CGT Discount Scrapped in the 2026 Budget: What the New Indexation and 30% Minimum Tax Mean
Budget update (12 May 2026): This is no longer a proposal. In the 2026-27 Federal Budget the Government announced it will replace the 50% CGT discount with cost-base indexation plus a 30% minimum tax on net capital gains, effective 1 July 2027. This article has been updated to reflect the announced policy.
Australia's 50% capital gains tax discount was the single most valuable concession for long-term property investors for more than 25 years. On Budget night, 12 May 2026, the Government confirmed it is being scrapped. From 1 July 2027 the 50% discount is replaced by a two-part system: cost-base indexation (which adjusts your purchase price for inflation) combined with a 30% minimum tax on the resulting net capital gain. The change applies to all CGT assets held by individuals, trusts, and partnerships, not just property.
This guide covers exactly how the new system works, the transitional rules that protect gains accrued before 1 July 2027, a worked illustration of the new mechanics, and the strategic decisions to make before the start date.
What Is (Was) the 50% CGT Discount?
The CGT discount was introduced in 1999 under the Howard government to replace the previous indexation system. It allowed individual investors (and trusts, but not companies) who held an asset for more than 12 months to pay tax on only 50% of the capital gain when they sold.
For a full primer on how CGT works, including inclusions, exclusions and the 6-year rule, see our guide on capital gains tax on investment property in Australia.
What the 2026 Budget Actually Announced
From 1 July 2027, for CGT assets held longer than 12 months:
- The 50% discount is removed and replaced with cost-base indexation plus a 30% minimum tax on the net capital gain.
- Cost-base indexation adjusts your original purchase price (and eligible costs) upward for inflation, so you are only taxed on your real, above-inflation gain rather than the full nominal gain.
- A 30% minimum tax then applies to that net gain. In effect, the total CGT on a long-held asset cannot fall below 30% of the gain, which sets a floor that limits how much the indexation benefit can reduce your bill.
- The change applies to all CGT assets held by individuals, trusts and partnerships, including pre-1985 (pre-CGT) assets. It is not limited to residential property.
- The main residence exemption is unchanged. Your home remains CGT-free.
- Income support recipients (including Age Pension beneficiaries) are exempt from the minimum tax.
This is a meaningfully different design from the "cut to 25% or 33%" options that were being modelled before the budget. By pairing indexation with a 30% floor, the Government has built a system that taxes real gains rather than inflationary gains, while guaranteeing a minimum revenue take on every sale.
Transitional Rules: Gains Before 1 July 2027 Are Protected
The reform is not retrospective. The accrued-gains split works as follows:
- Gains realised before 1 July 2027 continue to receive the existing 50% discount.
- For assets bought before 1 July 2027 but sold afterwards, the gain is effectively split: the portion that accrued up to 1 July 2027 keeps the 50% discount, and only the portion accruing after that date falls under indexation and the 30% minimum tax.
- Pre-1985 assets sold before 1 July 2027 remain outside the CGT net as they are today.
- New residential property investors are expected to be able to choose between the old and new regimes at disposal under transitional arrangements, so the precise mechanics will depend on the final legislation.
The practical effect is that every dollar of growth you have already banked, and growth between now and 1 July 2027, is shielded under the current rules. The new system bites on future growth.
Worked Example: How the New System Changes the Maths
The exact tax under the new regime depends on inflation over your holding period and your marginal rate, so treat the figures below as an illustration of the mechanics rather than a precise forecast.
Consider an investor at the top marginal rate (47% including Medicare levy) who buys an investment property after the changes take effect and sells years later with a $300,000 nominal gain, of which roughly $120,000 reflects inflation (indexation) and $180,000 is a real gain.
| System | Taxable base | Approx. tax | Change vs old discount |
|---|---|---|---|
| Old: 50% discount | $150,000 (50% of $300k) | ~$70,500 | Baseline |
| New: indexation + 30% floor | $180,000 real gain, taxed at the higher of 47% or the 30% floor | ~$90,000 | +~$19,500 |
In this illustration, indexation removes the $120,000 inflationary component from the taxable gain, but the 30% minimum tax stops the bill from falling as low as pure indexation alone would allow. For high-income earners the 30% floor rarely binds because their marginal rate already exceeds 30%. For lower-income earners and for assets where inflation has eroded most of the nominal gain, the 30% floor is what determines the bill.
