Australia's CGT overhaul: what changes, who gains, who pays more

For the first time in 27 years, the after-tax economics of property and share investing in Australia are being rewritten. In the 2026–27 Federal Budget handed down at 7:30pm AEST on Tuesday 12 May 2026, Treasurer Jim Chalmers confirmed the Albanese Labor Government will scrap the 50 per cent capital gains tax (CGT) discount that has been a fixture of the tax code since 1999, replacing it with an inflation-adjusted indexation method from 1 July 2027. Capital gains made by individuals and trusts will also be subject to a new minimum tax rate of 30 per cent, and the long-standing exemption for pre-CGT assets — those acquired before 20 September 1985 — will be wound back.

Treasurer Chalmers described the package as the most significant tax reform in more than a quarter of a century. Coupled with parallel changes to negative gearing that take effect immediately on Budget night, the reforms reshape the after-tax economics of property and share investing for millions of Australians. The Government argues the package will help around 75,000 additional Australians into home ownership, raise revenue that funds new tax cuts for workers, and restore the taxation of real gains.

What the old regime looked like

Under the rules that will continue to apply until 30 June 2027, the headline features of Australia's CGT system have been remarkably stable for a quarter of a century. Individuals, most trusts and superannuation funds that hold a CGT asset for more than 12 months can apply a 50 per cent discount to the net capital gain, meaning only half of the realised profit is added to assessable income and taxed at the taxpayer's marginal rate. For someone on the top marginal rate of 45 per cent (plus Medicare levy), the effective rate on a long-held capital gain has therefore been around 23 to 24 per cent.

Assets acquired before the introduction of CGT on 20 September 1985 — so-called pre-CGT assets — have sat entirely outside the regime, meaning capital gains on those holdings could be realised tax-free. Discretionary (family) trusts have been able to stream income and capital gains to beneficiaries on their marginal rates, an arrangement the Government argues has been used to access concessional taxation. And property investors have been able to claim net rental losses against other income — the practice known as negative gearing — across both new and existing dwellings.

The discount was introduced under the Howard Government in September 1999, replacing an earlier indexation system that had been in place since 1985. It was originally pitched as a simplification measure but has been blamed by housing economists and successive Productivity Commission reports for tilting the playing field toward investors over owner-occupiers.

The new CGT framework, in detail

From 1 July 2027, three fundamental changes take effect.

First, the 50 per cent discount is replaced with cost base indexation for assets held more than 12 months. Under indexation, the original cost of the asset (and capital expenditures along the way) is uplifted in line with the Consumer Price Index from the date of acquisition. Tax is then paid on the real gain — the increase in value above inflation — rather than the nominal gain. The Government has positioned this as a return to a fairer model that taxes the genuine appreciation in wealth rather than gains that simply reflect rising prices.

Second, a 30 per cent minimum tax rate will apply to net capital gains made by individuals and trusts on or after 1 July 2027. Where a taxpayer's marginal rate is below 30 per cent, the higher floor will apply to the capital gain only; the rest of their income continues to be taxed at marginal rates. This is the change that has drawn the most early commentary, because it limits a long-running strategy of timing asset sales for low-income years.

Third, the pre-CGT exemption is being partially un-grandfathered. Assets acquired before 20 September 1985 will remain outside the regime for gains accrued up to 30 June 2027, but any gain that accrues after that date will be subject to the 30 per cent minimum tax. In practice, this means a market valuation will be needed as of 1 July 2027 to fix a new cost base for pre-CGT holdings.

A targeted carve-out has been preserved for housing supply. Investors in new residential builds will be able to choose between the 50 per cent discount and the new indexation-plus-30-per-cent-minimum method when those properties are sold from 1 July 2027 onwards. The choice is designed to keep build-to-rent and off-the-plan investment attractive at a time when construction starts have slowed.

The negative-gearing link

The CGT changes do not stand alone. From 7:30pm AEST on 12 May 2026 — that is, from Budget night itself — negative gearing is no longer available for existing residential properties acquired after that moment. Properties already held before 12 May 2026, or contracts signed before that time, are grandfathered and can continue to deduct net rental losses against other income under the existing rules.

From 1 July 2027, losses on established residential properties will only be deductible against rental income or capital gains from residential properties — they will no longer offset wages or other income. New residential builds remain eligible for negative gearing in the standard form, although the Government has not yet specified the construction start or completion date that will define "new."

Finally, distributions from discretionary trusts will be subject to a minimum 30 per cent tax rate from 1 July 2028, with the liability collected from the trustee and a non-refundable credit passed through to most beneficiaries.

Positive impacts: who the Government says benefits

The package is being framed by the Government and supportive groups as a rebalancing exercise. Treasurer Chalmers told Parliament the changes will "rebalance a system which is more generous to assets than it is to labour" and "help rebalance a system where house prices have decoupled from incomes," noting that since 1999 house prices have risen more than 400 per cent, more than twice as fast as average incomes.

