The end of the general 50% CGT discount

The Government will abolish the general 50% capital gains tax (CGT) discount from 1 July 2027 for all assets, including those acquired pre-CGT, replacing it with a cost base indexation method that reduces any gains by inflation, and applies a minimum 30% tax on gains.

There are no carve-outs for small business or primary producers, but the Treasurer has stated that the government will consult with early‑stage and start‑up businesses given the unique features of the tech and start‑up sector.

Currently, a blanket 50% CGT discount applies to gains made by Australian tax resident individuals, trusts and partners in partnerships where the asset is held for 12 months or more - except for pre-CGT assets (assets acquired before 20 September 1985), which are exempt from CGT.

Who is impacted by the changes?

Who can access a discount on CGT has not changed: Australian resident individuals, trusts and partnerships where the asset has been held for 12 months or more.

However, the reforms broaden the tax to pre-CGT assets (currently CGT-free), and imposes a minimum 30% tax rate to reduce the incentive to hold onto assets until later in life when minimum individual tax rates are likely to be at their lowest.

From 1 July 2027, the way the concession applies will depend on the type of investment you purchase, and the structure used to own it.

Superannuation funds are unaffected; the CGT discount will remain at 33.33% for assets held for more than 12 months.

Investors in new residential properties will be able to choose between the current 50% CGT discount or the cost base indexation method with a minimum 30% CGT rate.

For everyone else, the cost base indexation method will apply to gains with a minimum 30% tax rate will from 1 July 2027.

* Income support payment recipients, including Age Pension recipients are exempt from the 30% minimum CGT rate.

You are likely to pay more tax

In general, indexing gains will mean that investors pay more tax except where the asset has been held for a long time period, was purchased in a period of high inflation, and its value has not significantly increased.

Treasury estimates that if indexation had been in place over the past 20 years instead of the current arrangements, the effective discount would have ranged from 35-60% on average for typical assets held for five or ten years. This equates to an effective tax rate on the nominal gain of between 13% and 30%.

What has changed and when does the change apply?

For most assets acquired prior to Budget night (7.30pm 12 May AEST), if eligible, the 50% CGT discount will apply until 1 July 2027 and cost base indexation with a minimum 30% CGT rate thereafter.

For assets acquired prior to 1 July 2027, the expectation is that you will have the choice to either:

• Have a formal valuation completed, which will give you the actual gain made until 1 July 2027, or
• Apportion the gain using an ATO formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period.

* Income support payment recipients, including Age Pension recipients are exempt from the 30% minimum CGT rate.

Calculating your capital gain on existing CGT assets

The Budget changes mean that for existing CGT assets that are sold after 1 July 2027, the gain on disposal will use an ATO formula which is expected to be an apportionment of the time period you have held the asset. The 50% CGT discount can be used for the proportionate time you have held the asset up to 1 July 2027, with the indexation method applying to the post 1 July 2027 ownership period.  As an example, if you purchased a CGT asset in 2016 and sold it in 2031, two thirds of your gain could apply the 50% discount and one third would be subject to the indexation method. Irrespective of your marginal tax rate in the year of sale, a minimum 30% tax rate applies to the capital gain.

Similarly, if you hold pre-CGT assets then the pre-CGT status applies for the time period up to 1 July 2027, with the proportionate time of ownership post 1 July 2027 subject to CGT.

Do I need a valuation of my CGT assets?

There is no one right answer to this - it depends on the assets you have held, how long you have held them, and the capital appreciation that has occurred. Whilst the Budget transitional measures allow for a smoothing of the gain over the life of the asset, this assumes that the increase in value of assets is linear and progresses smoothly over time. Both with property and business assets we know that is not the case. These assets can go through periods of accelerated growth and also have periods of modest or no growth. The decision on this comes down to individual choice and importantly what assets are involved, their relative value, and the anticipated time that you will continue to hold the asset. It will be important to review this over the next 12 months.

What do the changes mean for entrepreneurs?

The impact of the changes to the CGT discount are more controversial for entrepreneurs who have grown their business from a start-up. This is because the cost base of the business is zero plus any costs associated to holding or disposing of the business – it was created not purchased.

Under the indexation method, the indexation applied to a zero cost base is zero. Even once the costs of holding and disposing of the asset are added, the cost base will be minimal.

So, for fast growth start-ups, CGT at a minimum of 30% will apply to any taxable gain made on the sale or disposal of assets. For example, the sale of equity to investors.

The government has stated that they will consult with early‑stage and start‑up businesses prior to 1 July 2027. We’ll bring you more as soon as we know.

Need assistance?

It’s important not to react to the changes without knowing the true impact on your individual scenario. We can assist you in reviewing your current position - contact us.

For some, business owners a valuation might be worthwhile to lock in the 50% discount on gains up until 1 July 2027 if averaging is unlikely to produce a superior result.

Here’s who you can contact for assistance:

Linda Jing
Director, Tax Services

Greg Hayes
Director, Corporate Services

Mario Raciti
Director Business Services

Stephen Maze
Director Business Services

Mark Lennon
Director Business Services

References

• Budget 2026-27: paper No. 2 (page 21)

• Fact sheet: Negative Gearing and Capital Gains Tax Reform

• Media Release: Tax reform for workers, businesses and future generations