Key takeaways for investors
- From 1 July 2027, the enacted reform changes the CGT treatment of eligible gains. A trust or partnership is not itself generically liable to Division 119; a relevant trust gain can flow to an eligible individual.
- Indexation lifts an eligible cost base with CPI, but only where the statutory asset, entity, Australian-residency and holding-period conditions are met.
- Division 119 compares 30% of a covered gain with basic income tax before offsets for an individual meeting its Australian-residency rule, then rounds any positive gap down to whole dollars. Section 119-15 lists payment exemptions.
- For some post-CGT assets already held on 1 July 2027, the law splits the calculation at that date: a qualifying earlier gain keeps the 50% discount, then the later calculation starts from a new value.
- An eligible qualifying-new-dwelling gain gets the 50% discount by default, with an election to use indexation instead — the detailed dwelling requirements are still to be set by a Ministerial instrument.
What's Changing on 1 July 2027
From 1 July 2027, eligible capital gains for covered individuals and trusts are worked out using CPI cost-base indexation when the asset, residency and holding-period tests are met, instead of receiving the general 50% discount. A separate rule, Division 119's minimum-tax comparison, can add a top-up for an eligible Australian-resident individual; a relevant trust gain can flow through to that individual. Section 115-102 provides another path: an eligible gain on a qualifying new residential dwelling keeps the 50% discount by default unless the taxpayer elects to use indexation.
Two practical things stay the same: the 12-month holding rule remains one of the conditions for indexation, and the main residence exemption continues under its existing conditions. Division 119 is tied to the post-1 July 2027 CGT event, so a shorter-held gain can still require the statutory comparison for an individual who meets its residency rule. Companies and complying super funds (including SMSFs) are outside the new individual-and-trust indexation and Division 119 rules. However, section 112-175 separately resets the cost base of a pre-CGT asset still held at 1 July 2027, and that rule is not limited to individuals and trusts.
Assets already held at the start date do not all follow one transition. Eligible post-CGT assets held by covered individuals or trusts can use the split deemed-sale rules; pre-CGT assets use the separate reset in section 112-175; and qualifying new dwellings, affordable housing, companies and super funds can follow different paths. A deferred amount is recognised only when a later realisation event occurs.
The Three Pillars
1. CPI cost-base indexation
Where the statutory asset, entity, Australian-residency and holding-period conditions are met, your cost base grows with CPI over the relevant period. Only the gain above inflation is taxable. The 12-month holding rule remains a condition; it is not the only one.
2. 30% minimum tax on covered gains
For an individual who meets Division 119's Australian-residency rule, the Division compares 30% of the minimum-tax capital gain with the increase in basic income-tax liability before offsets attributable to that gain, then rounds a positive difference down to whole dollars. Section 119-15 switches the top-up off for recipients of its specifically listed payments.
3. New-build election
Section 115-102 applies the 50% discount by default to an eligible gain on a qualifying new residential dwelling. The taxpayer may elect for that section not to apply and use indexation instead; the detailed dwelling requirements are still to be determined by Ministerial instrument.
What Treasury Is Trying to Achieve
The reform's stated goals sit in three areas: housing affordability (reducing the tax advantage on investor-held established homes relative to owner-occupiers), tax neutrality (bringing CGT outcomes closer to the tax treatment of ordinary income for higher-income investors), and real-vs-nominal fairness (taxing only the gain that beats inflation, so investors aren't taxed on returns that merely keep pace with price growth).
The 30% minimum-tax comparison addresses the asymmetry where the current 50% discount can leave large gains taxed at very low effective rates when the realisation year coincides with low other income. The 12-month rule still gates indexation, but it does not gate Division 119; the main residence exemption remains.
Current Rules vs the 2027 Reform
A side-by-side view of what changes and what stays the same.
| Feature | Current rules | 2027 reform |
|---|---|---|
| General CGT discount | 50% after 12 months where eligible | Changed for eligible gains; qualifying-new-dwelling default remains |
| Inflation adjustment | None | CPI cost-base indexation, subject to statutory conditions |
| Minimum tax on covered gains | None | 30% comparison for eligible Australian-resident individuals (s 119-15 exemption) |
| Main residence exemption | Applies | Unchanged |
| Super funds / SMSFs | Separate super CGT and ECPI rules | No new individual/trust indexation or Division 119; section 112-175 can reset pre-CGT assets |
| Companies | No 50% discount | No new individual/trust indexation or Division 119; section 112-175 can reset pre-CGT assets |
| 12-month holding rule | Required for discount | Required for indexation |
| Small business CGT concessions | Apply | Unchanged |
| 60% affordable housing discount | Applies | Unchanged |
| Qualifying-new-dwelling treatment | N/A | 50% discount by default; election for indexation (requirements pending instrument) |
Who Wins and Who Loses
Likely better off under indexation
- Long-term holdings whose nominal growth is close to inflation — the indexed cost base can wipe out most of the taxable gain.