The most direct beneficiaries are working Australians who do not hold large investment portfolios. Revenue raised by tightening the CGT rules is being recycled into a $1,000 instant work-related tax deduction from 1 July 2026 and a permanent $250 Working Australians Tax Offset from 1 July 2027. Chalmers told Parliament that the cumulative effect of five different tax cuts — including these new measures and earlier rounds — will be worth up to $2,816 to the average worker in 2028, or roughly $54 a week.

First home buyers also stand to benefit, at least at the margin. By removing the negative-gearing tax shield on existing dwellings purchased after Budget night, the Government argues fewer investors will compete for the existing stock that first home buyers tend to target, while new builds remain attractive to investors and therefore continue to attract supply.

Build-to-rent developers, off-the-plan investors and construction-sector employers gain from the deliberate preservation of negative gearing and the optional 50 per cent discount on new builds. The intent is to channel investor capital toward additional housing supply rather than the existing stock.

Long-term equity investors with low turnover may also benefit relative to the current rules in some scenarios, because indexation can produce a lower effective tax bill than the 50 per cent discount when inflation has been high over the holding period and the asset's nominal return has been modest. The actual outcome depends on the asset's real performance and the inflation experienced during ownership.

Negative impacts: who pays more, or sells less

Active investors and traders are the most clearly affected. Where the 50 per cent discount delivered an automatic halving of the taxable gain regardless of inflation, indexation will produce a smaller benefit in low-inflation periods. Combined with the 30 per cent floor, this means high-growth, short-to-medium-hold assets — concentrated share positions, second properties bought after May 2026, crypto holdings — face a meaningfully higher effective tax rate.

Retirees and low-income asset sellers lose the ability to time disposals into low-income years to access a marginal rate below 30 per cent. A self-funded retiree who previously paid little or no tax on a discounted gain may now face a 30 per cent bill on the same transaction.

Holders of pre-CGT assets — typically families and businesses with land, shares or artwork acquired before September 1985 — lose what had been a permanent exemption. A revaluation as at 1 July 2027 will be needed to establish a new cost base, and any gain accruing beyond that point will be drawn into the minimum-tax net.

Property investors face a more nuanced picture. Existing landlords are grandfathered, but that grandfathering itself creates a "lock-in" effect: investors have a strong incentive to hold rather than sell, because a replacement property purchased after 12 May 2026 will be subject to the new, less generous rules. CommBank and other early commentators have flagged that housing turnover may fall, at least initially, with knock-on effects for stamp duty revenues and household mobility.

Discretionary trust beneficiaries, particularly adult children and low-income family members who have been receiving distributions taxed at their marginal rate, will see a 30 per cent floor from 1 July 2028. For high-income family groups, this largely closes a long-standing income-splitting strategy.

Tax practitioners and small businesses face significant compliance work, including pre-CGT valuations, navigating the new-build choice election, separating grandfathered from non-grandfathered property losses, and modelling the new minimum-tax interaction with marginal rates.

What isn't changing

For all the breadth of the announcement, several long-standing features of Australia's CGT system are not part of the package.

The main residence exemption is unaffected. Sale of your principal place of residence remains entirely outside the CGT regime, as it has been since the tax was introduced in 1985. The reforms do not change that.

The small business CGT concessions — the 15-year exemption, the 50 per cent active asset reduction, the retirement exemption and the rollover relief — are not part of this package and continue in their existing form.

Superannuation funds appear to retain their existing one-third (33.33 per cent) CGT discount in accumulation phase, and capital gains in pension phase remain fully exempt. The 30 per cent minimum rate announced in the Budget applies expressly to individuals and trusts; whether it flows through to gains taxed within a complying superannuation fund will need to be confirmed when draft legislation is released.

The CGT events themselves — what triggers a CGT liability, how the cost base is calculated, and the existing rollover and main-residence rules — remain in their current form. The reforms change the rate and the discount mechanism; they do not redesign the underlying structure of the tax.

What remains unresolved

Several practical questions still need to be answered before the new regime takes effect on 1 July 2027. The Government has not yet defined the precise construction start or completion date that qualifies a property as a "new build" for negative-gearing and CGT-choice purposes. Transitional rules for partly-completed builds, established trusts with retained capital gains, and assets held in superannuation funds are also yet to be released in draft legislation. Treasury has signalled consultation will run through the second half of 2026.

Opposition Leader Angus Taylor has vowed to repeal the negative gearing, CGT and discretionary trust changes if elected, meaning Senate negotiations — and a potential election campaign — could yet reshape the final form of the law. Investors making decisions before 1 July 2027 should treat the announcement as policy intent rather than enacted law and seek personal tax advice.

What lands on the statute book by mid-2027 may differ from what was announced last night. But the direction of travel is now clear: after 27 years, Australia is moving back toward taxing real, not nominal, gains.