CGT Discount 2026 Budget: What Was Confirmed

Priya is 47, a senior physiotherapist in Brisbane. She bought an investment unit in 2018 for $580,000. It is now worth $900,000 — an unrealised gain of $320,000. Under the current 50% CGT discount, only $160,000 of that gain is added to her taxable income. After Budget night on 12 May 2026, that changes from 1 July 2027: CPI indexation replaces the flat discount, and a 30% minimum effective tax rate applies to the nominal gain. For Priya, selling after 1 July 2027 means a minimum tax bill of $96,000 — $33,600 more than under current law.

The good news: the Budget confirmed grandfathering via a cost-base reset at 1 July 2027. Gains accrued on Priya's unit before that date are protected under the old rules. But she has a 14-month window to plan — and that planning starts now. Treasury estimates the CGT discount costs the budget $21.79 billion a year in foregone revenue, making it the single largest individual tax concession in the system.

What Is the 50% CGT Discount?

The CGT discount is an ATO concession that reduces the capital gain included in your taxable income. If you sell an asset you have held for more than 12 months, only 50% of the net capital gain is counted as income. The other 50% is discounted away — you pay no tax on it at all.

The rule applies to Australian resident individuals, trusts, and partnerships. SMSFs receive a one-third (33%) discount. Companies receive no discount. The current rules have been unchanged since 21 September 1999, when the Howard Government replaced the pre-existing inflation indexation system with the simpler percentage-discount approach.

Example: You sell shares bought in 2020 for $100,000 at $300,000 in 2026. Your capital gain is $200,000. Under the 50% discount, only $100,000 is added to your taxable income. If your marginal rate is 39%, your tax on that gain is $39,000 — not $78,000. From 1 July 2027, this changes.

Budget Update: What the 12 May 2026 Budget Confirmed

The Federal Budget delivered by Treasurer Chalmers on 12 May 2026 confirmed four key CGT and investment property changes:

1. 50% CGT discount abolished from 1 July 2027. All Australian resident individuals, trusts, and partnerships lose the 50% discount on gains from assets sold on or after 1 July 2027. SMSFs retain their existing one-third (33%) discount.
2. CPI indexation replaces the flat discount. From 1 July 2027, the cost base of qualifying assets is indexed to the Consumer Price Index (CPI). Only the real, above-inflation gain is taxed — the same mechanism that existed before 1999.
3. 30% minimum effective tax on nominal gains. CPI indexation cannot reduce the effective tax below 30% of the total nominal capital gain. This floor prevents large-inflation scenarios from producing negligible tax outcomes.
4. Negative gearing ring-fenced from 12 May 2026. Investors who enter a contract to purchase an established residential property after 7:30pm AEST 12 May 2026 cannot deduct net rental losses against other income. Existing investment properties and new residential builds are exempt from this restriction.

Pre-Budget Proposals vs What Was Confirmed

Two competing models were under Treasury consideration before Budget night. Here is how they compared to the confirmed outcome:

Model A — Flat cut to 33% (widely reported by RSM Australia and financial planning firms): The CGT discount would have been reduced from 50% to 33%, possibly targeting residential property only. Not confirmed — this model was not adopted.

Model B — Return to CPI indexation (CommBank Budget Preview, April 2026): Replace the flat discount with inflation indexation across all asset classes, as existed before 1999. Confirmed — with the addition of a 30% minimum effective tax floor not included in pre-budget commentary.

The Senate Select Committee on the CGT Discount (March 2026) recommended abolishing the discount for residential investment properties. The confirmed measures go further — abolishing it for all asset classes, not just residential property.

The Dollar Impact — Minimum Tax Under Confirmed Rules

Under the confirmed model, CPI indexation can reduce the taxable gain for long-held assets. However, the 30% minimum effective tax on the nominal gain acts as a floor. For most property investors — where nominal gains significantly outpace CPI — the 30% floor will determine the tax payable.

The table below shows the minimum tax under the new rules from 1 July 2027 versus current tax under the 50% discount, for a resident individual at a 39% marginal rate.

The 30% minimum applies to the full nominal capital gain. If CPI indexation of your cost base produces a real gain that, at your marginal rate, falls below the 30% floor, you pay the floor. If CPI indexation leaves a large real gain — for example, a short-held asset or a top-rate taxpayer — you may pay above the floor. Top-rate taxpayer (47% effective including Medicare): 47% on the CPI-indexed real gain typically exceeds the 30% floor. Confirm your position with a registered tax agent.

Negative Gearing: What Changed on Budget Night

The 2026 Budget confirmed a ring-fencing change to negative gearing that is separate from — but linked to — the CGT changes.

Established residential properties contracted after 7:30pm AEST 12 May 2026 can no longer have net rental losses (negative gearing) deducted against other income such as salary. Losses can still be carried forward and offset against future rental income or capital gains from the same property.

What is NOT affected:

• Properties contracted before 7:30pm AEST 12 May 2026 — fully grandfathered under current negative gearing rules
• New residential builds (off-the-plan, house and land) — exempt; negative gearing continues as an incentive for new housing supply
• Commercial property — not included in the ring-fencing change

If you're modelling a post-budget Queensland purchase to test whether the new-build exemption still produces a workable cash flow, factor stamp duty into the upfront cost — Queensland charges full transfer duty on non-FHB investment buyers (no concessions) plus an 8% Additional Foreign Acquirer Duty for foreign buyers. The Velofy QLD stamp duty calculator returns the exact figure for any purchase price and includes the foreign-buyer surcharge toggle.

Grandfathering: The Cost-Base Reset Mechanism

The Budget confirmed grandfathering for all existing CGT assets via a cost-base reset mechanism. Assets held as at 1 July 2027 will have their cost base reset to market value on that date. This effectively draws a line in the sand:

• Gains accrued from original purchase up to 1 July 2027 are assessed under the existing 50% discount rules when you eventually sell
• Gains accrued from 1 July 2027 onwards are subject to the new CPI indexation rules with the 30% minimum effective tax

This prevents investors from being fully taxed under new rules on gains that accrued over decades under a different framework. Consult a registered tax agent to model the exact interaction between the reset date, your acquisition date, and your planned disposal timing.

5 Actions for Investors Right Now

The Budget has been confirmed. Here are five concrete steps for property and share investors before 1 July 2027.

1. Calculate your current CGT position to 1 July 2027. Ask your accountant for a projected tax estimate if you sold just before 1 July 2027 under the current 50% discount — and compare it to the 30% minimum if you sold just after. This gives you the exact cost of timing your disposal.
2. Review any property contracted after 12 May 2026. If you entered a contract on an established residential property after 7:30pm AEST on 12 May 2026, confirm with your accountant whether you can still claim negative gearing losses and restructure your cash flow if not.
3. Check the 12-month clock on all your holdings. The CGT discount — including the new rules from 1 July 2027 — requires assets to be held for more than 12 months. Assets acquired after June 2026 will not qualify for any discount treatment until after June 2027 at the earliest.
4. Assess the grandfathering mechanism for each asset. Ask your tax agent to model the cost-base reset at 1 July 2027 for each CGT asset you hold. For investors with large unrealised gains held since the 2010s, selling before 1 July 2027 under the current 50% discount may produce a significantly lower tax outcome — but this depends on your full income picture.
5. Do not panic-sell based on this article alone. A pre-July 2027 disposal locks in the 2026–27 income year, which may push you into a higher bracket depending on your salary and other income. Selling early is not automatically the right move. Get written advice from a registered tax agent before making any major disposal decision.