What the latest Federal Budget means for Capital Gains Tax
Important: The information below is based on announcements made in the Federal Budget on 12 May 2026. These changes are not yet law and requires receive Royal Ascent before they take effect. This means the proposals could change, be delayed, or not proceed at all.
As announced, from 1 July 2027, the 50% CGT discount will be replaced with the CPI cost base indexation method for all assets held for more than 12 months – this includes assets purchased prior to 20 September 1985. The Government also proposes to implement a 30% minimum tax on net capital gains.
While much of the discussion has focused on property, the proposed changes will affect all capital assets. This includes shares, business assets and any other assets held for the purpose of appreciating in value over time.
The change will only apply to individuals, trusts and partnerships. Companies currently are ineligible for tax discounts on taxable capital gains, other than gains on Active Assets.
All capital assets purchased before 1 July 2027 will need an independent market valuation as at 30 June 2027, market quoted prices for some assets or use the ATO apportionment formula.
What this could mean for you
- If you own investment assets, future tax outcomes on sale may change from 1 July 2027 if these proposals become law.
- Assets acquired before that date may require an independent valuation at 30 June 2027; OR apply the ATO valuation method.
- The impact may differ depending on the type of asset you own and when you acquired it.
- At this stage, there is no need to act, but it may be worth keeping good records and seeking advice if the proposals become law.
Key proposed changes outlined in the Federal Budget announcement:
| CGT Asset disposal date | CGT Treatment on sale |
| Pre-CGT Asset (purchased before 20 September 1985) | |
| Sold before 1 July 2027 | FULL exemption |
| Sold on or after 1 July 2027 | PARTIAL exemption. The capital gains calculation is split: Gains accrued BEFORE 1 July 2027 – remain CGT Exempt (gain calculated as value at 30 June 2027 less cost)Gains accrued on or AFTER 1 July 2027 – indexation applies & 30% minimum tax. Gain calculated as the proceeds less the indexed cost base (by indexing the asset value on 1 Jul 27) |
| Post-CGT Asset – purchased BEFORE 1 July 2027 (assumed held more than 12 months) | |
| Sold before 1 July 2027 | 50% CGT Discount (per current rules) |
| Sold on or after 1 July 2027 | The capital gains calculation is split: Gains accrued BEFORE 1 July 2027 – 50% discount will apply to the gain calculated as the difference between the value at 30 June 2027 less the cost baseGains accrued on or AFTER 1 July 2027 – indexation applies & 30% minimum tax. Gain calculated as the proceeds less the indexed cost base (by indexing the asset value on 1 Jul 27) |
| All CGT Assets purchased ON or AFTER 1 July 2027 (assumed held more than 12 months) | |
| Sold on or after 1 July 2027 | Indexation applies & 30% minimum tax. No CGT Discount available (UNLESS it is the sale of a NEWLY BUILT residential property) |
| Eligible NEWLY BUILT residential properties (assume held more than 12 months) | |
| Sold before 1 July 2027 | 50% CGT Discount (per current rules) |
| Sold on or after 1 July 2027 | ELECTION to be made to choose between: 50% CGT Discount ORIndexation applies & 30% minimum tax. Gain calculated as the proceeds less the indexed cost base (by indexing the asset value on 1 Jul 27) |
Example on how the CPI Indexation method may work:
- For assets held for more than 12 months, the cost base will be indexed for inflation (CPI) and the tax will apply to 100% of the real (inflation‑adjusted) gain.
- Purchase price: $200,000
- Apply the CPI adjustment factor: 1.0134 (CPI Purchase Quarter 121.3 / CPI Sale Quarter 119.7)
- Indexed cost base: $202,673 ($200,000 x 1.0134)
- Sale price: $300,000
- Taxable gain calculated as = $300,000 – $202,673 = $97,327
Worked example: current rules compared with the proposal
Assumptions used in this example
- Purchase asset on 1 September 2022 for $80,000
- Sell the asset on 1 September 2032 for $160,000
- Option to use either ATO Tools for value at 1 July 2027 OR independent valuation. Choose for this example to use ATO Tool – determined the asset value at 1 July 2027 was $110,000
- Indexed value of asset at time sale was $130,000
- Assume tax rate of 45% (excluding medicare)
Existing vs Proposed Rules
| Existing Rules | Proposed Rules | |
| Capital Gain | Proceeds – Original Cost = $160,000 – $80,000 = $80,000 | Split calculation: Gain to 1 Jul 27 = Determined value on 1 Jul 27 less original cost = $110,000 – $80,000 = $30,000 Gain post 30 Jun 27 = Proceeds – indexed cost base = $160,000 – $130,000 = $30,000 |
| Assessable Capital Gain | $80,000 x 50% = $40,000 | $30,000 x 50% = $15,000 PLUS$30,000 Total Assessable gain $40,000 |
| Tax Payable on Capital Gain | $40,000 x 45% = $18,000 | $15,000 x 47% PLUS$30,000 x 30% OR marginal tax rate (whichever is higher) = $6,750+ $13,500 = $20,250 |
Note there is an exception to the 30% Minimum tax applied to assessable capital gains that applies to individuals in receipt of income support payments such as Age Pension or JobSeeker. In these instances, the capital gain will be assessed at their marginal tax rate.
What will not change?
- The 1/3 CGT Discount continues to be applied to capital gains in Super Funds
- For funds in accumulation phase, the effective CGT rate will remain 10%
- For funds in pension phase, CGT remains entirely tax free – i.e. 0% tax on CGT
- SMSF’s have been explicitly excluded from the new CGT measures.
CGT (Capital Gains Tax) comparison example
| Structure | Income Tax | CGT (from Jul 2027) | Negative Gearing |
| Individual (high income) | Up to 47% | 30% min tax on real gain | Quarantined – established property |
| Family / Discretionary Trust | 30% min (from 2028) | 30% min tax on real gain | Quarantined – established property |
| Company | 25% | 25% flat – no discount | Offset vs company income only |
| SMSF – accumulation* | 15%* | 1/3 discount – effective 10%* | Quarantined within fund |
| SMSF – pension phase | 0%* | 0% – fully exempt* | Quarantined within fund |
| New residential build | Marginal rate | Choice: 50% disc. Or indexation | Fully deductible (new builds only) |
It is important to remember that none of this is law yet, so no action is required at this stage. However, once the laws are passed, you may wish to contact us to discuss how the changes may affect your circumstances.