The Government has announced significant changes to the capital gains tax (CGT) regime from 1 July 2027, replacing the current 50% CGT discount with cost base indexation for eligible CGT assets held longer than 12 months. A minimum 30% tax rate will also apply to real capital gains after indexation, while pre-1985 assets will be brought into the CGT regime for gains earned from 1 July 2027.

Note: The measures are currently proposed only and will require legislation to pass Parliament before becoming law.

Key proposed changes to CGT include:

• Replacement of the current 50% CGT discount with inflation-adjusted cost base indexation from 1 July 2027.
• Introduction of a minimum 30% tax rate on realised real capital gains.
• Expansion of the CGT regime to include pre-1985 assets for gains earned from 1 July 2027.
• Continued access to the existing 50% CGT discount for gains accrued before 1 July 2027 under transitional arrangements.
• Ongoing exemption for capital gains on pre-1985 assets realised before 1 July 2027.

The proposed measures will apply to CGT assets held by individuals, trusts and partnerships and will operate prospectively from 1 July 2027.

New residential properties to receive alternative treatment

An exception has been proposed for new builds (ie investors in new residential properties). Investors will be able to choose between:

• Applying the current 50% CGT discount; or
• Using indexed cost base calculations together with the proposed minimum tax framework.

Income support recipients, including Age Pension recipients, are expected to be exempt from the minimum tax provisions. The measure is intended to maintain investment incentives for new housing construction.

Proposed minimum tax rate still lacking detail

Limited information has been released on how the proposed 30% minimum tax on capital gains will operate in practice. The Budget Papers state the measure is designed to:

• Reduce incentives to defer asset disposals for tax reasons.
• Ensure a more consistent level of tax is paid on capital gains over a taxpayer’s lifetime.

Further clarification will likely be required on several practical issues, including:

• How the minimum tax rules will interact with carried forward capital losses.
• The treatment of taxpayers with losses from other income-producing activities in the same financial year.
• The broader administrative operation of the new regime.

Without further legislative detail, the practical operation and broader implications of the proposed measures remain unclear.

We will keep updating our communications as further changes are announced. If you would like to understand how these proposed changes may affect your investment structures or future asset sales, please contact our team for advice tailored to your circumstances.