The Federal Government’s capital gains tax (CGT) reforms have now been passed by Parliament and will commence from 1 July 2027. These changes represent the most significant overhaul of Australia’s CGT system in more than 25 years, affecting how future capital gains are calculated and taxed.
Although the legislation is now in effect, most taxpayers do not need to take immediate action. Instead, priority should be given to understanding the operation of the transition rules before considering any investment decisions.
1. What has changed?
The reforms represent a substantial change to Australia’s capital gains tax regime and will have important implications for investors and asset owners from 1 July 2027.
- The current 50% CGT discount will be replaced by a cost-base indexation system;
- A 30% minimum tax will apply to certain capital gains;
- Pre-CGT assets will become subject to CGT on future gains; and
- Transitional rules will apply to assets already owned before 1 July 2027.
Importantly, the legislation recognises the difference between gains that have already accrued and gains that accrue after 1 July 2027. That distinction is central to understanding how the new rules operate.
The broader reform package also includes concessions for new housing and expands access to certain small business CGT concessions.
2. You won’t lose the CGT discount on existing gains
One of the biggest misconceptions is that investors need to sell assets before 1 July 2027 to retain the benefit of the current CGT discount. That is not the case.
Under the transitional rules, gains that have accrued up to 30 June 2027 will generally remain eligible for the existing 50% CGT discount. As a result, there is typically no need to rush into selling investments simply to “lock in” that discount. The legislation is designed to preserve the current treatment for historical gains that have already accrued prior to the commencement of the new regime.
For many taxpayers, selling an asset prematurely could trigger unnecessary transaction costs and an earlier tax liability without delivering any real tax benefit.
3. Pre-CGT assets will no longer be fully exempt
The reforms will have a significant impact on assets acquired before 20 September 1985.
Historically, these assets have generally sat outside the CGT system. From 1 July 2027, any future growth in value will be brought within the CGT regime. Gains accrued prior to that date remain exempt, but future gains will generally be taxable. For families with long-held investments, business interests or legacy assets, this may become one of the most important changes.
4. Indexation from 1 July 2027
The current 50% CGT discount will be replaced by a cost-base indexation model. In simple terms, the cost of acquiring an asset will be adjusted for inflation before calculating any capital gain each year. The intention is to tax real economic gains rather than gains that simply reflect inflation over time.
Whether the new rules ultimately produce a better or worse outcome will depend on factors such as the asset’s growth rate, how long it is held and future inflation levels.
5. The 30% minimum tax
From 1 July 2027, a 30% minimum tax rate will apply under the new CGT regime. Capital gains that accrued before 1 July 2027 will continue to be taxed under the existing CGT rules, including access to the 50% CGT discount where applicable. Only gains accruing from 1 July 2027 onwards will be subject to the new regime.
6. The value of your assets on 1 July 2027 will matter
For assets held before commencement, the value of those assets at 1 July 2027 is likely to play a critical role in calculating future capital gains. The government has a released a draft legislative instrument that permits an apportionment method for real property and for assets without a readily ascertainable market value. All other assets will require the taxpayer to obtain a market valuation at 1 July 2027, unless the ATO provides safe harbour or transitional valuation rules.
You should not rush out and obtain valuations today. A valuation performed today cannot establish the market value of an asset on 1 July 2027. What will be important at year end is to identify and obtain information that allows an independent valuation to be performed at a later date. This will be important for all CGT assets, including businesses, shares in companies and units in unit trusts.
7. Capital losses
Currently you can choose how capital losses are applied against your capital gains to achieve the most tax effective outcome. From 1 July 2027, capital losses will be applied in a prescribed order, which may cause them to be used less tax effectively as they will be applied first against gains eligible for the 50% discount rather than post-1 July 2027 gains.
8. What should you do now?
For most taxpayers, the answer is straightforward: Nothing. At least not yet. There is no need to sell assets before 1 July 2027 (for tax purposes at least). There is no need to obtain valuations today. Instead, focus on maintaining good records, understanding the assets you hold and staying informed as further implementation guidance is released.
Final Thoughts
For most taxpayers, there is no immediate need to take action. A measured and informed approach is generally preferable to making decisions based on uncertainty or speculation. The transitional rules are designed to preserve the treatment of gains that have already accrued, giving taxpayers time to understand the changes and consider their options.
We will continue to monitor developments and provide updates as further guidance becomes available. If any action becomes appropriate, we will explain the implications and help you determine the best course of action for your circumstances.
If you would like to discuss how these changes may affect your circumstances, please contact our team.
