Welcome to our Federal Budget Spotlight Series: Capital Gains Tax Reform – A Structural Shift for Investors
A new approach to taxing investment gains
The 2026–27 Federal Budget introduces a proposed redesign of the Capital Gains Tax (CGT) system, which would significantly change how investment gains are taxed in Australia.
From 1 July 2027, the Government proposes that the current 50% CGT discount be replaced with cost base indexation, alongside a minimum 30% tax rate applying to realised gains in most cases (subject to legislation).
What’s changing?
Under the proposed framework:
- The 50% discount would be removed for most CGT assets
- Gains would instead be adjusted for inflation using CPI (indexation)
- A minimum tax rate of 30% is proposed to apply in most cases after indexation
This represents a policy shift toward taxing real economic gains rather than nominal gains.
Transitional rules – what happens to existing assets?
The Government has outlined transitional arrangements, which, if enacted, would:
- Preserve the 50% discount for gains accrued before 1 July 2027
- Apply indexation to gains accrued after that date
- Require taxpayers to determine the market value of assets as at 1 July 2027
This effectively splits an asset’s gain into two separate tax treatments over time.
What does indexation mean in practice?
Under the proposed model, indexation would:
- Adjust the asset’s cost base to reflect inflation
- Reduce taxable gains where inflation has been significant
- Increase reliance on accurate record-keeping and valuation methods
However, outcomes may vary depending on individual circumstances, including tax rates and timing.
Planning implications
If enacted in its current form, the changes may create several considerations:
- Timing of asset disposals
Investors may wish to consider whether the timing of disposals prior to 1 July 2027 could affect tax outcomes.
- Valuation requirements
Accurate asset valuations at 1 July 2027 are likely to be important for future calculations.
- Portfolio strategy
Different asset classes may respond differently depending on growth patterns, holding periods and inflation.
- Record keeping
Maintaining detailed cost base records will become increasingly important.
Special considerations
- Capital gains on pre-CGT assets remain exempt for gains accrued before 1 July 2027
- Some taxpayers, including certain income support recipients, may not be subject to the minimum tax in specific circumstances
- The ATO is expected to provide guidance and calculation tools
Our perspective
This proposal represents one of the most structural changes to investment taxation in decades.
While it introduces additional complexity, it may also create opportunities to manage tax outcomes through careful planning, particularly around timing, valuation and portfolio structuring.
Disclaimer
This article provides general information only and is based on the proposed measures announced in the 2026–27 Federal Budget. These measures are subject to legislation and may change. This content does not constitute tax, financial or legal advice. You should not act on this information without obtaining professional advice tailored to your circumstances.
