The End of the 50% CGT Discount: What the New Budget Means for Investors | taxtallee Blog

The Australian Government's 2026–27 Federal Budget, handed down on 12 May 2026, has announced the most significant Capital Gains Tax (CGT) reform since 1999. The 50% CGT discount — the rule that has let investors halve their taxable capital gain on assets held longer than 12 months — is being scrapped from 1 July 2027 and replaced with two new measures:

CPI cost base indexation — your purchase price is adjusted upward for inflation, so you only pay tax on your "real" gain above the rate of inflation.
A 30% minimum tax on real capital gains — even if your marginal income tax rate is below 30%, you will pay at least 30% tax on the indexed gain.

This reform applies to individuals, partnerships, and trusts holding most asset classes including ASX shares, ETFs, US stocks, property, and crypto. Companies are unaffected (they don't receive the discount today). Superannuation funds are also unaffected — the 1/3 CGT discount inside super remains unchanged.

Last updated 12 May 2026. These changes were announced in the 2026–27 Federal Budget. Formal legislation and detailed ATO guidance are still to be released. We will update this article as further details become available.

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The Old Method vs. The New Method

To understand the impact on your portfolio, it helps to see exactly how the tax calculation changes for an asset bought and sold entirely under the new rules (i.e. both purchased and sold after 1 July 2027):

The Old Method (current rules, until 30 June 2027): If you hold an asset for more than 12 months, you simply halve your capital gain. A $100,000 profit becomes $50,000 of taxable income. Simple, but it doesn't account for the effect of inflation on purchasing power.
The New Method (from 1 July 2027): Your original purchase price (Cost Base) is adjusted upward by the Consumer Price Index (CPI) for the period you held the asset. You then pay tax only on the "real" gain above that inflation-adjusted cost base — subject to a floor of 30% tax on that gain.

For high-growth assets like tech stocks, the new rules will typically result in a much larger tax bill. For slow-growing assets where inflation ate into returns, the new rules can surprisingly produce a lower taxable gain — or even an indexed capital loss.

Scenario 1: The High-Growth Share (Massively More Tax)

Imagine you bought a high-growth ASX tech stock and held it for several years — both purchase and sale occurring after 1 July 2027.

Purchase: $10,000 (CPI at purchase quarter: 112.6)
Sale: $100,000 (CPI at sale quarter: 143.6)
Nominal Gain: $90,000

Under the Old Method (50% Discount):

Taxable Gain: $90,000 × 50% = $45,000
Tax Payable (assuming 45% top marginal rate): $20,250

Under the New Method (Indexation + 30% Minimum Tax):

Indexation Factor: 143.6 ÷ 112.6 = 1.275
Indexed Cost Base: $10,000 × 1.275 = $12,750
Real Taxable Gain: $100,000 − $12,750 = $87,250
Tax at 45% marginal rate: $39,262
30% minimum tax check: 30% × $87,250 = $26,175 → marginal rate applies (already above floor)
Tax Payable: $39,262

Result: Because the stock's growth massively outpaced inflation, the new rules result in almost double the tax compared to the old 50% discount. The 30% minimum floor doesn't bite here because the investor's marginal rate is already above it.

Scenario 2: The Slow Grower (A Hidden Benefit)

Now consider a scenario where the stock's growth was sluggish relative to inflation — again, both purchase and sale after 1 July 2027.

Purchase: $10,000 (CPI at purchase quarter: 117.9)
Sale: $11,000 (CPI at sale quarter: 143.6)
Nominal Gain: $1,000

Under the Old Method (50% Discount):

Taxable Gain: $1,000 × 50% = $500
You pay tax on $500.

Under the New Method (Indexation):

Indexation Factor: 143.6 ÷ 117.9 = 1.218
Indexed Cost Base: $10,000 × 1.218 = $12,180
Real Gain: $11,000 − $12,180 = −$1,180 (a capital loss)

Result: Even though you nominally profited $1,000, inflation eroded your purchasing power. Under the new rules you register a $1,180 capital loss, which can offset other gains. Note: indexation cannot create or increase a capital loss where there was already a nominal loss — it only applies to reduce (or eliminate) a real gain.

The 30% Minimum Tax on Capital Gains: What It Means

The indexation method alone would benefit lower-income investors — someone on a 19% marginal rate would pay less tax on their indexed gain than a top-rate taxpayer. The government has addressed this by introducing a minimum tax floor of 30% on real capital gains.

In practice this means: once you calculate your indexed (real) gain, you must pay at least 30% tax on it, regardless of your marginal rate. If your marginal rate is already above 30% (i.e. taxable income above roughly $45,000), the minimum tax has no additional effect — you simply pay at your marginal rate as normal. But if your marginal rate is below 30%, a top-up applies.

Exemption: Age Pension and JobSeeker recipients are exempt from the 30% minimum tax in any income year where they realise a capital gain. Tax offsets may also reduce the minimum tax liability in some circumstances.

What If You Already Own Shares or Property? The Hybrid System Explained

This is the question most Australian investors are asking right now: what happens to assets I already own?

