Old and new CGT rules sit on opposite ends of Australia’s tax reform debate. And the 2026 federal budget has made that gap impossible to ignore. Among the changes, the government’s decision to scrap the usual CGT discount and replace it with cost base indexation is the largest shift to the current system since 1999.
Here at Australian Business Magazine, we’ve been tracking these changes closely since the announcement. We’re going to break down what they mean for investors, business owners, and everyday Australians. You’ll find out:
- How old and new CGT rules compare side by side
- What changes for business owners selling after 2027
- Who does the capital gains tax reform affect
Let’s begin with understanding the changes to the capital gains tax after budget night.
What Changed With Capital Gains Tax After Budget Night?
The 2026 federal budget focused on adjustments to exemptions, thresholds, and reporting rules. It basically replaces the foundation the system’s been built on for 25 years, and the changes take effect on 1 July 2027.
Five things changed when Treasurer Dr Jim Chalmers handed down the federal budget on 12 May 2026:
- The 50% CGT Discount Replaced: Cost base indexation takes over from the flat 50% CGT discount for assets held over 12 months. Your original purchase price is adjusted each year to reflect inflation. This creates an inflation-adjusted cost base for the asset. Only the real gain above that adjusted figure is taxed.
- A 30% Minimum Tax Floor Added: Capital gains after the effective date will face a minimum tax of 30%, regardless of where your marginal tax rate sits. In this case, high-income earners already above 30% will still pay their full marginal tax rate. The floor only lifts those who’d have paid less under the current law.
- Pre-1985 Assets Now Taxable: Gains accruing on assets bought before 20 September 1985 are now inside the CGT net for the first time. This means pre-2027 growth on those assets stays exempt, but any gain building after 1 July 2027 is fully taxable under the new CGT rules.
- Existing Investments Keep Transitional Protection: For assets already held before budget night, the 50% CGT discount still applies to gains built up before 1 July 2027. Those existing investments aren’t wiped clean, and only future gains from the transition date onward shift to the new regime.
- New Residential Builds Get a Choice: Investors in new residential property can pick between the old 50% discount and the new indexation method after the implementation date. All other existing residential investment properties don’t get that option and move fully to cost base indexation.
Not every investor is hit equally by these changes, and some assets sit outside the new regime entirely. The impact ultimately depends on the type of asset held and the timing of any disposal.
Old vs New Rules: Side-by-Side CGT Comparison
Depending on your asset type, holding structure, and income level, the two systems can produce very different estimated tax examples on the same sale.
The table below breaks down how the old and new rules compare.
| Feature | Old CGT Rules (Pre-2027) | New CGT Rules (From 1 July 2027) |
| Discount method | 50% flat CGT discount | Cost base indexation, CPI-adjusted |
| Minimum tax rate | None, marginal rate only | 30% floor on net capital gains |
| Who it applies to | Individuals, trusts, partnerships | Individuals, trusts, partnerships |
| Companies | Company tax rate, unchanged | Unchanged, not affected |
| New residential builds | 50% discount | Choice: old discount or new indexation |
| Superannuation funds | 1/3 CGT discount, separate provision | Unchanged, excluded from the new regime |
| Discretionary trusts | 50% CGT discount | 30% minimum tax on distributions from 2028 |
| Negative gearing | Deductible against all income | Limited to new builds from 1 July 2027 |
| Small business concessions | Available | Still available, unchanged |
Note: Superannuation funds and companies sit entirely outside these changes and continue under their existing tax arrangements.
That said, the core goal of this capital gains tax CGT reform is to tax only real capital gains, rather than the portion of your profit that’s simply kept pace with inflation.
For this reason, cost-based indexation replaces the old flat discount. The government’s position under current law is that the 50% CGT discount was too blunt and benefited property investors whose gains were driven more by inflation than genuine growth.
How Does Cost Base Indexation Work?
Cost base indexation adjusts your original purchase price upward each year using the Consumer Price Index.
That adjusted figure becomes your new starting point, and only the gain sitting above it gets taxed. The tax system used this inflation indexation approach in Australia between 1985 and 1999, before the 50% CGT discount replaced it.
Here’s how the mechanics of cost base indexation play out under the new CGT rules.
How the Transitional Split Works After 1 July 2027
For assets held across the transition date, the total gain is split into two portions. Gains built up before that date can keep the existing 50% CGT discount treatment. Meanwhile, gains accruing after it fall under the indexed cost base and the 30% minimum tax rate.
To establish that split, you’ve got two options:
- Either an independent market valuation at 1 July 2027
- Or the ATO’s apportionment formula (it assumes even capital growth over time)
The valuation method gives a more accurate snapshot of the property’s market value at that specific date, but it can involve extra cost and admin. On the other hand, the apportionment method is simpler to apply, but it may not reflect real market fluctuations.
Capital Losses Under the New CGT System
Capital losses still offset capital gains under the new framework, so that part of the tax system hasn’t changed. Unused losses carry forward and apply against future net capital gains in later income years. And that carry forward applies to both property investors and those holding shares or managed funds.
One important detail is that those losses reduce your indexed gain, which is the gain adjusted for inflation, rather than the original profit before CPI changes.
The 30% Floor Is Not a Cap
The minimum tax of 30% lifts the tax floor for lower-income investors, but it doesn’t cap what high earners pay. Investors already sitting at the 47% marginal tax rate, including the Medicare levy, still pay that full rate on the indexed gain.
What the floor actually closes off is the long-used strategy of timing an asset sale in a low-income year, such as early retirement. This is to reduce taxable income and land a much smaller CGT bill.
