The new Australian CGT rules centre on one major change. From 1 July 2027, the government wants to swap the current 50% capital gains tax (CGT) discount for an inflation-based system. On top of that, a minimum 30% tax on capital gains will apply after that date.
Naturally, investors are stressed. Many worry about paying more tax, selling too early, or making the wrong financial call. And since the Capital Gains Tax reform hasn’t passed into law yet, there’s still a lot of confusion about how the final rules will work.
This guide will break down how capital gains tax works today, what the proposed changes include, and who they could affect. We’ll also walk through some examples and planning tips to help you stay ahead.
So, let’s get started.
CGT Explained: Capital Gains Tax, Cost Base, Capital Losses and CGT Calculations
Capital gains tax (CGT) isn’t a separate tax, but the portion of income tax you pay when you sell an asset for more than it cost you. Here’s a simple breakdown of each part and how the numbers work.
What Is Capital Gains Tax (CGT)?
When you sell an asset and make a profit, that capital gain gets added to your other taxable income (such as your salary) for the same financial year.
The ATO then taxes the combined total at your marginal rate (where higher income is taxed at a higher rate). So, if your salary is $90,000 and you make a $30,000 capital gain, you’ll pay tax on a combined taxable income of $120,000.
After that, you’ll report these gains in your tax return along with your employment income, business income, or other assessable earnings. There is no separate CGT return, since everything is handled within your main tax return.
What Creates a CGT Event?
A CGT event occurs any time you dispose of an asset. That could mean selling an investment property, selling shares on the ASX, or trading crypto assets. It also includes non-sale situations, such as gifting or transferring an asset to another person, since the ATO still treats these as changes of ownership and counts them as disposals.
Worth Noting: The CGT event date is when you sign the contract, not when settlement happens. So if you sign in June but settle in August, the gain belongs to the June income year.
Understanding Cost Base and Capital Gains
Your cost base is basically the total amount you spent to buy, hold, and eventually sell an asset. The ATO breaks the cost base into these four factors:
- Purchase Price: This is the original amount you paid for the asset, including any deposit you put down at the time.
- Legal Fees and Stamp Duty: Your solicitor costs, conveyancing fees, and stamp duty all count here too. Most people already have receipts for these, so hang onto them.
- Improvements and Capital Works: If you’ve spent money on renovations or structural additions that added value to the property, those expenses are eligible as well.
- Other Eligible Costs: At the time of sale, you can also factor in agent commissions, valuation fees, and advertising costs. These are easy to overlook, but they do reduce your final profit by cutting into the amount you actually receive from the sale.
Now, many people forget that you can’t add an expense to the cost base if you’ve already claimed it as a tax deduction. The ATO doesn’t allow the same cost to be counted twice. So keep a clear record of every cost, and you’ll have a more accurate picture of your capital gain when it’s time to sell.
How to Calculate Capital Gains, Net Capital Gain and Capital Losses
Working out your capital gains tax starts with a simple formula, along with rules for discounts and losses that affect the final amount. Below, we share how each stage works together, with an example to make the numbers easy to follow.
How CGT Calculations Work
The basic formula is pretty simple. You take the sale price and subtract your full cost base. The difference is your capital gain.
Now, if you held the asset for more than 12 months, you can currently apply the 50% CGT discount. This reduces the taxable portion of your capital gain by half. The result is your net capital gain, and that amount gets added to your taxable income for the year.
For example, a $40,000 capital gain at the 37% marginal rate would normally cost you $14,800 in tax. With the 50% CGT discount, you’d only pay tax on $20,000, which brings the bill down to $7,400.
How Capital Losses Work
A capital loss occurs when you sell an asset for less than its cost base (like buying shares for $10,000 and selling them later for $7,000). You can use this loss to reduce any capital gains you make in the same income year.
On the other hand, if your capital losses end up greater than your gains, you can carry the net capital loss forward into future years indefinitely. There’s no time limit on that.
