Proposed Capital Gains Tax Changes in Australia Explained: 2026 Federal Budget

On 12 May 2026, Treasurer Jim Chalmers delivered the 2026-27 Federal Budget against a challenging backdrop of a global oil shock, headline inflation forecast to reach 5% by mid-2026, and sustained cost-of-living pressure. The Budget contained what he described as "the most important and ambitious Budget in decades", with the centrepiece being a fundamental restructuring of Australia's capital gains tax (CGT) system.

The CGT reforms represent the most significant change to the system since the Ralph Review in 1999, when the Howard Government replaced cost-base indexation with a 50% discount. The 2026-27 Budget now reverses that decision, restoring indexation - while adding a new minimum 30% tax rate, and critically, ending the 40-year blanket exemption for pre-CGT assets.

- Ensure investors pay tax only on 'real' (inflation-adjusted) capital gains, not gains attributable purely to inflation

- Prevent high-income taxpayers from deferring gains to low-income years (e.g., retirement) to exploit lower marginal rates

- Redirect property investment toward new housing supply by limiting negative gearing to new builds

- Bring pre-CGT (pre-1985) assets within the CGT net for gains accruing after the commencement date

- Raise revenue to fund broader Budget commitments

The Budget announcement was made on 12 May 2026. Detailed exposure draft legislation has not yet been released. The analysis below is based on Budget papers, Treasury fact sheets, and the best current understanding of the proposed rules. Specific details (valuation methodologies, ATO safe harbours, interaction with existing integrity measures) remain subject to confirmation in draft legislation and ATO guidance.

Assets acquired on or before 19 September 1985 are currently entirely outside the CGT regime. The exemption is unconditional - regardless of how much the asset has appreciated, no CGT applies on disposal. This has been a bedrock of Australian tax planning for over 40 years, allowing families and businesses to hold legacy assets confident that no CGT would ever fall due.

Common examples of pre-CGT assets include:

- Family farms and rural properties acquired before CGT

- Goodwill in long-established private businesses

- Listed shares purchased before September 1985 (e.g., early BHP or CBA holdings)

- Partnership interests held since before CGT commencement

- Units in trusts settled before 19 September 1985

From 1 July 2027, pre-CGT assets lose their blanket exemption. Capital gains accruing after that date will be fully taxable under the new regime (indexation + 30% minimum tax). Critically however, gains that accrued before 1 July 2027 remain permanently exempt - meaning the pre-1985 to 1 July 2027 appreciation is never taxed. Only the post-1 July 2027 gain falls within the new regime.

The deemed cost base for a pre-CGT asset from 1 July 2027 will be the asset's market value at that date. This effectively quarantines all pre-existing gain (which is exempt) and brings only future appreciation within the CGT net.

Gains from 1 July 2027 will be calculated as: Proceeds - Market Value at 1 July 2027, and will be subject to indexation and the 30% minimum tax.

The extension of CGT to pre-CGT assets raises a number of significant issues that remain unresolved pending draft legislation:

- Retrospective complexity: Many arrangements have been structured over decades on the assumption that pre-CGT assets remain exempt forever. Introducing CGT (even only prospectively) changes the planning landscape materially.

- Interaction with existing integrity rules: Division 149 already applies to deny the pre-CGT status where the majority underlying interests in an asset change after 20 September 1985. Budget materials do not address how the new rules interact with these existing provisions.

- Characterisation questions: Whether a component of an asset (such as business goodwill) is 'pre-CGT' has traditionally been resolved at the time of disposal. Under the new regime, the 1 July 2027 valuation means these questions must be resolved much earlier - before any realisation event.

- Composite assets: Where a pre-CGT asset consists of components acquired at different times (e.g., a property to which improvements were made after 1985), the treatment of the composite asset requires clarification.

- No warning period: Taxpayers holding pre-CGT assets were given no transitional warning - the first announcement was Budget night, leaving approximately 13 months to prepare.

The most complex aspect of the reforms is how they apply to assets that were acquired before 1 July 2027 and held (not yet sold) after that date. These 'straddle' assets accumulated gain under the old regime (where the 50% discount applied) and will continue to accumulate gain under the new regime (where indexation and a 30% minimum tax apply). The transitional rules must accurately split the total gain between the two regimes.