Does CGT on Sale of Business Change After 2027?
Business sale tax changes significantly for owners who hold assets personally or through a trust. For many mid-market owners, that shift can effectively double the tax rate on the same sale price.
This is how the new CGT rules apply specifically to business owners planning an exit.
How Business Sale Tax Changes Under the New Rules
Business owners will lose the 50% CGT discount on any taxable gain accruing after 1 July 2027. Under the old rules, a $1 million nominal gain had only $500,000 added to taxable income after the 50% capital gains tax discount was applied.
Under the new CGT rules, however, the full gain above the indexed cost base will be taxed at a minimum tax rate of 30%. What’s more, owners in the 47% marginal tax rate bracket will have to pay closer to that full rate on their post-2027 gains.
This means business owners could retain less profit after selling, which makes timing and valuation important when planning an exit.
Small Business CGT Concessions: Still on the Table
Small business CGT concessions remain fully intact under the proposed legislation, and for qualifying owners, they’re still the most powerful tools available. Among the main provisions is the 15-year exemption. It’s available to owners aged 55 or older who’ve held an active asset for at least 15 years, and can eliminate CGT entirely.
The retirement exemption carries a $500,000 lifetime cap, and the active asset reduction also remains unchanged. Moreover, owners meeting either the $6M net asset test or the $2M aggregated turnover test can still reduce their tax obligations to zero.
Why Getting a Valuation Before 2027 Is Important
A formal market valuation at 1 July 2027 will lock in your pre-reform cost base and protect the gains you’ve already built up. Otherwise, the ATO apportionment formula will step in and assume your asset grew at a perfectly flat rate across the entire holding period.
That assumption risks pulling more of your growth into the post-2027 bracket. As a result, it’ll overstate your taxable gain and push discounted pre-2027 gains into a higher tax rate than they’d otherwise attract.
Who Does the Capital Gains Tax Reform Hit?
Capital gains tax reform primarily affects property investors, business owners, and high-income individuals realising post-2027 asset gains.
These groups of investors and asset holders need to pay close attention to these changes:
- Individual Investors: Anyone holding shares, managed funds, or investment property will face cost base indexation and the 30% minimum effective tax rate on capital gains accruing. For most property investors, that means revisiting how and when they plan to sell.
- Discretionary Trust Holders: Trusts and partnerships lose the 50% CGT discount from the enforcement date, with a separate minimum tax on trust distributions kicking in from 1 July 2028. Although widely held trusts, including most attribution-managed investment trusts, are excluded from the new regime entirely.
- Pre-1985 Asset Holders: The cost base resets to market value at 1 July 2027, and any capital gains accruing after that date fall under the new rules. So long-held assets bought before 20 September 1985 are no longer fully exempt.
- Low-to-Mid Income Investors: Retirees and lower earners used to time asset sales in low-income years to reduce their tax liability, but that strategy is now closed off. This is because the 30% floor applies regardless of their other income.
- Exempt From the New Rules: The main residence exemption stays intact, and superannuation funds remain fully outside the new CGT regime. As a result, income support payment recipients, including those on the age pension, are exempt from the 30% minimum tax floor.
The capital gains tax reform doesn’t hit everyone equally. Some groups are squarely in its path, and others sit completely outside it. That’s why the income tax rates amendment introduced alongside these changes is worth reviewing with a tax adviser.
Know Where You Stand Before July 2027
The new CGT rules are broad, the transitional mechanics are complex, and the final legislation is still pending. Where you land on this budget changes depends on how you hold your assets, what your income looks like, and when you bought.
The final legislation hasn’t passed yet, so now’s the time to consider selling costs ahead of the transition. And you’d want to pay tax on the right amount, instead of more than you’re liable for, just because you didn’t review your financial decisions.
For more on the 2026 federal budget and what it means for Australian investors and business owners, browse the latest articles on Australian Business Magazine. We track policy changes and translate them into practical insights.
Check out our blogs to stay informed.
Frequently Asked Questions About the CGT Changes
The CGT changes have raised a lot of questions across investor groups, business owners, and everyday Australians alike. Below are the most commonly asked questions worth knowing.
Does Negative Gearing Change Under the New CGT Rules?
Yes, but only for certain properties. The negative gearing changes from 1 July 2027 limit losses on established residential investment properties acquired after budget night on 12 May 2026. Those losses can only offset residential rental income going forward.
How Do Consolidated Groups Handle the CGT Transition?
Tax consolidation groups follow a separate set of rules under the Income Tax Assessment Act. The CGT transition interacts with those rules in ways that aren’t yet fully confirmed. Consolidated groups should seek specific tax advice from a registered tax adviser, as the technical details remain pending.
What Is the Treasury Laws Amendment Bill’s Role Here?
The Treasury Laws Amendment Bill is the legislative vehicle the government uses to pass these CGT changes into law. Until that bill receives royal assent, the reforms remain proposed legislation only.
Does This Reform Encourage or Discourage Productive Investment?
Opinion is divided on this. The government’s stated goal is to redirect capital toward productive investment and new housing supply. It aims to do this by removing the incentive to hold existing assets purely for CGT discount purposes. However, critics argue that the new changes reduce the after-tax return on long-term investment in Australia for Australian workers and business owners alike.
What is the Working Australians Tax Offset?
The federal budget also introduced the Working Australians Tax Offset with a combined benefit of up to $2,816 for Australian workers on average earnings across all five tax cuts. This means many workers will see a reduction in their overall tax bill across the full package of cuts.