However, you can’t use capital losses to reduce your salary or wages, as they only apply against capital gains. Because of this, you must report every capital loss in your tax return for the year it happens, even if you have no gains to offset it.
Example of Property Sale CGT Breakdown: Cost Base to Final Tax
Say you purchased an investment property in Sydney for $500,000.
On top of the purchase price, you paid $20,000 in stamp duty, $5,000 in legal fees, and $30,000 in improvements over the years. This brings your total cost base to $555,000. You then sold the property for $700,000, which gives you a capital gain of $145,000 after subtracting your cost base from the sale price.
From there, if you apply the current 50% CGT discount, it’ll reduce your taxable gain to $72,500. This net capital gain will then get added to your other income for the year, and the ATO will tax it at your marginal rate.
Now, if your salary is $90,000, your total taxable income for the year will be $162,500 with the added net capital gain. Afterwards, the ATO will apply the relevant tax brackets to this total income to calculate your final tax bill.
What Has Not Changed
Your family home is still fully exempt from capital gains tax, as long as it was your main residence for the entire time you owned it. In the same way, assets you bought before 20 September 1985 (when capital gains tax was first introduced in Australia) are also exempt under current rules.
The way capital losses work hasn’t changed either. You can still use losses to offset capital gains and carry any unused losses forward into future years without a time limit.
Overall, your general reporting obligations in your tax return remain the same, even if future reforms are introduced.
New CGT Rules Australia, CGT Discount Changes and Negative Gearing Debate Explained
The Australian government has proposed the biggest capital gains tax shake-up in over 25 years. This would be the largest CGT reform since the Howard government first introduced the 50% discount back in 1999. That said, the reforms only apply to gains arising after 1 July 2027.
So this is what each part of the reform looks like and how it could affect your investments.
Why the 50 Per Cent CGT Discount Was Introduced
Before 1999, Australia used a CPI (Consumer Price Index) method that adjusted your cost base for inflation before working out the gain.
The Howard government scrapped that system and replaced it with a simpler 50% CGT discount. As we mentioned earlier, the discount halves your taxable capital gain if you hold an asset for over 12 months. At the time, the goal was to simplify the process and encourage long-term investing.
The problem, according to the current government, is that the discount has been too generous to wealthier Australians. In fact, the top 20% of earners receive almost 90% of the benefit. That’s the core reason behind the proposed reforms.
Proposed Changes to the CGT Discount
With that context in mind, here’s what the government wants to do. From 1 July 2027, the 50% CGT discount will be replaced with a system that adjusts your cost base for inflation using CPI indexation.
In simple terms, instead of halving your capital gain, the ATO will increase your original cost base to reflect inflation. That way, you only pay tax on real growth above price increases.
And, as we mentioned before, a minimum 30% tax rate on capital gains will also apply from that date. However, investors in eligible newly built residential properties on or after this date can choose between the old 50% discount or the new arrangements.
Plus, any gains made before 1 July 2027 keep the old discount. So the reforms are forward-looking, not backdated.
How Negative Gearing Fits Into the Discussion
Capital gains tax and negative gearing are often debated together because both directly influence property investment decisions.
To put it in broad terms, the Australian property tax changes in the 2026 Budget limit negative gearing for established housing purchased after 7:30 pm on 12 May 2026. This means investors can no longer use losses from those properties to reduce their personal income tax in the same way as before.
Under these updated rules, investors can only use rental losses from established properties to offset income from residential property or capital gains from other rental assets. In contrast, new builds still allow full negative gearing deductions. The government’s goal here is to direct support toward new housing supply.
Who Could Be Most Affected?
Property investors with multiple holdings are likely at the top of that list, especially those who relied on negative gearing to offset losses against their wages. Of course, high-income earners who benefited most from the 50% discount will also notice the shift.
Foreign investors should also take note. Any foreign resident disposing of taxable Australian property may be subject to a withholding tax of 15% on the sale price. This is separate from any CGT obligations that apply at tax time.