According to the Budget, taxpayers holding pre-July 2027 assets will have two alternative methods for determining how much of the gain falls under the old regime (eligible for 50% discount) and how much falls under the new regime (indexation + 30% minimum):

Under this approach, the taxpayer obtains (or uses a specified methodology to determine) the market value of the asset as at 1 July 2027. This value becomes the deemed cost base for the new regime.

- Pre-1 July 2027 gain = Market value at 1 July 2027 − Original cost base → eligible for 50% discount

- Post-1 July 2027 gain = Proceeds − Market value at 1 July 2027 → subject to indexation and 30% minimum tax

This method requires a formal valuation. For listed securities, the market price on 1 July 2027 will be used. For unlisted assets, a formal independent valuation will likely be required.

The Government indicated that the ATO will publish a 'specified apportionment formula' that estimates the 1 July 2027 value based on the asset's growth over the full holding period.

The formula is expected to apportion gains on a time-weighted basis — i.e., the proportion of the holding period before 1 July 2027 determines what fraction of the total gain is attributed to the old regime.

This avoids the need for a formal valuation but will produce a less accurate result, especially for assets that appreciated unevenly over time.

Formula (indicative): Pre-2027 gain = Total gain × (Days held before 1 July 2027 ÷ Total days held)

Taxpayers can choose whichever method produces the better outcome. In practice, if an asset appreciated significantly before 1 July 2027, the market valuation method will generally be preferable (it establishes a higher opening cost base for the new regime). If an asset appreciated largely after 1 July 2027, the time-apportionment formula may be adequate.

For pre-CGT assets specifically, the deemed cost base mechanism works as follows:

- The original cost of the asset is irrelevant for CGT purposes (prior gains remain exempt)

- The market value at 1 July 2027 becomes the 'deemed cost base' from that date

- All future gains and losses are calculated by reference to that deemed cost base

- The same two valuation methods (formal valuation vs ATO apportionment formula) are expected to be available

- No choice of method is likely to be necessary for pre-CGT assets since there is no old-regime gain to apportion - the entire cost base is simply reset to market value at 1 July 2027

Capital gains on pre-CGT assets arising before 1 July 2027 remain fully exempt. Taxpayers considering disposal of long-held pre-CGT assets should assess whether to sell before 1 July 2027 (full exemption) versus holding and facing a cost base reset. The decision will depend on asset values, future growth expectations, and holding costs.

Note: A disposal before 1 July 2027 triggered purely for tax reasons may also have commercial consequences - including loss of a productive business asset, stamp duty on a subsequent reacquisition, or succession complications.

From 1 July 2027, the 50% CGT discount is abolished (for non-new-build assets) and replaced by an inflation-linked adjustment to the cost base. The mechanism is closely modelled on the indexation regime that operated between 19 September 1985 and 21 September 1999.

The core mechanics are:

- The cost base (or deemed cost base at 1 July 2027 for straddle/pre-CGT assets) is indexed upward by the movement in the Consumer Price Index (CPI) over the holding period

- The CPI is compounded, so the indexation reflects the effect of cumulative inflation

- The indexed cost base is then subtracted from the proceeds to determine the capital gain

- Only gains in excess of inflation are subject to tax - 'real' gains only

- Indexation cannot create or increase a capital loss - it only reduces gains

Indexed Cost Base = Cost Base × (CPI at Disposal ÷ CPI at Acquisition or 1 July 2027)

Taxable Capital Gain = Proceeds − Indexed Cost Base

The ATO will publish updated CPI indexation factors (as it did pre-1999). Online calculators are anticipated.

The relative merits of indexation versus the 50% discount depend on several factors:

Important note on capital losses: It is expected (consistent with the pre-1999 regime) that capital losses will not be indexed. This means the asymmetry that existed pre-1999 will be recreated: gains are indexed (reducing the taxable amount), but losses are taken at nominal value.

The replacement of the 50% discount with indexation has a particularly adverse impact on start-up founders and early-stage investors. Where shares are acquired at nominal (or nil) cost base - as is common for founders - the indexation benefit is correspondingly small (a multiplier applied to a small or zero base). Under the prior regime, the 50% discount was applied to the full gain, providing substantial relief. The Government has stated it will consult with the start-up and technology sector on targeted concessions, but no details were announced.