The headline takeaway: long-term, high-growth investors at the top marginal rate should expect a higher exit tax than under the 50% discount, while the indexation component softens the blow for assets held through high-inflation periods.
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Try PropBuyAI Free →The Compounding Impact With Negative Gearing Reform
The CGT overhaul did not arrive alone. The same budget restricted negative gearing on established residential property bought after 7:30pm AEST on 12 May 2026, also from 1 July 2027. For investors relying on both the negative gearing deduction during the hold and the 50% discount on exit, the combined change removes support at both ends of the investment.
For the detail on the negative gearing side, see negative gearing changes 2026. Investors who were relying on both concessions to justify a purchase should now model returns without either.
Who Gets Hit Hardest?
The impact of the new CGT system varies sharply by investor profile:
High-growth capital city house investors. Properties with large real gains relative to yield (typical Sydney, Melbourne, Brisbane houses) are most affected because the exit tax is the primary return driver and the real-gain component is large.
Long-hold investors buying after the start date. New acquisitions held entirely under the new regime no longer get the 50% concession. Indexation helps, but the 30% floor caps the benefit.
High-income earners. Those at the top marginal rate were the biggest beneficiaries of the 50% discount and lose the most from its removal.
Investors nearing retirement. Selling to fund retirement triggers the new calculation. Staged sales, timing disposals in low-income years, and the income-support exemption become more relevant.
Less affected are positive cash flow property investors who rely on rental income rather than capital growth, and yield-first investors in regional markets, along with anyone whose gains accrued largely before 1 July 2027.
Strategic Actions Before 1 July 2027
Understand that pre-1 July 2027 growth is protected. There is no need to panic-sell. Gains accrued up to the start date keep the 50% discount even if you sell later, so a rushed disposal can cost you more in transaction costs and lost growth than it saves in tax.
Model new acquisitions under the new regime from the outset. When evaluating a purchase that will be held mostly after 1 July 2027, calculate your after-tax return under indexation plus the 30% minimum tax, not the old 50% discount. If the investment only works under the old rules, it is fragile.
Review your ownership structure. Companies never received the 50% discount and are taxed at a flat 25% to 30%. With the individual discount gone, the relative gap between personal and company ownership narrows. Speak to a qualified adviser before restructuring.
Consider SMSF property holdings. Super funds in pension phase pay 0% CGT, and complying SMSFs in accumulation phase have historically had the discount built into their effective rate. Watch the final legislation for how the new system interacts with super, and note the separate Division 296 super changes.
Keep meticulous cost-base records. Indexation rewards accurate records of your purchase price and eligible capital costs. Good record keeping directly reduces your taxable gain under the new system.
International Context
The move brings Australia closer to systems that tax real rather than nominal gains. Several comparable economies tax capital gains without a flat 50% discount:
- United States: Long-term capital gains taxed at 0%, 15%, or 20% depending on income, plus a 3.8% net investment income tax
- United Kingdom: CGT on residential property at 18% or 24% depending on income, with a modest annual allowance
- New Zealand: No general capital gains tax on residential property held long term, subject to the bright-line test
- Canada: 50% inclusion rate on capital gains (broadly equivalent to a 50% discount)
Australia's old 50% discount sat at the generous end of this range. The new indexation-plus-floor model is closer to the pre-1999 Australian system than to any current international peer.
The Timeline From Here
- 12 May 2026: Change announced in the 2026-27 Federal Budget
- Between now and 1 July 2027: Draft legislation, consultation, and final design (including the SMSF and choice-of-regime mechanics) are expected to be settled
- 1 July 2027: New system takes effect; gains accruing from this date fall under indexation and the 30% minimum tax
Investors have a clear runway. The key planning window is the period before 1 July 2027, during which existing growth remains under the 50% discount.
Bottom Line
The 50% CGT discount is being replaced, not merely trimmed. From 1 July 2027, long-held assets are taxed using cost-base indexation with a 30% minimum tax on the net gain, across individuals, trusts and partnerships. Gains accrued before that date are protected, the main residence exemption is untouched, and income support recipients are exempt from the minimum tax.
The strongest defence is the same as ever: buy assets that work without relying on tax concessions. Yield matters. Cash flow matters. Tax treatment is a variable to model, not a foundation to build on.
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