The 50% CGT discount has been a cornerstone of Australian investment strategy since 1999. Hold an asset for more than 12 months, sell it, and half the gain is disregarded. For high-income Australians, that's made property and shares significantly more tax-effective than almost any other investment. From 1 July 2027, it's gone - replaced with inflation indexation and a 30% minimum tax. This is the most consequential change to investment taxation in a generation, and most people I speak to don't fully understand what they're replacing it with.

Let me be clear about my view: for high-income earners, this change generally makes things worse. Not catastrophically worse, but worse. The indexation method sounds reasonable until you run the numbers. For long-held assets with strong real growth, you're going to pay more tax than you would have under the discount. That's the honest answer.

What the CGT Discount Replacement Actually Involves

Starting 1 July 2027, Australian resident individuals and trusts dispose of CGT assets under a new system. Instead of halving your capital gain, you adjust your cost base upward for inflation.

Here's how it works. Each element of your cost base - the purchase price, stamp duty, legal fees, any capital improvements - gets indexed for CPI from the quarter it was incurred to the quarter of sale. This produces an "indexed cost base". Your taxable capital gain is then: sale proceeds minus indexed cost base. No halving. No discount.

On top of that, a 30% minimum tax applies to that indexed gain. If your marginal rate on the gain is already 30% or higher, no extra tax is owed. If your marginal rate would produce a lower effective rate on the gain, you pay up to 30% regardless.

For most high-income earners, the marginal rate issue isn't the problem - they're already paying well above 30% on income including capital gains. The issue is the base calculation. You're now being taxed on 100% of the real (inflation-adjusted) gain, rather than 50% of the nominal gain.

Indexation vs the Old 50% Discount: Which Is Better?

This is the question clients ask first. There's no universal answer, but there's a useful framework.

The old system was simple: take the gain, halve it, add to income, pay tax. For a high-income earner at the top marginal rate, effective tax on the gain was roughly 23.5% (47% on half the gain).

The new system: adjust for inflation, tax the remainder at marginal rates with a 30% floor. If inflation averages 3% per year over a long hold, indexation might strip out 30-40% of a nominal gain. But you're then taxed at 47% on 60-70% of the gain - an effective rate of around 28-33%.

So for short hold periods or modest gains, indexation might produce a comparable outcome to the old discount. For long hold periods with strong real growth - which is exactly how property investors have built wealth in Australia - indexation is worse. Your gain in real terms is larger than the inflation adjustment, and you're taxed on all of it at marginal rates.

My rough calculation: for an asset held 10 years or more with significant real capital appreciation, you're likely paying 5-10 percentage points more effective CGT under the new system than under the old discount. For high-income earners selling long-held investment properties or substantial share portfolios, that's a material number.

How the Transitional Rules Work

This is the part that's genuinely complex, and the PwC analysis of the legislation does the clearest job of explaining it.

Assets you hold at 30 June 2027 are deemed to be sold and immediately reacquired at market value on 1 July 2027. This creates a "notional gain" for the pre-July 2027 period. That notional gain is deferred - it crystallises when you actually sell the asset. And it's calculated under the old rules, including the 50% discount if eligible.

So the gain on any asset you hold across 1 July 2027 is effectively split:

  • Gain from acquisition to 30 June 2027: calculated using existing law (50% discount applies)
  • Gain from 1 July 2027 to eventual sale: calculated using new indexation system with 30% minimum tax

Both components are assessed together in the year you actually sell. This means the transition preserves the discount treatment for historical appreciation - you're not retrospectively losing the benefit on gains already earned. That's the government's justification for not triggering a mass selling event: existing gains are protected under the old rules.

There's a catch. The transitional rules require an assessment of each asset's market value at 30 June 2027. The ATO hasn't yet specified what level of formality is required - whether a formal valuation is needed for every asset, or whether a reasonable estimate suffices. This will be significant. For high-income earners with large, complex portfolios, getting that valuation right could affect millions of dollars in tax treatment.

What It Means for Shares and Managed Investments

The change affects all CGT assets, not just property. Shares, ETFs, managed funds, crypto - all of it.

For a share portfolio accumulated over 10-15 years, the transitional rules mean the historical gain is preserved under the old discount. Post-July 2027 growth is taxed under indexation. For investors in accumulation mode who are adding to portfolios rather than selling, the immediate impact is limited - but the long-term planning calculus has shifted.

