Capital Gains Tax (CGT): Discount replaced with inflation indexation

2026 Federal Budget Proposal

Why it matters: The reform reduces the ability to achieve very low effective tax rates on capital gains and introduces valuation and record‑keeping requirements around the 1 July 2027 transition. 

• Until 30 June 2027: current 50% CGT discount continues. 

• From 1 July 2027: discount replaced with inflation indexation for most assets. 

• Minimum 30% tax rate applies to capital gains under the post‑1 July 2027 method. 

• Applies to individuals, trusts and partnerships. 

How it works (from 1 July 2027) 

• Instead of exempting 50% of the gain, the purchase price will be indexed for inflation. 

• This means only real gains (after inflation) are taxed. 

• The ability to achieve very low effective tax rates on capital gains is removed. 

Transition / valuation checkpoint (1 July 2027) 

• Assets held across the changeover date are effectively split into two periods. 

• Pre‑1 July 2027: 50% discount applies to gains attributable to this period. 

• Post‑1 July 2027: inflation indexation applies, subject to the minimum 30% tax rate. 

• Taxpayers must determine the asset’s value at 1 July 2027 to apply the transitional calculation. 

Pre‑CGT assets (change to long-standing exemption) 

• The long-standing exemption for assets acquired before September 1985 will end. 

• Assets will be reset to market value at 1 July 2027, with future gains taxable. 

Exception: new residential builds 

• New residential builds can still access the 50% discount or the indexation method. 

Worked example (indexation method) 

• Purchase price: $850,000 (August 2028) 

• Sale price: $1,400,000 (August 2033) 

• Indexed cost base (2.5% inflation): approx. $960,000 

• Taxable gain: $440,000 

Under the old rules, the taxable gain could have been reduced to $275,000 after the discount.