A minimum 30% tax rate will apply to net capital gains accruing after 1 July 2027. This applies after indexation has been applied to the cost base. The measure is specifically designed to prevent taxpayers from deferring the realisation of gains to a year in which their overall taxable income — and therefore marginal rate — is low.

A common tax planning strategy has been for high-income earners to retire, reduce their income to near-zero, and then sell capital assets in their first year of retirement (or in a year of low other income) so that the capital gain attracts a very low or nil effective tax rate. The 30% minimum tax blocks this by imposing a floor regardless of marginal rate.

- The 30% minimum rate applies to the net capital gain after indexation (i.e., after deducting the indexed cost base from proceeds)

- If the taxpayer's ordinary marginal tax rate (applied to the gain) would already produce a tax liability of 30% or more, the minimum tax has no additional effect

- If the taxpayer's marginal rate on the gain would produce less than 30% tax, the minimum tax tops up to 30%

- The minimum tax does NOT apply to means-tested income support recipients (e.g., those receiving aged pension or similar payments)

- The minimum tax applies only to post-1 July 2027 gains — pre-2027 gains taxed under the old regime (50% discount) are not subject to the floor

Assume an individual has no other taxable income in the year of disposal:

Post-2027 gain after indexation: $80,000

Using 2028 Tax Rates:

Tax at marginal rates (0% on first $18,200 + 14% on next $26,800 + 30% on next $35,000): approx. $14,252

Effective rate on gain: 14,252 ÷ 80,000 = 17.815%

Minimum tax at 30%: $24,000

Additional top-up: $24,000 − $14,252 = $9,748

This prevents the taxpayer from realising gains in a low-income year at a reduced effective rate.

- Retirees: The strategy of selling assets in early retirement to maximise low-rate access is significantly curtailed - gains will always attract at least 30% regardless of other income

- Superannuation: The minimum tax does NOT apply inside superannuation funds, which retain their existing 10% effective CGT rate (15% taxed at the fund level, with the 1/3 discount). This makes superannuation relatively more attractive as a holding structure for appreciating assets

- Deceased estates: The interaction of the minimum tax with the existing death CGT rules (cost base reset to market value at death) needs clarification in the legislation

- Trusts: The 30% trust minimum tax (commencing 1 July 2028) operates alongside the CGT minimum tax - together these measures significantly reduce the tax advantage of holding appreciating assets in discretionary trusts

The 1 July 2027 valuation is central to the entire transitional framework. It determines:

- For straddle assets: what portion of the total gain is attributed to the old regime (50% discount) vs the new regime (indexation + 30% minimum)

- For pre-CGT assets: the entire deemed cost base from which all future gains and losses are measured

- Taxpayers have a strong incentive to establish the highest defensible valuation at 1 July 2027 - this maximises the old-regime gain (which is more lightly taxed or fully exempt) and minimises the new-regime gain

- Timing: To use a formal valuation, taxpayers need to commission it retrospectively at the time of disposal. Valuers will need to establish what the asset was worth as of 1 July 2027 - a 'backdated' valuation that will require historical data and market evidence from that date.

- Cost: Obtaining formal valuations for multiple assets (e.g., a complex private business with goodwill, real property, and plant) could be expensive. The ATO apportionment formula offers a lower-cost alternative but may be suboptimal.

- ATO scrutiny: Taxpayers who self-report high 1 July 2027 valuations can expect ATO review. The ATO is likely to issue guidance on acceptable valuation methodologies and may audit aggressive valuations.

- Goodwill and intangibles: These are the most difficult to value and the most likely to generate disputes. A business that was profitable on 1 July 2027 but subsequently declined would have a high goodwill value at that date - beneficial for the taxpayer but hard to establish retrospectively.

- Record keeping: Taxpayers should be maintaining market data, financial records, and other information as of 1 July 2027 now, even if no disposal is imminent. The longer they wait, the harder it will be to establish the value at that date.

The following examples illustrate the proposed operation of the new rules compared with the current regime. All examples assume: the taxpayer is an individual; the marginal tax rate is 47% (top marginal rate including Medicare levy) unless otherwise stated; inflation (CPI uplift) is 3% per annum on a compound basis unless otherwise stated; all assets are held for >12 months; and the new rules commence on 1 July 2027.

