By Paul Feeney, Founder and Chief Executive Officer, Otivo
The 2026–27 Federal Budget did something no government has attempted since 1999: it moved to scrap the 50% capital gains tax discount. From 1 July 2027, the discount is set to be replaced by cost base indexation and a 30% minimum tax rate — and the 12 months before that date have become a genuine decision window for anyone sitting on unrealised gains. Here's how the proposed rules would work, who they touch, and why the discount-versus-indexation maths doesn't fall the same way for every asset.
As at June 2026, the Australian Government has introduced legislation to replace the 50% CGT discount from 1 July 2027 with cost base indexation and a 30% minimum tax rate on net capital gains, for individuals, trusts and partnerships. Gains realised before that date keep the 50% discount. The measure is not yet law.
What is changing to the CGT discount from 1 July 2027?
Since 1999, the 50% CGT discount has let individuals halve the taxable capital gain on most assets held longer than 12 months. The 2026–27 Federal Budget proposes to replace it from 1 July 2027 with cost base indexation — which adjusts an asset's purchase price for inflation, so only the 'real' gain above inflation is taxed — plus a 30% minimum tax rate on net capital gains.
The change applies to individuals, trusts and partnerships. It also sweeps in pre-1985 assets — investments acquired before CGT existed — which lose their exemption for gains realised from 1 July 2027 onwards.
The transitional boundary is the part worth understanding first. Gains realised before 1 July 2027 keep the 50% discount, and pre-1985 assets sold before that date remain CGT-free. That line in the calendar is what makes the next 12 months a decision window rather than just a waiting period.
One thing to hold onto throughout: this is announced policy, not settled law. The Government introduced the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 to Parliament on 28 May 2026, and consultation continues on several design details. The measure is described in the Australian Government's 2026–27 Budget tax reform paper.
How does indexation compare with the 50% discount?
The discount and indexation answer the same question — how much of a long-term gain should be taxed — in different ways, and they favour different investors. The discount halves the taxable gain no matter what inflation did. Indexation removes only the inflation component and taxes everything above it in full.
Three variables decide how the change lands: how fast the asset grew, how long it was held, and the tax bracket the gain falls into.
Take shares bought for $50,000 and sold five years later for $80,000, with inflation running at 3% a year. Under the discount, half the $30,000 gain — $15,000 — is taxable. Under indexation, the cost base rises to about $58,000, leaving roughly $22,000 taxable. For gains that comfortably outpace inflation, the discount is usually the better deal.
Now take an asset bought for $50,000 that creeps up to $62,000 over eight years against the same inflation. Indexation lifts the cost base above $63,000, so the real gain — and the tax on it — is nil. The discount method would still have taxed $6,000. For gains that barely beat inflation, indexation comes out ahead.
In short, the discount rewarded growth well above inflation; indexation rewards gains that only just clear it. These examples are illustrative, based on how indexation worked before 1999 — the final mechanics depend on the legislation as passed.
The 30% minimum rate adds a floor to all of this. Where someone's marginal tax rate on a gain would otherwise be below 30% — common for retirees and lower-income investors — a top-up applies so the real gain is taxed at 30%. Recipients of income support payments, including the Age Pension, are exempt from the minimum rate.
Who is affected — and who isn't?
The proposal is broad, but the carve-outs matter as much as the headline. Affected from 1 July 2027:
- Individuals, trusts and partnerships realising capital gains on assets held longer than 12 months.
- Holders of pre-1985 assets, which become subject to CGT on gains realised from that date.
Not affected, based on the Budget announcement:
- The family home — the main residence exemption is unchanged.
- Small business CGT concessions, which the Budget left intact.
- Superannuation funds — the one-third discount in accumulation phase and the 0% rate on assets supporting retirement-phase pensions both remain.
- Companies, which never had access to the discount.
- Investors in new residential property, who can choose on disposal between the 50% discount and the new indexation method.
That super carve-out is worth pausing on. For many Australians, the gap between how capital gains are taxed personally and how they're taxed inside super just widened — which makes the broader question of where long-term investments sit more interesting than it was before the Budget.
Why are some investors weighing a sale before July 2027?
Selling before 1 July 2027 locks in the 50% discount on gains accrued to date. That's the simple pull. The trade-offs are less visible: the tax is paid years earlier than it otherwise would be, the amount left to reinvest is smaller, and a sale made purely for tax reasons cuts short an investment that may have been doing exactly what it was bought to do.
There's also legislative risk in both directions. The bill could be amended before it passes — transition details are still in consultation — and budget measures don't always arrive in their original shape. A tax change announced is not a tax change legislated.
One approach many Australians take with a decision like this is to map their unrealised gains, estimate the tax under both methods, and weigh the difference against their investment time horizon and the reason they hold the asset. It's also the kind of decision where personal advice from a tax professional earns its fee — the answer genuinely depends on individual circumstances, and this article can't provide it.
What's still up in the air
The Budget papers left several mechanics unresolved, and they're the details worth watching as the legislation moves through Parliament:
- How pre-1985 assets transition into the CGT net — a market valuation at 1 July 2027 looks likely, since owners were never required to keep cost base records.
- Whether indexation for existing assets runs from the original purchase date or from 1 July 2027.
- The treatment of capital gains for small and start-up businesses, which remains under consultation.
- Interaction issues, including part-year residency, tax consolidation and attribution managed investment trusts.
PwC's analysis of the bills offers a useful technical summary of the CGT and housing tax reform measures, and further Government guidance is expected before the start date. This piece will be updated as the rules firm up.
Frequently asked questions
When does the CGT discount actually end?
Under the proposal, the 50% discount applies to gains realised up to 30 June 2027. From 1 July 2027, cost base indexation and the 30% minimum tax rate take over. As at June 2026 the enabling bills are before Parliament but have not passed.
Does the change affect the family home?
No. The main residence exemption is untouched by the Budget measure, and the small business CGT concessions also continue. The change targets investment assets held by individuals, trusts and partnerships.
What happens to capital gains inside super?
Nothing changes under this proposal. Super funds keep the one-third CGT discount on assets held longer than 12 months in accumulation phase, and assets supporting a retirement-phase pension remain untaxed on gains.
What is the 30% minimum tax rate?
It's a floor, not a flat rate. If the marginal tax rate that would apply to a real capital gain is below 30%, a top-up brings the tax on that gain to 30%. Investors on higher marginal rates simply pay their marginal rate. Income support recipients, including Age Pensioners, are exempt.
Where to from here?
A change this size rewards calm more than speed — the rules aren't final, the deadline is over a year away, and the right response depends on what you hold, why you hold it, and what the rest of your finances look like. That bigger picture is where Otivo can help. Otivo's retirement planning module factors in investments outside super alongside your super balance, age and lifestyle goals when estimating what retirement could look like, and its super investment options module helps people understand the options inside their own fund. Otivo provides digital financial advice under AFSL and Australian Credit Licence No. 485665 — and for decisions about realising specific gains, a licensed tax adviser is the right port of call.
Disclaimer
The information in this communication is current as at June 2026 and has been prepared by Otivo Pty Ltd ABN 47 602 457 732, AFSL and Australian Credit Licence No. 485665. This content is general information only and has been prepared without taking into account your objectives, financial situation or needs. It is not personal financial or taxation advice and should not be relied on as such. Before acting on any information, you should consider its appropriateness having regard to your personal circumstances. This material must not be reproduced in whole or in part, or posted on any social media platform, without the prior written consent of Otivo Pty Ltd.