CGT Reform 2027: 35 Questions Answered by Australian Tax Experts

The Federal Government's 2026-27 Budget delivered the most significant change to Australian capital gains tax in twenty-six years. From 1 July 2027, the long-standing 50% CGT discount will be replaced for all assets held for at least 12 months with a new system combining CPI cost base indexation and a 30% minimum effective tax rate on capital gains. The reform applies to property, shares, ETFs, managed funds and almost every other CGT asset Australians own.

Because the rules are unfamiliar and the transition is complex, we have answered the 35 questions most commonly asked by readers, tax agents and our own community since the Budget. The answers are grounded in Treasury's official factsheets and the explanatory material released with the Budget. Where the law is not yet finalised, we say so.

Section 1 The basics

Q1. What exactly is changing from 1 July 2027?

For CGT assets held for 12 months or more, the 50% CGT discount is being replaced by two new mechanics working together: (1) the asset's cost base is indexed by CPI between acquisition and sale, and (2) where the investor's marginal rate would result in an effective tax rate below 30% on the resulting capital gain, a 30% minimum effective tax rate is applied. The reform applies to all CGT assets not just property.

Q2. Does this affect the family home?

No. The main residence exemption is unchanged. A property that has been your main residence for the whole period of ownership remains fully CGT-exempt when you sell. Partial main-residence use will continue to be apportioned in the existing manner.

Q3. What is CPI cost base indexation?

CPI indexation means the price you originally paid for the asset (the cost base) is increased each year by the Consumer Price Index before being subtracted from your sale price. Only thereal gain the amount above inflation is taxed. This is conceptually similar to the original 1985-1999 Australian CGT regime, which also used indexation, but with one important difference: under the new regime, indexation applies only to gains accruing from 1 July 2027.

Q4. What is the 30% minimum effective tax rate?

It is a floor. If applying your marginal tax rate to the indexed capital gain would result in an effective rate below 30%, you instead pay 30% on the gain. This stops very low-income investors with extremely large gains from paying minimal tax. Most middle-income investors will not hit the floor because their marginal rate is already above 30%.

Q5. Does the new regime apply to shares, ETFs and managed funds?

Yes. The reform is asset-class neutral. Listed shares, ETFs, unlisted managed funds, cryptocurrency and other CGT assets all fall within scope. Practically, share investors will use the asset's quoted price on 30 June 2027 as the 1 July 2027 value (see Q21).

Q6. What stays the same?

• The 12-month holding rule for discount eligibility.
• The main residence exemption.
• Pre-1985 assets gains accrued before 1 July 2027 remain fully exempt.
• The four small business CGT concessions (15-year exemption, 50% active asset reduction, retirement exemption, rollover).
• The 60% CGT discount for qualifying affordable housing investments.
• Death does not crystallise CGT cost base flows through to the estate and beneficiary.

Q7. Are there winners under the new system?

Yes. Investors whose asset returns roughly match or trail inflation pay less under indexation than they would under the 50% discount, because they have little or no real gain to tax. Units in particular which have averaged 4.1% capital growth over the past 20 years have an effective tax rate of just 13.1% at a 32% marginal rate under the new rules. Treasury's published figures confirm low-return investors benefit.

Q8. Are there losers?

Yes. Investors with high-growth assets (above roughly 6-7% per annum) especially houses in capital-growth corridors generally pay more under the new system. Treasury's Kate example (7.5% return, $500,000 starting value, 10-year hold) shows $58,851 of additional tax compared to the current 50% discount.

Section 2 How CPI indexation works

Q9. How is the indexed cost base calculated?

For each year of ownership after 1 July 2027, the cost base is multiplied by the ratio of the end-of-year CPI to the start-of-year CPI. The ATO will publish the CPI factors annually. Worked examples appear later in this article and in our companion guide onCGT worked examples.

Q10. What inflation index is used?

The All Groups Consumer Price Index (CPI) published quarterly by the ABS. This is the same index used in the original 1985-1999 indexation regime and is consistent with Treasury's modelling assumption of 2.5% average annual inflation.

Q11. Are capital improvements indexed too?

Yes. Each element of the cost base (purchase price, incidental costs, capital improvements, title costs) is indexed from the date the relevant amount was incurred, but only for the portion of the holding period falling after 1 July 2027.

Q12. What happens if inflation is negative in a given year?

If CPI falls in a particular year, the cost base is not reduced the indexation factor cannot go below 1.0. This mirrors the original pre-1999 indexation rules.

Q13. Are capital losses still deductible?

Yes. Capital losses continue to be offset against capital gains. Carry-forward losses are unchanged and can be applied before indexation discount calculations.

Q14. Can I still choose between indexation and discount?

Only in two narrow cases. New build investors who qualify under the Government's new build incentive may elect either the 50% discount or the new indexed regime whichever is more beneficial. All other investors are moved to the indexed regime from 1 July 2027 with no election available.

Section 3 The 30% minimum effective tax

Q15. Who actually pays the 30% minimum?

Investors whose taxable income is low enough that their marginal rate would otherwise apply less than 30% effective tax on the gain. This typically means very high gains realised in low-income years for instance, a self-funded retiree drawing minimal taxable income but selling a $2 million investment property.

Q16. Are there exemptions from the 30% minimum?

Yes. Recipients of means-tested income support payments including the Age Pension, JobSeeker, Disability Support Pension and the Carer Payment are exempt from the 30% minimumin the year they realise the gain. This is a meaningful concession for self-funded retirees who transition onto the part-Age-Pension after a large sale. See our guide onCGT reform and retirees.

Q17. Does the 30% minimum apply per asset or to total gains?

It applies to total net capital gains in the income year, after offsetting losses. You cannot split a single sale across years to avoid the threshold.

