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At the time, the headline was fairly simple: the 50% CGT discount was changing.
The actual impact is a little less simple.
From 1 July 2027, the Government plans to replace the current 50% CGT discount with indexation.
Which is one of those sentences that sounds manageable until you own property, shares, a business or basically anything that has had the audacity to go up in value.
So, here’s what actually matters. 👇
Under the current rules, individuals and trusts can generally access a 50% CGT discount if they’ve held an eligible asset for more than 12 months.
So, if you buy an eligible asset for $500,000 and later sell it for $1 million, you’ve made a $500,000 capital gain.
Broadly speaking, under the current system, if you’ve held that asset for more than 12 months, only $250,000 of the gain is included in your taxable income.
There are plenty of other rules of course, because this is tax and we’re not allowed nice things without conditions.
But that’s the basic idea.
Under the new system, the 50% discount will be replaced with an inflation-based calculation.
Instead of simply halving the gain, the cost of the asset will be adjusted for inflation and tax will apply to the remaining “real” gain.
Using the same example, say you buy an eligible asset for $500,000, inflation runs at 5% a year for the next two years, and you then sell it for $1 million.
After two years of inflation, your $500,000 cost base would be indexed to $551,250.
Your real capital gain would therefore be:
$1,000,000 sale price
less $551,250 indexed cost base
= $448,750 real capital gain
There’s no longer a 50% discount to halve that amount. Instead, the full $448,750 real gain is included in your taxable income.
So the good news is the Government acknowledges inflation exists.
The less good news is it has found a way to acknowledge it while collecting more tax.
Efficient.
For assets that haven’t grown much faster than inflation, that may not make an enormous difference.
For assets that have done very well, the outcome will be considerably different.
And by considerably different, we mean there will be more tax.
This is the other big part of the change.
From 1 July 2027, once the capital gain has been adjusted for inflation, a minimum tax rate of 30% will apply to the real capital gain.
Importantly, this doesn’t mean every capital gain is simply taxed at a flat 30%.
Your normal income tax calculation still happens. The new rule effectively puts a floor under the tax that can apply to the gain.
If your normal tax calculation already results in the capital gain being taxed at 30% or more, there generally won’t be any additional minimum tax to pay.
But if the tax attributable to the gain would otherwise be less than 30%, the new rules step in and top it up.
In other words, Canberra has installed a floor.
Sadly, it’s not the kind that’s worthy of dancing on. 😓
This matters particularly for people who might otherwise plan to realise a large capital gain in a low-income year.
Think retirement, a career break, a quieter year in business or simply waiting until your other taxable income has dropped before selling an asset.
Historically, that timing could significantly reduce the tax paid on the gain.
Under the new rules, there will be less benefit in doing that because the real capital gain will still need to carry a minimum 30% tax rate.
There are really two changes happening at once.
First, indexation determines how much of your gain is taxable. Then the minimum 30% rule determines the lowest rate of tax that can apply to that gain.
This is one of the most important parts.
The changes are intended to apply to gains arising after 1 July 2027.
So if you’ve held an asset for years, the Government isn’t proposing to suddenly drag all of that historical growth into the new system. You will still get the 50% discount on gains up to 1 July 2027.
That’s the good news.
The mildly annoying news is that you will need to know what the asset was worth at 1 July 2027 so that you can quantify the gain to that date.
For listed shares, that’s fairly straightforward.
For property, private companies or a family business, it can become much more involved and will likely require a valuation.
Valuations will become an important part of tax planning before the new rules start.
The ATO has traditionally preferred “independent valuation” over “Dad reckons it was worth about $2 million”.
Fussy like that.
Long-held assets acquired before 20 September 1985 have historically been CGT-free.
Not anymore.
These assets now suffer the same fate as the rest and will need to be valued at 1 July 2027.
That doesn’t mean the last 40-odd years of growth suddenly gets taxed. But growth from 1 July 2027 onwards will come into the new system.
So if you’ve got an asset that has proudly carried its pre-CGT status since Back to the Future was in cinemas, it’s time to dust off the file.
Here’s the slightly surprising bit.
After plenty of business groups, advisers and other interested parties kicked up a stink about what the CGT changes could mean for small business, someone in Canberra appears to have listened.
We know. We checked twice too.
The existing small business CGT concessions, which apply to the sale of eligible business assets, are staying, including the:
• 15-year exemption
• 50% active asset reduction
• retirement exemption
• small business rollover.
But there’s also been a welcome change to expand eligibility.
From 1 July 2027, the turnover threshold for the 50% active asset reduction is set to increase from $2 million to $10 million.
That’s a meaningful change.
It means businesses that have previously been too large to qualify under the turnover test may now be eligible to access the concession when selling eligible business assets.
A tax rule becoming easier to qualify for isn’t something we get to write very often.
We’ll enjoy the moment.
Of course, this is still tax law, so nobody has simply written “turnover under $10 million = congratulations”.
Asset values, ownership periods, active asset tests, entity structures and all the other eligibility rules still matter.
Because apparently making something easier and making it easy are handled by two entirely different Government departments.
Don’t panic.
Also don’t ignore it.
If you hold assets that are likely to produce a capital gain, start mapping out what you own and whether a valuation will be required at 1 July 2027.
That’s particularly important for property, private companies, businesses and long-held assets where there isn’t a nice public share price sitting there waiting for you.
For business owners, it’s also worth reviewing whether the expanded small business CGT concessions could change your position if a sale or succession is on the horizon.
You don’t necessarily need to do anything yet.
But knowing where you stand before 1 July 2027 will make life much easier than trying to recreate the answer later from old records and the faint memory that property prices were “pretty good back then”.
This isn’t a reason to sell everything.
It is a reason to model the numbers.
👉 For investors, the after-tax return on a future sale may look different.
👉 For business owners, the small business CGT concessions become even more important and, surprisingly, potentially more accessible.
👉 And for anyone with significant long-held assets, valuations and timing are about to become a much bigger part of the conversation.
If you’re unsure of the tax implications of selling, speak with the PAL team.
We can help you model the impact, check your CGT position and work out whether anything actually needs to change.
Preferably before the tax bill becomes the most interesting part of the sale.
Disclaimer: This article is here to give you general info only, not professional advice specific to your unique situation. While efforts are made to ensure accuracy, the content may change over time. We can’t take responsibility for any decisions based on the contents of this article, so be sure to chat with your accountant or advisor first!
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