Preparing for the Proposed Capital Gains Tax Changes

The 2026–27 Federal Budget includes some of the most significant proposed changes to Capital Gains Tax (CGT) in more than two decades.

The Government has announced plans to replace the existing 50% CGT discount with an indexation-based approach and introduce a minimum tax rate on capital gains. If implemented, these measures could affect investors, business owners and individuals holding a wide range of growth assets.

While the proposed changes are not expected to commence until 1 July 2027, understanding their potential impact now may help inform future planning decisions.

What Was Announced?

The Government has proposed three major reforms to the CGT system:

• Removal of the current 50% CGT discount
• Reintroduction of cost base indexation
• Introduction of a minimum 30% tax rate on capital gains

The proposed changes would apply from 1 July 2027.

Replacement of the 50% CGT Discount

Under current rules, individuals and trusts can generally reduce a capital gain by 50% where an asset has been held for more than 12 months.

The Government has proposed abolishing this discount from 1 July 2027 and replacing it with a cost base indexation system.

This represents one of the most significant changes to Australia's investment tax framework since the CGT discount was introduced in 1999.

What Is Cost Base Indexation?

Indexation seeks to recognise the impact of inflation by increasing an asset's cost base over time.

Under the proposed model:

• The cost base of eligible assets would increase in line with the Consumer Price Index (CPI)
• Assets would generally need to be held for at least 12 months to qualify
• Investors in qualifying new residential property may be able to choose between indexation or the existing 50% discount model

The intention is to tax real economic gains rather than gains created purely through inflation.

Introduction of a Minimum 30% Tax Rate

A further proposed reform is the introduction of a minimum tax rate on capital gains.

From 1 July 2027:

• Capital gains would generally be subject to a minimum 30% tax rate
• The measure would primarily affect taxpayers whose marginal tax rate is below 30%

The Government has indicated that recipients of means-tested income support payments, such as the Age Pension and JobSeeker, would be exempt from this requirement.

Transitional Rules

Recognising the significance of the proposed changes, the Government has announced transitional arrangements.

Capital gains accrued before 1 July 2027 would continue to be subject to the existing rules.

Capital gains accrued after 1 July 2027 would be subject to the new regime.

For assets held across both periods, taxpayers may need to undertake separate calculations to determine gains arising before and after the commencement date.

Importantly, asset valuations as at 1 July 2027 are expected to become a key part of the process.

Scope of the Changes

The proposal would apply across most CGT assets, including:

• Investment properties
• Shares and managed investments
• Business assets
• Pre-CGT assets

Note: Pre-CGT assets refers to assets purchased prior to CGT implementation on 20 September 1985. The pre-CGT status remains relevant until 1 July 2027 – it is only the capital growth after this date to be captured. 

Importantly:

• The main residence exemption is proposed to remain unchanged
• Existing small business CGT concessions are proposed to remain available

Advisor Insight: Planning May Become More Important Than Ever

While the proposed commencement date is still some time away, these reforms could significantly influence future investment and wealth-planning decisions.

Areas that may warrant closer attention include:

• Timing of future asset disposals
• Ownership structures
• Family succession planning
• Asset valuation requirements
• Long-term investment strategies

The eventual impact will vary considerably depending on an individual's circumstances, asset mix and investment objectives.

Questions Worth Considering

As further detail emerges, investors may wish to consider:

• Do you hold assets with significant unrealised capital gains?
• Will future valuation requirements affect your planning?
• Is your current ownership structure still appropriate?
• How might the proposed changes affect future investment decisions?
• Are there estate or succession planning considerations that should be reviewed?

What Happens Next?

These measures remain proposals and will require legislation before becoming law.

Given the significance of the reforms, further consultation and refinement may occur before the final rules are settled.

For now, the most prudent approach is to remain informed and avoid making major decisions until the legislation becomes clearer.

Need Advice?

The proposed CGT reforms could have implications for investors, business owners and families alike.

If you would like to discuss how these announcements may affect your investment strategy, business interests or broader financial position, please contact your trusted Murray Nankivell adviser.