CPI Indexation vs the 50% CGT Discount: Which Is Better for Your Investment?

The 2026-27 Federal Budget, handed down on 12 May 2026, replaces the 50% CGT discount with a new regime combining CPI indexation of the cost base and a 30% minimum effective tax rate. The change applies only to gains accruing on or after 1 July 2027, and pre-commencement gains on existing assets retain the 50% discount apportioned by time. The most common question investors are asking is brutally practical: under the new rules, will my tax bill be higher or lower than under the old 50% discount? The honest answer is "it depends" — and this guide walks through the variables that decide.

The two systems side by side

Under the system that applied until 30 June 2027, an individual investor holding a CGT asset for at least 12 months received a flat 50% discount on the assessable capital gain. The gain was added to taxable income and taxed at marginal rates. The cost base did not move with inflation — nominal gains were taxed nominally, with the discount as a rough proxy for the inflation component.

From 1 July 2027, the cost base of a CGT asset is indexed by movements in the Consumer Price Index between acquisition (or the 1 July 2027 valuation point for existing assets) and sale. Only the real gain — above CPI — is brought to tax. A 30% minimum effective tax rate then applies: if the investor's blended marginal rate on the gain is below 30%, the rate is topped up. Age Pension and JobSeeker recipients are exempt from the 30% floor. The main residence exemption is unchanged.

When CPI indexation produces a better outcome

CPI indexation rewards assets whose nominal capital growth is close to inflation. If an asset roughly tracks CPI, the indexed cost base absorbs most of the nominal gain and very little comes to tax. The longer the hold and the higher the inflation rate during the hold, the more powerful this effect becomes.

Investors who are likely to do better under the new rules include:

• Holders of regional or low-growth residential property that has appreciated modestly
• Investors in defensive assets that protect purchasing power without strong real returns
• Anyone holding through a sustained higher-inflation period (think 4–6% CPI for several years)
• Investors on lower marginal rates where the 50% discount was already worth less in dollar terms

When the 50% discount produces a better outcome

The 50% discount is mathematically superior when real capital growth — growth above CPI — is very strong. Halving a large real gain beats indexing only the inflation portion of it. High- growth blue-chip suburbs, premium inner-city apartments in tightly held markets, and assets with substantial value-add through renovation all tend to favour the old regime. The 30% minimum tax adds a second penalty for very high-growth assets held by low-income investors because it neutralises what would otherwise have been a low effective rate.

Worked examples: Ben, David and Kate

Treasury's Budget factsheets walked through three investors whose results show how sensitive the outcome is to growth assumptions. Each is selling an investment property after 1 July 2027 with the entire gain accruing under the new rules.

Ben — modest growth, higher inflation

Ben bought a Tasmanian regional house on 1 July 2027 for $420,000 and sells it ten years later for $560,000. Nominal gain: $140,000. With CPI averaging 3.0% per annum, the indexed cost base rises to roughly $564,500, leaving a real gain of effectively zero. Under the new rules, Ben pays almost no CGT. Under the old 50% discount, his $140,000 nominal gain would have produced an assessable gain of $70,000 and a tax bill of approximately $22,750 at a 32.5% marginal rate. Ben is materially better off under the new rules.

David — high growth, moderate inflation

David bought an inner-Sydney apartment on 1 July 2027 for $900,000 and sells it ten years later for $1.6 million. Nominal gain: $700,000. With CPI averaging 2.5%, the indexed cost base rises to about $1.152 million, leaving a real gain of $448,000. At David's 45% marginal rate, the tax bill is approximately $201,600. Under the old 50% discount, the assessable gain would have been $350,000 and the tax bill approximately $157,500. David pays approximately $44,000 more under the new rules.

Kate — low income, large gain

Kate is a retiree with no other taxable income. She sells an investment unit for a $300,000 gain accruing entirely after 1 July 2027. The indexed cost base reduces the real gain to $220,000. Without the minimum tax, her effective rate would be around 24% — but the 30% floor lifts it to $66,000. Under the old 50% discount, her tax on $150,000 of assessable gain (at the relevant graduated marginal rates) would have been substantially lower. Kate is the textbook example of why the 30% floor matters: it removes the low-rate planning advantage that the old discount preserved.

Comparison table — what to model

Practical decisions for investors

Most existing investment property owners do not need to choose between systems for their current holdings — the transitional rules apportion the gain across the 30 June 2027 line, applying the 50% discount to the pre-commencement portion and the new indexation regime to the post-commencement portion. The choice arises mostly for assets acquired on or after 1 July 2027.

For more on the transitional mechanics, see our companion piece on whether to sell before or after 1 July 2027 and on seven negative-gearing worked examples.