The Government has legislated significant changes to Australia’s capital gains tax (CGT) regime. Under the changes, the current 50% CGT discount for eligible assets held longer than 12 months will be replaced with an inflation-adjusted cost base indexation model. Rather than automatically reducing a capital gain by 50%, taxpayers will increase the cost base of an asset by inflation before calculating the taxable gain.

A minimum 30% tax rate will then apply to realised capital gains after indexation.

Following consultation after the 2026-27 Federal Budget, the legislation includes a number of targeted concessions for small businesses, start-ups and charitable giving, providing greater certainty for affected taxpayers ahead of the commencement date.

The measures are now expected to become law following Royal Assent, with the changes commencing from 1 July 2027.

Key updates as of 25 June 2026

You can jump straight to the latest announcements below:

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Looking for updates on the proposed 30% tax on discretionary trusts?

Read our companion article, “Proposed 30% tax on discretionary trusts explained“, which includes the latest updates relating to testamentary trusts and trust taxation proposals.

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Expanded small business CGT concession

One of the most significant announcements following consultation is the expansion of the small business 50% active asset reduction.

Currently, businesses with aggregated annual turnover below $2 million can access four small business CGT concessions:

• The 15-year exemption.
• The 50% active asset reduction.
• The retirement exemption.
• The rollover concession.

Under the latest proposal, businesses with aggregated annual turnover of up to $10 million would become eligible for the 50% active asset reduction, extending this concession to an estimated 2.7 million Australian small businesses.

The remaining three concessions would continue to apply only to businesses with turnover below $2 million.

For eligible businesses, the calculation would generally involve:

• Applying inflation-based cost base indexation.
• Applying the 50% active asset reduction.
• Applying the minimum 30% CGT rate to the remaining taxable gain.

While this is a welcome concession for many business owners, it does not extend the full suite of existing small business CGT concessions to businesses above the $2 million turnover threshold.

Support for innovative start-ups

The Government has also announced a concession designed to encourage innovation and investment in Australian start-ups.

Eligible founders, employees and investors would retain access to the existing 50% CGT discount and be able to opt out of the indexation model.

Based on the Treasury consultation paper, eligible businesses would generally need to:

• Have annual turnover below $50 million.
• Be less than 10 years old (or up to 15 years for biotechnology and medical technology companies).
• Meet specified innovation criteria.
• Issue new equity that is held for at least five years.

A lifetime capital gains cap of $10 million before the discount would apply, providing a targeted incentive for investment in growing Australian businesses.

Further consultation is expected before these measures are legislated.

Pre-1985 assets

Importantly, the transitional arrangements are based on when capital gains accrue, rather than simply when an asset is sold. Assets acquired before 1 July 2027 will not lose all access to the current CGT discount. Instead, the existing rules will continue to apply to gains accrued before 1 July 2027, while the new cost base indexation and minimum tax rules will apply only to gains accruing from that date onwards.

The legislation also brings pre-CGT assets (generally those acquired before 20 September 1985) into the CGT regime for gains accruing from 1 July 2027. Any gains accrued before that date will retain their historical tax treatment. As a result, owners of pre-CGT assets may need to consider obtaining valuations and maintaining appropriate records ahead of the commencement date.

Principal place of residence exemption

The Government has confirmed that the existing principal place of residence exemption is intended to remain in place.

For most Australians, this means the family home would continue to be exempt from CGT under the current rules, with the reforms primarily affecting investment assets, business assets and other capital investments.

Charitable giving concession retained

Following consultation with the not-for-profit sector, the Government has announced that concessional treatment for capital gains donated to charities and deductible gift recipients will be retained.

The announcement responds to concerns that the original proposal could reduce incentives for philanthropic giving and impact charitable organisations that rely on significant donations.

Retaining the concession provides greater certainty for individuals and organisations that incorporate charitable giving into their long-term wealth and estate planning.

What should you do now?

While the legislation has now passed Parliament, there is still time before the changes commence on 1 July 2027. This provides individuals, investors and business owners with an opportunity to review existing assets and consider whether any planning strategies may be appropriate before the new rules begin.

If you would like to discuss how the CGT changes may affect your business or investments, please contact your AFS advisor for tailored advice.