Q18. How does the 30% minimum interact with franking credits and dividends?

Franking credits and dividend income are unaffected. The 30% minimum applies only to net capital gains. Dividend income remains taxed at marginal rates with franking credit offsets as usual.

Q19. Does the 30% minimum apply to SMSFs?

SMSFs already pay 15% on capital gains (10% with the one-third discount on assets held over 12 months) in accumulation phase, and 0% in retirement phase. The Government has indicated SMSF rules are not being changed by this reform. The 30% minimum is targeted at individuals.

Q20. What about discretionary trusts?

Where a trust distributes a capital gain to a beneficiary, the gain is taxed in the beneficiary's hands. The 30% minimum is applied at the beneficiary level based on the beneficiary's marginal rate. This may significantly affect family trust planning that historically streamed gains to low-income beneficiaries.

Section 4 The 1 July 2027 transition

Q21. How is my asset valued at 1 July 2027?

Two methods are permitted: (a) a formal valuation by a registered valuer (for shares, the quoted closing price on 30 June 2027 is sufficient), or (b) the ATO apportionment formula, which interpolates the value linearly based on the asset's actual growth rate over the holding period. Our detailed guide is athow to value your property at 1 July 2027.

Q22. Which valuation method should I choose?

For shares and ETFs, use quoted prices they are free and exact. For property, a formal valuation typically pays for itself many times over on high-value assets because the apportionment formula assumes uniform growth, which is rarely accurate. See our comparison atapportionment formula vs formal valuation.

Q23. Is the valuation done at the time of sale or now?

It is determined as at 1 July 2027, but you can document it any time. Most tax professionals recommend obtaining the valuation in 2027 both to capture conditions accurately and to avoid forgetting before sale. ATO tools and calculators will be released ahead of the commencement date.

Q24. How are pre-2027 gains taxed?

Pre-2027 gains continue to attract the existing 50% CGT discount when the asset is sold. Post-2027 gains use indexation and the 30% minimum. The two amounts are calculated separately and added together to give the taxable gain.

Q25. What about pre-1985 assets?

Pre-CGT assets (acquired before 20 September 1985) remain CGT-free for gains accrued up to 30 June 2027. Post-1 July 2027 gains on those same assets are taxed under the new indexed regime. This is a meaningful change pre-CGT assets are no longer fully exempt for future growth. See our guide oninheriting property after the 2027 reform.

Q26. Should I sell before 1 July 2027?

It depends on your marginal rate, expected future growth, and how long you intend to hold. For high-growth assets owned by high-marginal-rate investors, accelerating a sale into the 2026-27 financial year captures the full 50% discount on all gains. For low-growth assets or assets owned by investors heading into retirement, holding is usually still better. Speak to your tax adviser there is no general rule.

Q27. Do I have to do anything before 1 July 2027?

Practical steps: (1) ensure your acquisition records are complete (date, price, incidental costs), (2) compile evidence of capital improvements, (3) decide whether to obtain a formal valuation as at 1 July 2027 or rely on the ATO apportionment formula, (4) update your record-keeping system. See our companion guide onCGT record-keeping after 2027.

Section 5 Special cases

Q28. Does the reform affect property held in an SMSF?

No. SMSF CGT rates (15% accumulation, 10% with discount on 12-month assets, 0% in pension phase) are not being changed by this measure. The 50% discount applicable to individuals does not apply to SMSFs in any case; SMSFs use a one-third discount.

Q29. What if my asset is held jointly with a spouse?

Each owner's share of the gain is calculated separately and taxed at their individual marginal rate. The 1 July 2027 valuation applies to the whole asset; each owner's cost base reset is proportional to their ownership percentage. This may create planning opportunities where one spouse has substantially lower income.

Q30. What if I am building a new investment property?

New build investors may elect to use either the 50% discount or the new indexed regime whichever yields lower tax. This is designed to support new housing supply. The election is made at sale.

Q31. What about affordable housing investments?

The existing 60% CGT discount for qualifying affordable housing (held for at least three years and managed by a registered community housing provider) is retained in full. This is now the most generous CGT concession available.

Q32. What if I divorce and transfer property to my ex-spouse?

Family law rollover relief still applies no CGT event on transfer. The recipient inherits the original cost base. When that asset is later sold, gains accruing before 1 July 2027 (or before transfer, whichever is later) attract the 50% discount; gains after the relevant date use the new indexed regime. Our guide onCGT reform and property settlementscovers this in detail.

Q33. What happens when someone dies?

Death does not crystallise CGT. The asset passes to the estate or beneficiary at the deceased's cost base (post-1985 assets) or market value at date of death (pre-1985 assets). When the beneficiary sells, the same pre-/post-2027 split applies. Ourdeceased estates guide walks through the mechanics.

Q34. Does the 30% minimum apply to non-residents?

Non-residents are already excluded from the 50% CGT discount on Australian real property (since 2012). The Government has not indicated changes to that rule. Non-resident CGT remains taxed at marginal rates without discount on Australian real property gains.

Q35. When will the legislation be passed?

Treasury has begun the consultation process. Legislation is expected to be introduced in the first half of 2027, with the new rules commencing 1 July 2027. The ATO will release transition tools, calculators and guidance before commencement. Until legislation passes, exact mechanics may be refined.

Authoritative references: Treasury factsheet: Negative gearing and capital gains tax reform (PDF); Budget 2026-27: Tax reform; ATO: CGT discount (current law).

This article provides general information about the 2026-27 Federal Budget CGT reform measures announced for commencement on 1 July 2027 and is not financial, tax or legal advice. Tax outcomes depend on individual circumstances. Always consult a registered tax agent, financial adviser or the Australian Taxation Office before acting. Treasury factsheets and the official Budget Papers remain the authoritative source.