Moreover, company structures and trusts are subject to the new minimum 30% rate as well, with 2028 marking a later rollout phase for these entities.
How the Reforms Affect Property, Shares and Crypto Differently
The same reforms apply across all CGT assets, but the practical impact varies depending on what you own. Here’s how the changes play out for the three most common investments.
Investment Property
If you acquired an investment property before 1 July 2027 and sell it, the ATO will split your capital gain into two parts. Here, the portion before that date will keep the old 50% CGT discount.
And the portion after will fall under the new inflation indexation rules and the 30% minimum tax.
Selling Shares
For share investors, the timing of a sale creates different outcomes under the new rules. Shares sold before 1 July 2027 still get the current discount. After that date, the gain gets split the same way as property. You can use a CGT calculator to model different sale dates and work out which income year gives you the best result.
Crypto Assets
Crypto assets follow the same CGT rules as shares and property. This means a CGT event happens every time you sell, swap, or spend crypto. The bigger challenge here is record-keeping. The ATO asks you to keep records of each crypto transaction for at least five years.
Pro Tip: Download your transaction history from every exchange regularly and store it somewhere safe. Because if an exchange shuts down, that data may be gone for good.
What Investors Need to Take Away From These CGT Changes
So, how are you feeling after working through all of that? There’s a lot to take in, so here’s a quick summary of the most important points to carry with you.
Key Takeaways:
- CGT Is Part of Income Tax: Capital gains tax isn’t a separate tax. Your capital gain gets added to your other income and taxed at your marginal rate.
- The 50% Discount Is Proposed to End: From 1 July 2027, the government wants to replace the CGT discount with CPI-based indexation and a minimum 30% tax on gains.
- Existing Gains Are Protected: Any capital gains accrued before 1 July 2027 still qualify for the current 50% CGT discount, regardless of when you sell.
- New Builds Get a Choice: Investors in new residential properties can choose between the old discount and the new arrangements after the proposed changes take effect.
- Capital Losses Still Carry Forward: You can offset losses against capital gains indefinitely, but they can’t reduce your salary or wages.
- Record-Keeping Is Now More Important Than Ever: With overlapping rules across different holding periods and asset types, accurate records of your cost base could save you a significant amount at tax time.
- The Reforms Aren’t Law Yet: The legislation hasn’t passed Parliament. Final rules could still change before 1 July 2027.
If your financial situation involves multiple holdings, trusts, or new builds, take time to account for how different factors like asset type, holding period, and income level could affect what you pay. A good starting point is to manage your records now, well before the 2027 deadline arrives.
It’s also worth getting professional tax advice before making any major decisions. The right support and services can save you from unexpected tax bills or penalties.
For more guides on capital gains and how the government’s proposed changes could affect Australian investors, keep exploring Australian Business Magazine.
Frequently Asked Questions About Capital Gains Tax and CGT Reforms
These are some of the most common questions we see from investors trying to understand their tax obligations under the current and proposed CGT rules.
If you’re still working through the details, these answers should clear things up.
Do I Pay Capital Gains Tax on My Family Home?
Generally, no. Your family home is exempt from capital gains tax as long as it was your main residence for the entire time you owned it. Eligibility for the full exemption also requires that you didn’t use the property to produce income, like renting it out. If you did rent it for a period, a partial exemption may apply.
How Long Must I Own an Asset to Receive the CGT Discount?
You need to hold the asset for at least 12 months before selling to be eligible for the 50% CGT discount. But if you sell before that 12-month mark, the full capital gain will get added to your taxable income with no discount applied.
Are Inherited Assets Subject to Capital Gains Tax?
Inheriting an asset doesn’t create a CGT event on its own. You won’t pay tax at the point of receiving it. The tax becomes relevant when you eventually sell or dispose of the inherited asset. Your cost base will depend on when the deceased originally acquired the property and how they used it.