Facts: David purchased shares in a listed company on 1 July 2020 for $100,000. He sells them on 30 June 2030 for $300,000.

The total gain of $200,000 must be split between pre-2027 and post-2027 components.

- Using valuation method: market value on 1 July 2027 = $190,000 (determined from exchange records)

- Pre-2027 gain = $190,000 − $100,000 = $90,000; After 50% discount = $45,000 assessable

- Post-2027 gain = $300,000 − $190,000 = $110,000; Indexed cost base (3% CPI for 3 years) = $190,000 × 1.093 = $207,670; Gain after indexation = $300,000 − $207,670 = $92,330

Under the old rules, the 50% discount applied to the entire gain ($200,000 → $100,000 assessable), and David at 47% marginal rate would have paid $47,000.

The new result is $64,545 - approximately 37% more tax. The minimum tax does not bite here since David's marginal rate (47%) exceeds 30%.

Facts: The Henderson family purchased a rural property in March 1982 for $80,000 (a pre-CGT asset). At 1 July 2027, the property is worth $2.5 million. They sell it on 30 June 2029 for $2.8 million. Their marginal tax rate is 47%.

Under current rules, the entire gain is exempt (pre-CGT asset). Under the new rules:

- Gains to 1 July 2027 (i.e., the $2.5 million appreciation from $80,000) remain permanently exempt

- Deemed cost base at 1 July 2027 = $2,500,000 (market value)

- Post-2027 gain = $2,800,000 − $2,500,000 = $300,000

- Indexed cost base (3% CPI × 2 years) = $2,500,000 × 1.061 = $2,652,500

- Since sale price ($2.8M) > indexed cost base ($2.65M): taxable gain = $2,800,000 − $2,652,500 = $147,500

Key takeaway: The family pays no tax on 40+ years of appreciation (the pre-2027 gain). But the 2-year post-2027 appreciation of $300,000 is substantially taxed. If the family had sold before 1 July 2027, the entire $2.72 million gain would have been exempt - a tax saving of $69,325 compared to waiting.

The family may be eligible for the Small Business CGT Exemptions, which could reduce the capital gain potentially to NIL.

Facts: Sally retired in July 2027. She holds shares purchased in December 2019 for $50,000, worth $120,000 on 1 July 2027. She sells them in June 2028 for $135,000. Her only other income is $2,000 of interest. Assume 2% CPI in the one year from 1 July 2027 to sale.

- Pre-2027 gain = $120,000 − $50,000 = $70,000; After 50% discount = $35,000 assessable

- Post-2027 gross gain = $135,000 − $120,000 = $15,000

- Indexed cost base (2% CPI × 1 year) = $120,000 × 1.02 = $122,400

- Post-2027 gain after indexation = $135,000 − $122,400 = $12,600

- Total assessable income = $2,000 (interest) + $35,000 (pre-2027 CGT) + $12,600 (post-2027 CGT) = $49,600

Key takeaway: This example demonstrates the minimum tax in action. As Sally’s marginal rate on part of the post-2027 gain is below 30%, the minimum tax applies and requires a top-up payment.

This provision is designed to ensure retirees with low income cannot use the low-rate benefit to shelter post-2027 capital gains below the 30% floor.

Facts: James founded a technology company in 2021, acquiring his shares for $10,000 (nominal cost). He sells 100% of his shares on 30 June 2031 for $5,000,000. Value at 1 July 2027 (per independent valuation) = $1,200,000. CPI increases 3% p.a. for the 4 years post-2027.

- Pre-2027 gain = $1,200,000 − $10,000 = $1,190,000; After 50% discount = $595,000 assessable

- Post-2027 gross gain = $5,000,000 − $1,200,000 = $3,800,000

- Indexed cost base (3% × 4 yrs compound) = $1,200,000 × 1.126 = $1,351,200

- Post-2027 taxable gain = $5,000,000 − $1,351,200 = $3,648,800

- Under the old rules (no split): 50% discount on full gain → $2,495,000 assessable

Key takeaway: Start-up founders are among the biggest losers under the new regime. The extremely low cost base means indexation provides minimal benefit, while the pre-2027 50% discount on the 'cheap' shares still applies. The dramatic increase in tax liability explains why the Government has flagged consultation with the tech and start-up sector on potential targeted concessions.

