The May 2026 Federal Budget announced significant changes to Capital Gains Tax for individuals and trusts. Since then more details have been released and the new rules are now law.

What is changing?

For capital gains accrued from 1 July 2027, the 50% CGT discount is replaced by cost base indexation, and a minimum 30% tax rate applies to gains made by individuals after indexation. Gains that built up before 30 June 2027 are still eligible for the 50% discount and still get taxed at your marginal tax rate. That much has already been reported. What has had less attention is how the changes affect assets you already own, and one group of assets in particular.

Assets you already own

For most assets (excluding “new residential property”) acquired before 30 June 2027 and sold after 1 July 2027 there is going to be a two-part calculation to work out the taxable capital gain.

For those assets, the 50% discount will only apply to the capital gain accrued up to 30 June 2027.  The first part of the capital gain is now called the “deferred” capital gain and it is calculated using the difference between the deemed or actual value at 30 June 2027 compared to the original cost base.  That value at 30 June 2027 then becomes the cost base from 1 July 2027 and is indexed for inflation using CPI (if held for more than 12 months) and that part of the capital gain will be calculated based on the difference between the actual sale price and that indexed value. 

The deferred capital gain continues to be subject to normal marginal tax rates but the second part of the capital gain will be subject to a minimum tax rate of 30% resulting in an increase to the final tax bill where the tax otherwise payable at marginal tax rates would fall below 30%. 

Recently announced is also that the only other opportunity to reduce minimum 30% CGT on the second part of the capital gain is to make donations to Deductible Gift Recipients.  These will be deducted from the capital gain and only the net will be subject to the 30% min tax.

The original acquisition date carries over for the purposes of determining if you are eligible for indexation (ie have held the asset for more than 12 months) as well as for the Small Business Entity CGT concessions. 

The intent is a system that taxes real economic gains. The effect is a system with considerably more moving parts.

Pre-CGT assets

If you have held an asset since before 20 September 1985, the new rules are going to have a significant impact.

Pre-CGT status finishes on 30 June 2027 for every type of entity. Each pre-CGT asset held on 30 June 2027 is deemed to have been acquired at market value on 1 July 2027 for market value.  The capital gain built up over the whole period you have owned it to 30 June 2027 remains tax free and only the capital gains from 1 July 2027 onwards will be taxed according to the new rules.

Anyone holding pre-CGT assets, particularly family businesses and farming families, should have a conversation with their accountant well before June 2027 as this might be a good time to consider restructuring options.

Do you need your assets valued as at 30 June 2027?

For listed shares & ETFs the value will be per the closing prices on 30 June 2027 which are public records.

For Crypto you’ll need to export the exchange price records for 30 June 2027.

For investment properties (or any property that is not 100% Main Residence) you could get a valuation by a licenced valuer or at least a written agent appraisal.  These can be “back dated” so there is no rush to get one now.  If you don’t want the cost of getting a valuation there is an apportionment method that can be used instead, which estimates the 30 June 2027 value by taking your cost base and applying a compounding daily growth rate across your whole ownership period, taking into account the original cost and the final actual sale price to determine a deemed value as at 30 June 2027.

Unfortunately, there is no blanket rule as to which method will produce the lowest capital gain and corresponding tax bill because it will depend on how the property value moved over time and compared to inflation as well as your marginal tax rate.   It might be worth modelling each method to determine if it is worth the cost of getting a formal valuation.

For unlisted business interests (sole traders & private trusts & companies), where there is even the faintest possibility that your business could be sold at some point in the future, you do need to talk to your accountant soon about either getting a valuation as at 30 June 2027 or at least documenting the relevant information now on which to base the formal valuation on later.  

 Who do the new rules apply to

The new rules (excluding pre-CGT assets) only apply to individuals and trusts. 

Companies were never eligible for the 50% discount, and they are not allowed to use the new indexation method either. Super Funds are also exempt from the new rules and will continue to calculate their capital gains on post CGT assets and be taxed the same way as before.

The new rules also do not apply to anyone who has been a foreign or temporary resident at any point while they owned the asset.  This is because there are special rules that limit their access to the 50% discount anyway.

The 30% minimum tax, and who it does not apply to

The minimum tax rate on capital gains from 1 July 2027 operates as a top-up. It does not change how the gain is calculated, only the tax payable on it, and it only applies to individuals.  Capital gains made by trusts usually flow through to the beneficiaries and are taxed accordingly there.

It does not apply at all in a year where you received certain means tested income support payments from the government. The list is broader than most people assume, and includes the age pension, family tax benefit, the carer payment, the disability support pension, jobseeker, parenting payment, parental leave pay, the farm household allowance and ABSTUDY living allowance.  These taxpayers will therefore continue to pay tax on any capital gains based on their marginal tax rate.  This therefore means that there could be significant differences in tax paid by aged pensioners versus self-funded retirees on similar capital gains.

Deductible gifts and conservation covenant deductions also reduce the gain before the minimum rate is worked out, which makes the timing of a planned donation worth considering alongside a planned sale.

What keeps the discount

The 50% discount has not gone completely.

Gains that accrued before 1 July 2027 keep the discount, including the deferred gains described above.  Superannuation funds are unaffected and keep their one third discount.   New residential dwellings can also keep the 50% discount. 

For new dwellings and affordable housing there is a choice to make: use the discount method on the whole capital gain, or indexation plus the 30% minimum. Which is better depends on your holding period and your marginal rate, and it is an election, so it needs a decision rather than a default.

What can capital losses be offset against

Capital gains are now sorted into four categories: deferred non-residential, deferred residential, non-residential and residential. Any capital losses must be applied against them in that order.

In practice, this means losses have to absorb all of your deferred (discounted) gains before they can be offset against any post-2027 gains. If you have been carrying losses forward and planning to apply them against particular gains, that flexibility has narrowed.

If you hold a negatively geared residential property

From 1 July 2027, any negative gearing losses on a residential property bought after 13 May 2026 are quarantined.  They can be offset against other residential property income received that year; or against a capital gain on a residential property that year.  If there is no other residential property income or capital gain on a residential property that year then the amount is carried forward to future years to be used when there is.

That amount of the quarantined loss is offset against gross residential property capital gains before the CGT discount is applied and before the small business concessions are applied.  

So, the negative gearing changes not only impact the annual deduction question. They could also follow the property through to the eventual sale.

Planning implications

Valuations. Establish whether you need one, and if so, get it “as at” 30 June 2027.

Timing. Some people may want to realise a gain through sale or restructure before 1 July 2027 to preserve access to the current rules. Whether that is sensible depends on the asset and your position, not on the date alone.  Talk to us soon!

Structure. Outcomes now vary considerably depending on who holds the asset. The same gain can produce materially different tax in an individual’s name, a trust or a company.  It is worth having a discussion with your accountant about restructuring.

Records. Cost base records matter more than they did, and for longer.

Our perspective

This is one of the most structural investment tax reforms in decades. It moves the system toward taxing real gains rather than nominal ones, which is defensible, but it does so at the cost of a great deal more complexity.

For most investors the work is not urgent, but it is time sensitive. The decisions that matter, on timing, valuations and structure, are better made soon rather than in the weeks before June 2027. Speak to the advisory team at DFK Everalls to model your position before the rules change.