The capital gains tax (CGT) reform measures announced in the 2026–27 Federal Budget have now been enacted, with the relevant legislation receiving Royal Assent on 26 June 2026.
The Treasury Laws Amendment (Tax Reform No 1) Bill 2026 introduces significant CGT reforms, including the replacement of the 50% CGT discount with cost base indexation and the introduction of a 30% minimum tax on capital gains. The Bill received Royal Assent as Act No. 49 of 2026.
The related Income Tax Rates Amendment (Tax Reform No 1) Bill 2026 which imposes the new minimum 30% tax on capital gains, also received Royal Assent on 26 June 2026 as Act No. 50 of 2026. The new arrangements will apply to capital gains accruing on or after 1 July 2027, including gains from pre-CGT assets, although pre-CGT assets will remain exempt up to 30 June 2027.
What does this mean?
- Replacement of the 50% CGT Discount with Cost Base Indexation from 1 July 2027
From 1 July 2027, the long-standing 50% general CGT discount will be removed for most standard CGT assets held by individuals, trusts, and partnerships for more than 12 months. This is being replaced with the indexation method, which was used before the 50% CGT discount was introduced by the Howard Government in 1999.
For existing assets held by Australian residents, taxpayers will generally be able to reset their cost base to market value as at 30 June 2027, with that amount subsequently indexed using the indexation factor (CPI). If the asset is sold for more than the indexed cost base, the capital gain will be taxed at a minimum of 30% (discussed further below). If the asset is sold for less than its cost base, a capital loss will still arise. Future capital losses will be offset against capital gains before indexation adjustments or remaining CGT discounts are applied.
Up to 30 June 2027, the CGT discount is still able to be utilised, giving taxpayers the ability to discount gains made on assets held more than 12 months up to 30 June 2027. As a result, obtaining market valuations for relevant assets before 30 June 2027 will be critical for taxpayers seeking to maximise the benefit of the current CGT discount rules. It is important to note that new residential dwellings or affordable housing will still retain access to the CGT discount.
A key impact for non-resident taxpayers is that from 1 July 2027, non-resident taxpayers will be taxed on nominal gains. Access to the indexation method is lost under the new system as the taxpayer must have been an Australian tax resident for the entire ownership period of the asset. If a taxpayer moves overseas on or after 1 July 2027, the taxpayer loses access to the indexation method. There are no changes to non-resident taxpayers’ CGT discount eligibility as non-residents were already ineligible to apply the CGT discount from 8 May 2012.
- Introduction of a 30% Minimum Effective Tax Rate on Capital Gains
On capital gains accrued from 1 July 2027, Australian resident individuals will generally be subject to a minimum effective tax rate of 30% on net capital gains (including capital gain distributions received from trusts).
If the individual’s regular personal tax payable on that gain falls below the 30% threshold—for example, because the taxpayer has low overall taxable income or significant tax offsets—an extra income tax is imposed under Section 119-10 to top up the tax paid to the 30% level on the capital gain income.
Capital gains accrued up to 30 June 2027 will be subject to existing rules, meaning the CGT discount and the marginal tax rates apply to any gains.
The minimum tax does not apply to individuals who receive government income support, new residential builds and affordable housing.
Worked Example 1 – top marginal tax rate taxpayer (45% + 2% Medicare levy)
For illustrative purposes, assume:
- Australian resident individual at marginal tax rate of 45% + 2% Medicare levy
- Investment property
- Cost base of $500,000 on 1 July 2016
- Sold for $900,000 on 30 June 2028
- Market value at 30 June 2027 is $800,000
- No capital losses
- The post-1 July 2027 indexed cost base increases by 3% p.a.