Facts: Maria purchases an investment property (established, not new build) on 1 August 2027 for $800,000 and sells it on 31 July 2034 (7 years later) for $1,200,000. CPI: 3% p.a. compound. Maria's marginal rate: 47%.

This asset was acquired after 1 July 2027, so the new regime applies in full. No transitional split is required.

- Gross gain = $1,200,000 − $800,000 = $400,000

- Indexed cost base (3% × 7 yrs compound) = $800,000 × 1.230 = $984,000

- Taxable gain after indexation = $1,200,000 − $984,000 = $216,000

- Under old rules: 50% discount → $200,000 assessable

Key takeaway: At moderate inflation (3%) and a 7-year hold, indexation is broadly comparable to (but slightly worse than) the 50% discount for this level of return. However, if inflation were to be higher (say 5%) the indexed cost base would be 1.407 x $1,200,000 = $1,125,600 and the taxable gain would be only $74,400 - resulting in much lower tax than the old rules. The new regime genuinely rewards long-term holding in high-inflation environments.

- Pre-CGT asset holders: Assess whether disposal before 1 July 2027 (retaining full exemption) is preferable to holding beyond that date and facing a cost base reset and post-2027 tax on future appreciation. This analysis should weigh tax savings against commercial consequences of disposal.

- Straddle asset holders: Gather and preserve records of asset values and market data as of 1 July 2027. Even if no disposal is imminent, this data will be essential when the asset is eventually sold. Consider commissioning formal valuations now (before the date) for complex or high-value assets.

- Review succession and estate plans: The new regime changes the relative cost-effectiveness of different holding structures and should prompt a review of existing wills, testamentary trusts, and succession arrangements.

- Superannuation remains highly advantaged: Super funds are unaffected by the new CGT regime (including both the indexation change and the minimum tax). The differential tax treatment makes super an even more compelling vehicle for holding appreciating assets, subject to contribution limits and access restrictions.

- Discretionary trusts: The planned 30% minimum tax on discretionary trust income from 1 July 2028 significantly reduces the trust advantage, especially for accumulated capital gains that will now face both the CGT indexation regime and the trust minimum tax.

- Companies: Companies do not qualify for either the 50% discount or the new indexation - they remain taxed on capital gains at their full corporate rate (25% or 30%). The removal of the individual/trust discount advantage partially levels the playing field and may make corporate structures more relatively attractive in some contexts.

- New residential property: The ability to choose between the old rules (50% discount) and the new rules (indexation + 30% minimum tax) for new builds provides flexibility that is unavailable for established housing - potentially making new residential investment more attractive on an after-tax basis.

- Draft legislation: No exposure draft has been released. Monitor Treasury consultation processes closely!

- Interaction with Division 7A and Division 149: How the new rules interact with these provisions (which already affect pre-CGT assets and private company distributions) requires clarification.

- Foreign residents: The interaction with the foreign resident CGT regime needs analysis - particularly for non-residents selling assets through Australian entities.

- Small business CGT concessions: Whether the small business CGT concessions (15-year exemption, retirement exemption, rollover) continue to apply to post-2027 gains, and whether they interact with the 30% minimum tax, is not yet confirmed.

- ATO valuation guidance: The ATO has not yet released guidance on acceptable valuation methodologies for the 1 July 2027 cost base reset. This is urgently needed.

- Start-up carve-out: The Government has flagged consultation on treatment of early-stage businesses and Division 83A options - outcomes unknown.

The proposed reforms include replacing the 50% CGT discount with CPI indexation, introducing a 30% minimum tax on certain capital gains and bringing future gains on pre-CGT assets into the CGT regime from 1 July 2027, subject to legislation.

The proposed commencement date is 1 July 2027, subject to legislation.

Gains accruing before 1 July 2027 would remain exempt. Under the proposed rules, only gains accruing after 1 July 2027 would become taxable.

For many affected assets, the 50% CGT discount would be replaced by CPI indexation for post-1 July 2027 gains. New residential property would receive different treatment under the proposal.

No. Detailed exposure draft legislation has not yet been released, and several technical details remain subject to confirmation through legislation and ATO guidance.