- Eligible Australian-resident individuals who receive a payment specifically listed in s 119-15 during the realisation year — the Division 119 top-up is switched off, while ordinary assessment still applies.
- Assets with sub-CPI nominal growth — no taxable gain at all under indexation.
Likely worse off
- High-real-return assets held five-plus years — the 50% discount on a large nominal gain often beats indexing only inflation away.
- Australian-resident individuals within Division 119 for whom 30% of the minimum-tax capital gain exceeds the gain's increase in basic income tax before offsets — the statutory top-up applies unless s 119-15 switches it off.
- Investors buying established residential property after the reform — no new-build election to fall back on.
Should You Sell Before 1 July 2027?
There is no universal reason to sell early. For an eligible post-CGT asset covered by the individual or trust transitional rule, a qualifying pre-2027 deferred gain can retain the 50% discount through the 1 July 2027 reset. Other holders and assets follow different rules, so the comparison must start with the transition that actually applies.
Cases where bringing the sale forward can matter:
- You expect very high post-2027 real returns on the asset and your marginal rate will be in the top brackets. If the gain otherwise qualifies, selling pre-2027 can lock in the 50% discount across the whole gain.
- You'll be on a high marginal rate in 2027-28 onwards but not now — bringing the sale into a lower-income year may beat any reform mechanics.
- The deemed-value mechanic disadvantages your asset — illiquid or hard-to-value assets where establishing the 1 July 2027 market value is costly or contestable and the elective apportioning method would also understate it.
Cases where the math usually favours holding past 2027:
- Real returns near or below inflation — indexation can produce a smaller taxable gain than the 50% discount.
- Realisation years when you receive Age Pension, JobSeeker, or similar — the 30% minimum is waived.
- Any asset where transaction costs (CGT itself plus stamp duty if reinvesting) outweigh the rule-change differential.
Estimate your CGT under today's rules →
Not financial advice. For material decisions, consult a registered tax adviser.
Impact on Shares, ETFs, and Property
Direct shares
An eligible holder can get CPI cost-base indexation from the purchase date or, where a transitional deemed-sale rule applies, the 1 July 2027 reset value. The statutory entity, Australian-residency, asset and holding conditions still apply. For listed shares a required market valuation is generally observable from quoted prices. Division 119 is an individual liability under its own residency rule; it is not a simple marginal-rate trigger.
ETFs and managed funds
Eligible ETF and managed-investment-trust unit holdings can access the new indexation rules, subject to their statutory conditions. Distributions including embedded capital gains continue to flow through under existing managed-investment rules. A relevant trust gain can enter an eligible individual's assessment, but the trust itself is not generically liable to the Division 119 top-up.
Residential investment property
Property investors face the most-changed maths. For a covered post-CGT asset under the individual or trust transition, a qualifying pre-2027 deferred gain can keep the 50% discount and the asset receives a reset value — market value by default or an elective apportioning method. Post-2027 gains use the new rules only where their conditions are met; Division 119's top-up is limited to qualifying Australian-resident individuals. The Act creates a separate new-dwelling pathway, but its detailed eligibility requirements are pending a Ministerial instrument. The enacted 2027 negative gearing reform is covered in a separate guide.
Cost-Base Indexation (CPI)
Where the statutory asset, entity, Australian-residency and holding-period conditions are met, indexation grows your cost base by the Consumer Price Index over the relevant period. The taxable capital gain is the sale proceeds minus the indexed cost base — so only the real (above-inflation) portion of the gain is taxed.
Australia used CPI indexation for CGT from 1985 to 1999. The 1999 Ralph Review replaced indexation with the flat 50% discount. The 2027 reform returns to indexation alongside Division 119. The 12-month holding rule is one condition for indexation, but not for Division 119: for a covered CGT event from 1 July 2027, a sub-12-month nominal gain can still receive a whole-dollar minimum-tax top-up if the individual meets Division 119's Australian-residency rule.
