2026 Budget Impact: New Capital Gains Tax (CGT) Rules

What Are The Proposed Capital Gain Tax (CGT) Rules?

If passed by Parliament, the proposed 2026–27 Federal Budget measures could introduce significant changes to how capital gains are calculated for Australian property investors, with changes slated to begin on 1 July 2027.

For over two decades, individual property investors holding an asset for more than 12 months have generally been eligible for a flat 50% Capital Gains Tax (CGT) discount. However, the newly announced budget initiatives look to alter this long-standing framework.

The government has proposed replacing the 50% discount with a CPI indexation model for certain assets and introducing a 30% minimum tax floor on real gains. If legislated, these changes could influence future investment strategies. Here is a breakdown of what has been proposed, based on the information available so far.

---

What the Proposed CGT Changes Mean

1. Proposed Transition from the 50% Concession

The budget proposes replacing the flat 50% CGT discount for individuals, trusts, and partnerships on gains made on established assets after the transition date of 1 July 2027.

2. The Potential Return of CPI Indexation

Under the proposed framework, the cost base of an asset would be adjusted upward to account for inflation using the Consumer Price Index (CPI), provided the asset is held for at least 12 months. This means investors would be taxed on the profit that outpaces inflation, bringing the system closer to the model utilised in Australia between 1985 and 1999.

3. Proposed 30% Minimum Tax Floor

The budget introduces a proposed 30% minimum tax floor on real gains. This measure is intended to target strategies where assets are held until retirement to be sold in a lower personal tax bracket. If a taxpayer’s effective CGT rate falls below 30% due to a low personal income tax bracket, a top-up tax may apply, unless the individual receives means-tested income support like the Age Pension.

4. Proposed “New Build” Exemption

To encourage housing supply, the government has carved out an exemption for newly constructed residential properties. Under the proposal, investors who purchase a new build would retain the choice to use the traditional 50% CGT discount or the indexation model. Combined with proposed limits on negative gearing for established properties purchased after budget night, this measure is designed to direct investment capital toward new housing construction.

---

How These Changes Could Impact Investment Portfolios

While indexation adjusts the cost base for inflation, early indications suggest the impact will vary significantly depending on asset performance and the prevailing inflationary environment.

• Higher Growth Assets vs. Inflation: Under the old system, a flat 50% discount applied regardless of whether an asset’s value grew moderately or exponentially. With an indexation model, if an asset significantly outperforms baseline inflation, a larger portion of the real growth above the inflation ceiling may be exposed to taxation at the investor’s marginal tax rate.
• Impact on Retirement Liquidation: The proposed 30% minimum floor may reduce the historical tax benefit of waiting until retirement to liquidate investment assets, as eligible gains will generally face a baseline tax floor regardless of a drop in personal income.
• Potential Credit and Borrowing Capacity Considerations: Changes to future tax liabilities may influence how bank credit teams evaluate Deferred Tax Liabilities (DTL). If lenders update their credit policies to factor in variable tax liabilities under an indexation model, it could alter calculations for usable equity, though the exact impact on lending frameworks remains uncertain.

---

Case Study: A Hypothetical 10-Year Property Scenario

Let’s consider an educational scenario modelled by Senior Mortgage Broker Jonathan Preston, to illustrate how the proposed changes affect an established property purchased under the new CGT rules.

The Profile (Hypothetical Example):

• Asset Purchase Price: $1,000,000
• Holding Period: 10 Years
• Hypothetical Annual Capital Growth Rate: 7.0% compounded annually
• Hypothetical Average Inflation Rate (CPI): 2.5% per year
• Investor Marginal Tax Rate: Top marginal tax bracket (45% + 2% Temporary/Medicare adjustments = 47%)

After 10 years of compounding at 7%, the property’s value would mathematically increase from $1,000,000 to $1,967,151, representing a nominal capital gain of $967,151.

Note: This case study is for educational and illustrative purposes only. It assumes steady growth and inflation rates and does not account for purchasing, selling, or holding costs, or potential changes to tax legislation.

CGT Discount vs. Indexation Across Different Growth Scenarios

To understand how the proposed changes may affect property and asset portfolios, the Australian Government’s 12 May 2026 factsheet provides three official modelling scenarios. These examples show how different investment returns interact with the proposed Consumer Price Index (CPI) cost base indexation versus the current 50% flat discount.

Each scenario assumes an asset is purchased for $500,000 in July 2027, held for 10 years, with a steady baseline inflation rate of 2.5% per year, and an investor with $100,000 in other taxable income each year.

Kate’s Scenario (Higher Annual Return): According to Treasury analysis, when an asset’s annual capital growth rate (7.5%) substantially outpaces the rate of inflation (2.5%), an investor’s taxable capital gain is higher under cost base indexation than under the old 50% flat discount model. This occurs because the indexation adjustment offsets a smaller proportion of the total nominal profit, exposing the remaining real gains to the individual’s marginal tax rate.

David’s Scenario (Average Capital Growth): David’s scenario represents a return profile similar to historical longer-term residential real estate averages (5.0% annual growth). Treasury’s calculation notes that even at moderate growth tiers, the proposed framework may result in a slightly larger taxable capital gain base ($174,405 vs $157,224), adding a modest increase to the total tax obligation at the time of sale.

Ben’s Scenario (Inflation-Matching Return): Ben’s example illustrates the primary mechanism where the proposed indexation model can serve as a tax shield. Because his capital growth rate (2.5%) exactly matches the annual inflation rate, he makes no “real” capital gain above inflation. Under the proposed rules, his taxable gain drops to $0, resulting in a tax saving compared to the current 50% discount system.

---

Understanding the Proposed Transition and Grandfathering Rules

The government has stated that the proposed rules will not apply retroactively to historical gains. Instead, a transitional apportionment model is proposed for assets purchased before 1 July 2027 and sold after that date:

• The Pre-July 2027 Portion: Capital growth accrued up to 30 June 2027 is intended to retain access to the 50% CGT discount.
• The Post-July 2027 Portion: Growth occurring from 1 July 2027 onward would be calculated under the new CPI indexation and 30% floor rules.

Under these transitional guidelines, investors may need to obtain market valuations as of 1 July 2027 or utilise a statutory apportionment formula provided by the ATO.

Talk To an Expert

Understanding how changing policies could affect your borrowing capacity can be complex. Speak with the team at Home Loan Experts to evaluate your current financing options and stay informed on lending criteria trends.

Call us on 1300 889 743 or start your free online assessment today.

---

Disclaimer: This content is general information only and does not constitute financial, legal, tax, credit, or investment advice. The implications of the Federal Budget are still evolving and may change as further information becomes available. Individual circumstances vary, so customers should seek professional advice before making financial decisions.