For thirty years, holding an asset for 12 months halved your capital gains tax. From 1 July 2027, that deal is gone. In its place: you pay tax only on your real gain above inflation, and never at an effective rate below 30%. This is legislated, not a proposal. Here is exactly how the new system works and what it changes for you.
What was announced (and yes, it's law)
The reform was announced in the 2026-27 Federal Budget at 7:30pm AEST on 12 May 2026. It passed both houses of Parliament on 25 June 2026 and received royal assent on 26 June 2026, as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) and the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 (No. 50 of 2026).
For CGT events on or after 1 July 2027, the 50% CGT discount is abolished for individuals, trusts, and partnerships, across every asset class -- shares, ETFs, crypto, and property. Two things replace it: CPI indexation of your cost base for assets held 12 months or more, and a 30% minimum tax on the post-reform portion of capital gains. If you've read commentary calling this a proposal or something that might be blocked, it is out of date. The law is on the books; only the start date is in the future.
Old rules vs new rules
| 50% discount era (until 30 June 2027) | From 1 July 2027 | |
|---|---|---|
| Taxable amount | Half your nominal gain | Your full gain above CPI inflation |
| 12-month requirement | Hold 12+ months to get the discount | Hold 12+ months to get indexation |
| Who gets it | Individuals, trusts; super funds 33.33% | Individuals, trusts, partnerships; super funds keep 33.33% discount |
| Rate floor | None -- your marginal rate applies | 30% minimum effective rate on the gain |
Worked example: the same gain under both systems
Say you bought $50,000 of VAS and sold it for $60,000 after 3 years, with CPI running at 2.5% a year.
Old rules: your $10,000 nominal gain is halved to $5,000. At a 30% marginal rate, tax is $1,500. At 45%, tax is $2,250.
New rules: your cost base is indexed for inflation: $50,000 × 1.025³ = $53,844. The indexed gain is $60,000 -- $53,844 = $6,156, and you pay your marginal rate on all of it. At 30%, tax is $1,847. At 45%, tax is $2,770.
Note what happened: for a typical share gain at moderate inflation, the new system collects more tax. Indexation only shelters the inflation component of your gain. For assets that grow well ahead of inflation, that is less generous than a flat 50% off. The gap narrows for slow-growing assets and long holding periods, where inflation is a bigger share of the nominal gain.
The 30% minimum tax explained
The second piece is a new minimum tax under Division 119. It works as a top-up: if your marginal rate on the post-reform portion of a capital gain is below 30%, extra tax applies so that the effective rate on that gain is 30%.
Two examples. On a taxable income of $35,000, your marginal rate is 15% -- well below the floor -- so a top-up applies and the gain is effectively taxed at 30%. On a taxable income of $75,000, your marginal rate is already 30%, so no top-up applies; you simply pay your marginal rate on the indexed gain. The minimum only bites for people whose marginal rate sits below 30%.
There are two softeners. Income-support recipients, including Age Pensioners, are exempt from the minimum -- the exemption is hardcoded into the legislation (s 119-15). And deductions for charity donations reduce the base the minimum tax is calculated on.
CPI indexation mechanics
Indexation is not new to Australian tax -- it was the system before 1999 -- but the 2027 version has its own rules worth knowing.
- The 12-month holding period still matters. Only assets held 12+ months get indexation. Sell inside 12 months and you pay tax on the full nominal gain, exactly as short holds work today.
- Most of the cost base is indexed, but not all of it. Every element of your cost base is indexed except the third element -- costs of ownership, such as interest and holding costs.
- Indexation can't create a loss. It can reduce a gain to zero, but it cannot turn a nominal gain into a capital loss.
The transitional split at 1 July 2027
The reform does not tax gains you have already built up. Every asset gets a deemed disposal and reacquisition on 30 June 2027 -- no tax is payable at that point. Gains accrued to 1 July 2027 keep the old rules, including the 50% discount, whenever you eventually sell. Growth after that date falls under indexation and the minimum tax.
The split between old-rules gain and new-rules gain is measured primarily by market value at 1 July 2027. A Minister-determined apportionment method is available as a taxpayer election if you prefer it. The practical upshot is simple: keep evidence of the market value of your assets at 1 July 2027. For listed shares and ETFs that is easy; for property and unlisted assets it takes planning.
One more group is affected: pre-CGT assets -- those acquired before 20 September 1985 -- enter the CGT net for the first time. Their deemed cost base is market value at 1 July 2027, and only gains after the transition are taxable.
Who is exempt or unchanged
- Super funds: complying superannuation funds keep their 33.33% discount and are excluded from the new regime.
- Companies: unchanged -- they never had the discount.
- Your home: the main residence exemption is untouched.
- Foreign and temporary residents: excluded from indexation. They already lost the discount for assets acquired after 8 May 2012, so little changes.
- New residential dwellings: buyers can elect to keep the 50% discount instead of the new rules -- part of the same package that limits negative gearing to new builds.
What to do before 1 July 2027
- Know your parcel dates. Which holdings are past 12 months, and which are approaching it? The old-rules discount is still available for every disposal until 30 June 2027.
- Record market values. The transitional split is valuation-primary, so evidence of what each asset was worth at 1 July 2027 determines how much of your gain keeps the discount.
- Make harvest decisions under the old rules while you can. Any disposal up to 30 June 2027 is taxed under the current system, 50% discount included.
- Model both regimes before you sell. Run your numbers through Grove's free CGT calculator to see what a sale costs you today versus after the transition.
For the current rules in full -- eligibility, the 12-month clock, and how losses interact with the discount -- see our guide to the 50% CGT discount.
Grove tracks every parcel's cost base, holding period and market value daily -- so the 2027 transition is already recorded.
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