Worked example — Zoe's shares (Treasury cameo)
Zoe buys shares for $100 on 1 July 2027 and sells them on 1 July 2032 for $125 — a nominal gain of $25 over five years (a 4.6% annual return).
Inflation runs at 2.5% per year, so the indexed cost base is $113. Zoe's taxable capital gain is $12 ($125 − $113). Under the current 50% discount, her taxable gain would have been ~$13. The new rules leave her slightly better off.
Nominal gain $25 split into the inflation-indexed cost-base lift and the taxable real gain.
Reform takes effect 1 July 2027 — figures quoted from Treasury's factsheet (illustrative 2.5% CPI assumption); the calculator works to the cent, so its indexed cost base and taxable gain land just off Treasury's rounded whole dollars.
Run this scenario in the CGT calculator →
Source: Treasury cameo, Budget 2026-27 factsheet.
The 30% Minimum Tax
For an individual who meets Division 119's Australian-residency rule, Division 119 starts with 30% of the minimum-tax capital gain. It subtracts the increase in basic income tax liability before offsets that arises from that gain, then rounds a positive gap down to the nearest whole dollar. Medicare, MLS and offsets are not part of that comparison.
Listed-payment exemption. Section 119-15 switches off Division 119 where the taxpayer receives one of its enumerated payments during the income year. The list includes specified social security, family assistance, veterans' and military rehabilitation payments; it is not a blanket exemption for every means-tested payment.[1]
Worked example — Jack's top-up (Treasury cameo)
Jack is an Australian resident for the relevant income year, has taxable income of $25,000 in 2029-30 (before the gain) and realises a $10,000 capital gain on an asset he bought in 2027-28. He doesn't receive an income support payment, so the minimum-tax comparison applies.
Ordinary tax on the gain comes to $1,400 — a 14% effective rate (excluding Medicare levy). Because that's below 30%, Jack pays an additional $1,600 top-up to bring his rate on the gain up to 30%.
Reform takes effect 1 July 2027 — figures quoted from Treasury's factsheet (illustrative 2.5% CPI assumption).
Try your own numbers in the CGT calculator →
Source: Treasury cameo, Budget 2026-27 factsheet.
The New-Build Election
For an eligible discount capital gain on a qualifying new residential dwelling, section 115-102 applies the 50% discount by default. The taxpayer can elect for section 115-102 not to apply; indexation may then be available instead. The Act expressly requires the Minister to determine the detailed new-dwelling requirements by legislative instrument.
The Budget factsheet described the following as the expected policy design. These are not yet a complete, settled legal test while the required instrument has not been made:
- new construction on previously vacant land, or
- a knock-down rebuild that delivers a greater number of dwellings (the factsheet uses a duplex replacing one house as an example), and
- limited prior occupation before the first sale (the factsheet uses 12 months).[1]
Eligibility details are pending
The Act creates the pathway and requires a Ministerial instrument to specify its requirements. Treasury's first-purchaser and prior-occupation examples are useful policy context, but they should not be relied on as enacted eligibility conditions until the instrument is available.
The negative-gearing changes enacted alongside the CGT reform also preserve a pathway for a new residential dwelling (s 26-160(3)), with detailed eligibility requirements likewise pending a Ministerial instrument (s 26-160(4)). They are covered in the separate negative gearing reform guide.
Transitional Rules
Pre-2027 portion
Qualifying deferred gain can use the 50% discount
Post-2027 portion
New rules where conditions are met; Division 119 for eligible individuals
For some post-CGT assets already held on 1 July 2027, the law effectively splits the calculation at that date. The detailed deemed-sale mechanism applies only when the individual or trust transitional conditions are met:
- A qualifying deferred gain for the pre-1 July 2027 period can keep the 50% discount, using the asset's reset value at that date as the endpoint.
- The gain that accrued from 1 July 2027 to sale is worked out under the new rules where their conditions are met, using the same deemed value as the new starting cost base. Division 119's 30% comparison is only for an individual who meets its Australian-residency rule.