The government has confirmed that the CGT reforms will not apply retrospectively. The gain accrued on your existing assets up to 1 July 2027 will still receive the 50% discount. However, any further gain above the asset's value at 1 July 2027 will be taxed under the new indexation rules. This is the hybrid (split treatment) system:

Pre-1 July 2027 portion of the gain (from your original cost base to the asset's value on 1 July 2027) → 50% CGT discount applies as normal.
Post-1 July 2027 portion of the gain (from the asset's value on 1 July 2027 to your eventual sale price) → CPI indexation + 30% minimum tax applies.

To split the gain, investors will need to establish the asset's market value on 1 July 2027.

Hybrid System Example: Existing ASX Shares Sold After 2027

You purchased $20,000 of ASX shares in 2020. The shares are worth $60,000 on 1 July 2027 and you sell for $80,000 in 2029.

Pre-2027 gain: $60,000 − $20,000 = $40,000 → taxed at 50% discount → $20,000 taxable
Post-2027 gain: $80,000 − $60,000 = $20,000 → indexed for inflation 2027–2029, then taxed on real gain with 30% minimum floor.

Implication: If you are sitting on substantial unrealised gains on assets held since before 2027, you will still benefit from the 50% discount on that accumulated gain — it's only future appreciation that falls under the new rules.

What Is NOT Affected by the CGT Reform

Several important CGT concessions are explicitly preserved under the new rules:

Main residence exemption — fully retained. Your family home is unaffected.
Super fund CGT discount — the 1/3 CGT discount inside superannuation (including SMSFs) is unchanged.
Small business CGT concessions — all four concessions (15-year exemption, 50% active asset reduction, retirement exemption, rollover) remain in place.
New residential builds — investors in newly constructed housing can choose either the 50% discount or the new indexation rules, whichever is more favourable.
Companies — unaffected; companies don't receive the CGT discount under either regime.

Should You Sell Shares Before 1 July 2027?

The 30 June 2027 financial year-end is now the most important CGT planning date in a generation. For investors holding high-growth assets with large unrealised gains, the question of whether to sell before 1 July 2027 (locking in the 50% discount) versus holding and using the hybrid system is a genuine strategic decision.

Key factors to weigh up:

How much of your gain is already locked in? If the bulk of your gain has accrued before 2027, the hybrid system protects that gain with the 50% discount regardless of when you sell — there may be no rush to sell before the cutoff.
What is your expected future growth? If you expect significant further appreciation, the post-2027 gain will be indexed — which may or may not be better than the old 50% discount depending on actual inflation.
What is your marginal tax rate in 2026–27 vs 2027–28? Realising a large gain in a single year may push you into a higher bracket. Spreading gains across years can matter more under the new rules.
Don't forget the 30% minimum tax. Lower-income investors who might have previously benefited from a combination of the 50% discount and a low marginal rate may face a significantly higher effective rate under the new system.

Because the optimal answer depends heavily on your specific portfolio, cost bases, marginal rate, and expected returns, this is a decision best made in consultation with a registered tax agent. To get a sense of the numbers first, try our 2027 CGT Reform Calculator — it models the hybrid split for assets you already own.

See How the Captial Gains Tax Reform Affects Your Portfolio

Use our free 2027 CGT Reform Calculator to instantly compare your taxable gain under the current 50% discount versus the new indexation rules. Model the hybrid split for assets you already own, and see whether you're better off selling before or after 1 July 2027.

Try the Free 2027 CGT Reform Calculator →

Frequently Asked Questions

Does the CGT reform affect my superannuation?

No. The 1/3 CGT discount that applies to capital gains inside superannuation funds (including SMSFs) is completely unaffected by these reforms. Only individuals, partnerships, and trusts are impacted.

What happens to assets I bought before 1 July 2027?

A hybrid system applies. The gain from your original cost base up to the asset's market value on 1 July 2027 will still attract the 50% discount when you eventually sell. Only the gain that accrues after 1 July 2027 falls under the new indexation method.

What is the 30% minimum tax on capital gains?

Under the new rules, after calculating your real (inflation-adjusted) capital gain, you must pay at least 30% tax on it. If your marginal income tax rate is already above 30%, this floor has no extra effect — you pay your marginal rate as usual. It primarily affects lower-income investors who would otherwise pay less than 30%. Pension and JobSeeker recipients are exempt from this minimum in years they realise a gain.

Does the CGT reform apply to property?

Yes, for investment properties (not your main residence, which remains fully exempt). Note that negative gearing rules are also changing from 1 July 2027 — rental losses on newly purchased established properties will only be deductible against other property income, not wages. New builds are an exception under both the CGT and negative gearing reforms.

How is the indexed cost base calculated?

The indexed cost base uses the ATO's official quarterly CPI figures. Your original cost base is multiplied by the ratio of the CPI at the sale quarter to the CPI at the purchase quarter. The ATO publishes these rates at ato.gov.au/tax-rates-and-codes/consumer-price-index.

Is the CGT reform the same as the pre-1999 indexation rules?

It is very similar in concept — the pre-1999 ATO indexation method also adjusted the cost base by CPI. The key difference is the addition of the new 30% minimum tax floor, which did not exist in the old system. The method for calculating the indexation factor using quarterly CPI ratios is essentially the same as the historical ATO approach.

Official Sources

This article is for informational purposes only and does not constitute personal taxation advice. The final legislation implementing these changes has not yet been released, and details may change. We recommend consulting with a registered tax agent or accountant regarding your specific situation and how the proposed 2026–27 budget changes may affect your portfolio.