The Australian Government’s recent Federal Budget has introduced sweeping proposed reforms to the capital gains tax (CGT) system, representing the most significant overhaul in decades. While not yet legislated, the changes are expected to reshape investment behaviour, particularly in property and financial markets.
This article explains how the proposed system will work, who will be affected, and what investors should consider doing in response.
How the Proposed CGT Changes Will Work
At the core of the reform is the removal of the longstanding 50% CGT discount for individuals, trusts and partnerships on assets held longer than 12 months. Under current rules, investors only pay tax on half of their capital gain. This will be replaced with two key mechanisms from 1 July 2027:
Cost Base Indexation (Inflation Adjustment)
Instead of a flat discount, the purchase price of an asset will be indexed to inflation (CPI), and tax will apply only to the “real” gain above inflation.
30% Minimum Tax Rate on Capital Gains
A new rule ensures that, regardless of an investor’s marginal tax rate, at least 30% tax is paid on capital gains.
These changes will generally apply to individuals, trusts and partnerships, but not companies or superannuation funds.
Transitional Arrangements
Importantly, the reforms are prospective:
- Gains accrued before 1 July 2027 will still benefit from the 50% discount
- Gains accrued after that date will be taxed under the new rules
This means assets held across the transition period will effectively be taxed under two systems, apportioned over time.
Key Exceptions
- The family home remains exempt from CGT
- Newly built residential properties may allow investors to choose between old and new rules
- Some income support recipients may be exempt from the 30% minimum tax
Who Will Be Affected?
1. Property Investors
Property investors are among the most impacted, especially when combined with changes to negative gearing. The removal of the CGT discount reduces the after-tax return on capital growth, potentially discouraging investment in existing housing.
2. Share and ETF Investors
The reforms apply broadly across all asset classes, including shares and managed funds. Investors in high-growth assets may face higher effective tax rates under indexation compared to the current 50% discount.
3. High-Income and Long-Term Investors
Higher-income individuals and those relying on capital gains for wealth accumulation are likely to see the largest increase in tax liabilities. Modelling suggests effective tax rates on long-term investments could rise significantly.
4. Owners of Legacy Assets (including pre-1985 assets)
Some proposals extend CGT to gains on previously exempt assets (such as those acquired before 1985), capturing future gains after the reform date.
5. New vs Existing Investors
- Existing investors are partially protected through grandfathering
- New investors from 2027 onward will face the full impact of the new regime
Economic and Market Implications
The Government argues the changes will:
- Improve housing affordability by reducing speculative demand
- Encourage investment in new housing supply
- Ensure tax is paid on real (inflation-adjusted) gains only
However, critics warn of unintended consequences, including:
- Reduced investment activity
- Higher rents if investors exit the market
- A shift of capital toward alternative structures or offshore markets
What Investors Need to Do
While legislation is still pending, proactive planning is essential. Key actions include:
1. Review Asset Sale Timing
Investors may consider realising gains before 1 July 2027 to utilise the existing 50% discount, particularly for high-growth assets.
2. Reassess Investment Strategy
The reforms may change asset preferences:
- Property vs shares
- Growth vs income-focused investments
- New builds vs existing properties
3. Consider Ownership Structures
Given the minimum 30% tax rate, investors may explore:
- Company structures
- Superannuation (which may retain concessional treatment)
4. Obtain Asset Valuations
Because gains will be split across the reform date, accurate market valuations at 1 July 2027 may be required to calculate tax correctly.
5. Seek Professional Advice
The rules are complex and evolving, particularly around transitional provisions, trust taxation, and anti-avoidance measures. Until the legislation is enacted, it would be unwise to take pre-emptive action. However, it is critical to be prepared to make informed decisions before the 2027 transition.
If you wish to learn more about how these changes might affect your individual circumstances, book an obligation free consultation with our strategic wealth advice specialists today.
First Samuel clients seeking specialist advice on the changes will not be charged any extra fees for the advice. Our personalised investment managementapproach considers the full impact of structural tax changes across superannuation and family wealth planning.
The information in this article is of a general nature and does not take into consideration your personal objectives, financial situation or needs. Before acting on any of this information, you should consider whether it is appropriate for your personal circumstances and seek personal financial advice.