- The 1 July 2027 value defaults to the asset's market value just before that date (quoted prices for shares; professional valuation for property). The Minister may determine an elective apportioning method by legislative instrument; none has been made yet, so the market-value default currently stands. Treasury's factsheet illustrates that elective method with a formula based on the asset's overall growth rate.[1][2]
Pre-CGT assets use section 112-175 instead: the asset is reset at 1 July 2027 and the gain from the deemed pre-date sale is disregarded. A later gain is then worked out from the reset cost base under the rules applicable to the holder and asset.
Worked example — Jane's split-treatment asset (Treasury cameo)
Jane buys an asset on 1 July 2022 for $800,000 and sells it on 1 July 2032 for $1,600,000 — a 7.2% annual return. Using the growth-rate apportionment illustrated in Treasury's factsheet, the deemed 1 July 2027 value is $1,131,371.
- Pre-2027 portion: gross gain $331,371; with 50% discount → taxable $165,685.
- Post-2027 portion: gain $468,629 less cost-base indexation → taxable $319,958.
- Total taxable capital gain: $485,643.
At a 47% combined top marginal income-tax and Medicare rate, Jane's CGT on the gain is $228,252 — compared with $188,000 under a uniform 50% discount across the full holding period.
Bars scaled relative to the larger of the two outcomes ($228,252 = 100%).
Reform takes effect 1 July 2027 — figures quoted from Treasury's factsheet (illustrative 2.5% CPI assumption); the calculator reports exact day-count figures including the Medicare levy, so its results sit slightly above Treasury's rounded cameo.
Run this scenario in the CGT calculator →
Source: Treasury cameo, Budget 2026-27 factsheet.
What Mostly Stays the Same
Main residence exemption
The main-residence exemption continues under the existing eligibility and absence-rule conditions.
Four small business CGT concessions
The 15-year exemption, 50% active asset reduction, retirement exemption and rollover relief are unchanged.
60% affordable housing discount
The existing 60% CGT discount on qualifying affordable housing is fully retained to preserve incentives in that segment.
Super funds (including SMSFs)
Complying super funds do not receive the new individual-and-trust indexation and are not liable under Division 119. Section 112-175 can still reset a pre-CGT asset held at 1 July 2027.
Companies
Companies do not receive the new individual-and-trust indexation and are not liable under Division 119. Section 112-175 can still reset a pre-CGT asset held at 1 July 2027.
The 12-month holding rule
The holding rule remains a condition for indexation alongside the statutory asset, entity and Australian-residency conditions. Division 119 can still cover a shorter-held gain for an individual who meets its residency rule.
What Investors Can Do Now
The enacted reform starts on 1 July 2027. There is no automatic incentive to crystallise a gain before then, but the transition depends on the asset and holder: covered post-CGT assets, pre-CGT assets, new dwellings, affordable housing, companies and super funds do not all follow the same path.
Long-term share investors
Indexation is most generous when real returns are moderate. If your shares grow at roughly the long-run market real rate, indexation often produces a similar or smaller taxable gain than today's 50% discount.
Existing residential property investors
For an eligible post-CGT asset covered by the individual or trust transitional rule, a qualifying pre-2027 deferred gain can keep the 50% discount through the deemed-value step. The post-2027 portion is subject to the new rules where their conditions are met; Division 119's top-up is only an individual liability where the Australian-residency rule is met. The 2027 negative gearing reform is also changing — see the separate guide.
Prospective property investors
Section 115-102 provides a 50% discount by default for an eligible gain on a qualifying new residential dwelling. The detailed eligibility requirements are still to be set by Ministerial instrument, so Budget examples should not be treated as a settled test.
SMSF members
The new individual-and-trust indexation and Division 119 rules do not apply to a complying super fund. A separate rule can still reset a pre-CGT asset's cost base at 1 July 2027, so funds holding those rare assets should obtain specialist advice.
Recipients of listed support payments
For an Australian-resident individual otherwise within Division 119, receiving a payment specifically listed in s 119-15 — including Age Pension or JobSeeker — in the realisation year switches its minimum-tax top-up off.
Anyone with low real returns
If your asset's nominal growth is at or below inflation, indexation can leave you with no taxable gain at all — a more favourable outcome than the 50% discount, which would still tax half the nominal gain.
This guide is not financial advice. For material decisions, consult a registered tax adviser.
