Share Portfolio

A 58 year-old holds a $700,000 share portfolio built over 20 years, with an unrealised gain of roughly $400,000. She plans to retire at 63 and sell down progressively to fund retirement.

Under the current rules, selling in retirement at a low marginal rate would have been efficient: the 50% discount plus a low rate on the discounted half.

From 1 July 2027 that plan changes in two ways. The gain accrued to 30 June 2027 keeps the 50% discount. The gain from 2027 to her sell-down attracts the 30% floor regardless of her retirement income. Because she is five years from retirement, most of the existing gain sits on the favourable side of the line.

The questions worth modelling are whether any parcels should be realised while the current rules apply, whether proceeds can be recontributed to super under the non-concessional or bring-forward rules, and what parcel-level records she needs at 30 June 2027. At her age these decisions overlap with the broader question of super investment strategies at 50 and 60.

Case Example 2: Established Investment Property

A couple bought an established investment property in March 2026 — before the 12 May 2026 cut-off — currently negatively geared by around $12,000 a year.

Their negative gearing position is grandfathered and continues under the current rules until they sell. That grandfathering is attached to the property, not to them, so a decision to sell and buy a different established property after the cut-off would forfeit it.

Their CGT position is not grandfathered in the same way. Growth to 30 June 2027 retains the 50% discount; growth afterwards falls under the new regime. A documented valuation at the transition date is worth obtaining.

What To Do Before 1 July 2027

The reform was legislated with an unusually long lead time, and that is the advantage worth using. Most of the value here comes from preparation rather than transactions: knowing what you hold, in whose name, and what it is worth at the transition date costs little now and is considerably harder to reconstruct years later. The steps below are ordered by sequence, since each one depends on the one before it.

1. Build an asset register. Every CGT asset, acquisition date, cost base and owner. This is the input to every other decision.
2. Identify likely disposals. Assets you expect to sell within five years deserve modelling under both regimes. Assets you expect to hold for 20 years mostly do not.
3. Document value at the transition date. Market prices for listed assets, professional valuations for property and unlisted holdings.
4. Review ownership structures before buying. Restructuring after acquisition triggers CGT and duty; the structure decision is cheapest before the asset is bought.
5. Reassess the super comparison. The relative advantage of holding growth assets inside super increases, subject to caps, preservation and Division 296.
6. Do not sell purely to beat the date. Existing gains are preserved. A rushed disposal can crystallise tax that would otherwise have been deferred indefinitely. Steps 2 and 3 are the ones most people get wrong without help. Our tax planning services cover the modelling and the transition-date documentation.

Common Misunderstandings

The reform has been reported largely as a housing measure, which has left several widespread misreadings of what it actually does and who it applies to. These are the ones that come up most often, and each carries a real cost if acted on.

• “All my gains will be taxed under the new rules.” No. Only the portion accruing from 1 July 2027.
• “I should sell everything before June 2027.” Rarely. The pre-2027 gain is protected whether you sell or hold, so a forced sale mainly accelerates a tax bill.
• “It only affects property investors.” The CGT measure applies to all CGT assets. The negative gearing measure is property-specific.
• “My pre-1985 assets are safe.” Gains before 1 July 2027 remain outside CGT. Growth after that date does not.
• “My trust will still shelter capital gains.” Not to the same degree. The 30% floor applies to trusts as it does to individuals.
• “My super is affected too.” Complying super funds are not expected to be affected by the CGT change, though Division 296 is a separate issue for balances above $3 million.

Final Thoughts

This is the largest change to investment taxation since the 50% discount replaced indexation in 1999, and it has been legislated with an unusually long lead time.

That lead time is the opportunity. Investors who use it to understand their asset register, document transition-date values and test their disposal plans under both regimes will be in a materially better position than those who deal with it retrospectively in 2032. The wrong response is a rushed sell-down. The right one is a structured review of what is held, in whose name, and when it is likely to be sold. That is the same discipline that underpins tax effective investing generally.

Frequently Asked Questions (FAQ)

Important Disclaimer: The information provided in this article is general in nature and does not constitute financial or tax advice. Please consult with a qualified financial advisor to discuss your individual circumstances.

References:

ATO – Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax
Baker McKenzie – CGT Discount and Negative Gearing
ATO – CGT discount
ATO – Trust taxation – reimbursement agreement
ATO – Be ready for new tax on large super balances
ATO – Contributions caps