- Taxable income (excluding capital gain) of $200,000
Tax + Capital Gains under Old System
- Capital gain = $900,000 – $500,000 = $400,000
- 50% discount = $200,000 net capital gain
- Total taxable income of $400,000 ($200K other income + $200K capital gain)
- Total tax payable for FY28 is $153,602 (including tax offsets + Medicare levy)
Tax + Capital Gains under New System
- Pre-1 July 2027 gain: $800,000 – $500,000 = $300,000
- 50% discount applies to this pre-transition component = $150,000 taxable gain
- Basic tax payable (before Medicare levy) on capital gain up to 30 June 2027 is $67,500
- Post-1 July 2027 gain: $900,000 – ($800,000 × 1.03) = $900,000 – $824,000 = $76,000 gain
- Calculation of top up tax
- Step 1: Minimum 30% effective tax on capital gain of $76,000 is $22,800
- Step 2: Basic income tax liability (before Medicare levy) on other taxable income of $200,000 + capital gain of $76,000 is $89,802
- Step 3: Basic income tax liability (before Medicare levy) on other taxable income of $200,000 is $55,602
- Step 4: Tax from Step 2 of $89,802 less tax from Step 3 of $55,602 results in $34,200
- Step 5: Minimum capital gains tax of $22,800 less $34,200 results in -$11,600
- Step 6: N/A
- Step 7: No top up tax as tax already higher than minimum 30% effective tax
- Total tax payable for FY28 is then:
- Basic tax on capital gain up to 30 June 2027 $67,500
- Income tax payable $89,802
- Top up tax $0
- Medicare levy $8,520
- Low-income tax offset $0
- Total tax payable (including tax offsets + Medicare levy) $165,822
Worked Example 2 – second-lowest marginal tax rate taxpayer (14% + 2% Medicare levy)
For illustrative purposes, assume:
- Australian resident individual at marginal tax rate of 14% + 2% Medicare levy
- Listed shares
- Cost base of $10,000 on 1 July 2016
- Sold for $60,000 on 30 June 2028
- Market value at 30 June 2027 is $40,000
- No capital losses
- The post-1 July 2027 indexed cost base increases by 3% p.a.
- Taxable income (excluding capital gain) of $20,000
Tax + Capital Gains under Old System
- Capital gain = $60,000 – $10,000 = $50,000
- 50% discount = $25,000 net capital gain
- Total taxable income of $45,000
- Total tax payable for FY28 is $3,952 (including tax offsets + Medicare levy)
Tax + Capital Gains under New System
- Pre-1 July 2027 gain: $40,000 – $10,000 = $30,000
- 50% discount applies to this pre-transition component = $15,000 taxable gain
- Basic tax payable (before Medicare levy) on capital gain up to 30 June 2027 is $2,100
- Post-1 July 2027 gain: $60,000 – ($40,000 × 1.03) = $60,000 – $41,200 = $18,800 gain
- Calculation of top up tax
- Step 1: Minimum 30% effective tax on capital gain of $18,800 is $5,640
- Step 2: Basic income tax liability (before Medicare levy) on other taxable income of $20,000 + capital gain of $18,800 is $2,884
- Step 3: Basic income tax liability (before Medicare levy) on other taxable income of $20,000 is $252
- Step 4: Tax from Step 2 of $2,884 less tax from Step 3 of $252 results in $2,632
- Step 5: Minimum capital gains tax of $5,640 less $2,632 results in $3,008
- Step 6: N/A
- Step 7: There is a top up tax on the capital gain of $3,008
- Total tax payable for FY28 is then:
- Basic tax on capital gain up to 30 June 2027 $2,100
- Income tax payable $2,884
- Top up tax $3,008
- Medicare levy $1,076
- Low-income tax offset -$700
- Total tax payable (including tax offsets + Medicare levy) $8,368
The 30% minimum tax on capital gains results in additional tax payable of $4,416 in comparison to the current system.
While these reforms do not commence until 1 July 2027, taxpayers should begin considering the potential impact now, particularly where significant unrealised capital gains exist. We recommend reaching out to your Hall Chadwick QLD advisor to understand how the changes may affect your circumstances and whether any pre-1 July 2027 planning opportunities are available.