Sources
- [1] Treasury Laws Amendment (Tax Reform No. 1) Act 2026 — Act No. 49 of 2026 (legislation.gov.au)
- Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 — Act No. 50 of 2026 (legislation.gov.au)
- [2] Budget 2026-27 factsheet — Negative Gearing and Capital Gains Tax Reform (budget.gov.au)
- ATO — Capital gains tax overview (ato.gov.au)
- ATO — Calculating your CGT (ato.gov.au)
Worked examples (Zoe, Jack, Jane) are reproduced from Treasury's cameos in the factsheet above.
Frequently Asked Questions
Is the 50% CGT discount being scrapped?
Under the enacted reform (assent 26 June 2026), the general 50% discount is replaced for covered CGT events from 1 July 2027. CPI cost-base indexation and Division 119 ordinarily apply instead. Section 115-102 preserves the 50% discount by default for an eligible gain on a qualifying new residential dwelling, with an election to use indexation. The Act leaves the detailed new-dwelling requirements to a Ministerial instrument, so Budget examples are not yet a complete legal test. Companies and complying super funds are outside the new individual-and-trust indexation and Division 119 rules, but the separate pre-CGT asset reset in section 112-175 is not limited to individuals and trusts. Existing assets can also receive transitional treatment.
When does the new CGT discount start?
1 July 2027, under the enacted reform (assent 26 June 2026). The amendments change the treatment of eligible gains from that date, but their operation differs by entity and taxpayer. In particular, Division 119 is an additional liability for an individual who meets its Australian-residency rule; a trust or partnership is not itself generically subject to that top-up, although a relevant trust gain can flow to an eligible individual. For CGT events before 1 July 2027 (the CGT event date is usually the contract date, not settlement), today's rules still apply — including the 50% discount where the gain otherwise qualifies and the asset has been held for more than 12 months.
Does indexation always reduce tax compared with the 50% discount?
No. Where indexation is available, it taxes only the real (above-inflation) gain — so when your real return is low, it can produce a smaller taxable gain than the 50% discount. When your real return is high, the 50% discount can be more generous. Indexation has statutory asset, entity, Australian-residency and holding-period conditions; Treasury's modelling over the past 20 years shows effective discounts of 35-60% on indexed gains for typical assets held five or ten years.
What if my real return is below CPI?
If indexation is available and your asset's nominal growth is lower than inflation over the relevant period, the indexed cost base can exceed the sale price and leave no taxable capital gain. Under the current 50% discount, you could still have a taxable gain. As an illustration: an asset growing at 2.5% per year matched by 2.5% inflation produces no real gain under the indexed calculation — the Treasury factsheet uses this scenario.
How is my asset's value at 1 July 2027 determined?
Where section 112-155, 112-165 or 112-175 applies a deemed sale and reacquisition, the default reset amount is the asset's market value just before 1 July 2027 — for listed shares that generally means the quoted price; for property it typically means a professional valuation. The Act also lets the Minister determine an elective apportioning method by legislative instrument, but no instrument has been made, so market value is currently the only available approach. Assets outside those transitional rules do not receive that reset merely because they were held on the date.
Does the reform affect my SMSF?
A complying super fund does not receive the new individual-and-trust indexation and is not liable under Division 119. However, section 112-175 can reset the cost base of a pre-CGT asset still held at 1 July 2027, including one held by an SMSF. Fund gains stay under the existing super CGT rules: in accumulation phase, up to 15% with a one-third discount on eligible gains held more than 12 months — an effective rate of about 10%. Income attributable to assets supporting retirement-phase income streams can be exempt current pension income; where a fund cannot use the segregated method — including under the disregarded-small-fund-assets rule — the exemption is worked out proportionately, and whether a transition-to-retirement income stream is in retirement phase also matters.
Is the main residence exemption changing?
No. The factsheet is explicit that the main residence exemption is preserved. The four small business CGT concessions and the existing 60% CGT discount on qualifying affordable housing are also unchanged.
When does the reform take effect, and what about disposals before then?
CGT events before 1 July 2027 (usually the contract date, not settlement) use the current rules. For an eligible post-CGT asset covered by section 112-155 or 112-165, a deemed-sale mechanism can preserve a qualifying 50% discount on the pre-2027 deferred gain and reset the asset for the later period. Section 112-175 instead resets a pre-CGT asset and disregards the pre-date gain. Qualifying new dwellings, affordable housing and holders outside those rules have different treatment. Division 119's top-up can apply only to an individual who meets its Australian-residency rule, and a deferred amount is recognised only when a later realisation event occurs.