The strategy I'm seeing discussed more often is timing. If you were already planning to realise gains on a substantial holding, the window between now and 30 June 2027 is meaningful. The gain accrued to that date gets the 50% discount. After that, it doesn't. For a large unrealised gain, this timing consideration is worth a detailed analysis.

Don't act on timing alone without reviewing the whole picture - other income in the year of sale, carry-forward losses, the effect on Medicare levy surcharge thresholds, super contribution opportunities. Tax timing decisions interact with everything else.

The New Build Carve-Out

New residential dwellings and affordable housing get a choice under the new rules. Investors disposing of qualifying new builds on or after 1 July 2027 can choose between the 50% CGT discount and the new indexation-plus-minimum-tax system. They pick whichever produces the better outcome.

This mirrors the exemption for new builds from the negative gearing quarantine. The government is systematically protecting tax incentives for new construction while removing or modifying them for established property. If you're considering investment property and you want the most tax-effective outcome, new builds now have a clear structural advantage over established properties on both the negative gearing and CGT fronts.

What About SMSFs?

The CGT discount reform directly applies to individuals and trusts. SMSFs are a different category - they use a one-third CGT discount (giving an effective 10% rate on long-held assets, since the fund's headline rate is 15%). That one-third discount is separate legislation and not directly affected by the current changes.

So for high-income earners who hold investment assets inside an SMSF - whether property, shares, or other investments - the CGT treatment remains the existing 10% effective rate on long-held assets. That's a significant advantage compared to the new individual/trust rules.

I see this with clients who have built up substantial SMSF balances. Assets held in the fund for 12 months or more are subject to 10% effective CGT regardless of what happens to individual rates outside super. The new rules don't touch that. If you're still in the accumulation phase with an SMSF at $200,000 or above for couples - the threshold I use as a practical guide - the case for accumulating growth assets inside super is now even stronger relative to holding them personally.

The Pre-CGT Asset Change

There's a less-discussed element of the package affecting pre-CGT assets. Assets acquired before 20 September 1985 have traditionally been entirely exempt from CGT. From 1 July 2027, those assets are deemed sold and reacquired at market value. Historical gains to that date remain exempt. But any future appreciation after 1 July 2027 becomes taxable under the new indexation system.

This affects a smaller group - mainly older family trusts and long-established companies holding assets from the early 1980s. But if you're a trustee or beneficiary of a structure with pre-CGT assets, this is worth a specific conversation with your adviser now.

The Bigger Planning Window: Before July 2027

The transitional rules give everyone holding appreciating assets a 13-month window from now until 30 June 2027. During that window, you can:

  • Sell an asset and have the entire gain taxed under the old 50% discount rules
  • Decide to hold, knowing the pre-July 2027 portion of the gain remains protected
  • Prepare valuations that establish the market value at 30 June 2027 (important for assets you'll hold through the transition)
  • Review whether your portfolio structure - personal name, trust, SMSF - is optimal given the new landscape

What you shouldn't do is panic-sell everything before July 2027. Selling early crystallises tax now rather than in the future. For assets you intend to hold long-term, the deferred structure of the transitional rules may actually be fine - pay the old discount rate on pre-2027 gains, then use indexation on future growth. That might not be as bad as it sounds, particularly if holding periods are long and inflation is modest.

The cases where early selling makes more sense: large, long-held assets where you were planning to sell within a few years anyway; situations where other income will be lower in the year of sale if you time it before July 2027; assets in trust structures where the 30% minimum tax creates a new floor that changes the calculus.

Frequently Asked Questions

What is replacing the 50% CGT discount from 1 July 2027?

From 1 July 2027, the 50% CGT discount for individuals and trusts is replaced by cost base indexation - your purchase costs are adjusted for CPI inflation. A 30% minimum tax rate applies to the indexed gain, meaning you pay at least 30% regardless of your marginal rate.

Does the CGT discount change affect assets I already hold?

Transitional rules apply. Assets held at 30 June 2027 are deemed sold and reacquired at market value on 1 July 2027. Gains accrued before that date retain the 50% discount. Gains accruing from 1 July 2027 onwards use the new indexation plus 30% minimum tax. You'll need a market valuation at 30 June 2027 for assets held across that date.

Are superannuation funds affected by the CGT discount changes?

No. The CGT discount for superannuation funds (the one-third discount producing a 10% effective rate) is separate and not directly affected. SMSFs and large super funds continue under their existing CGT rules.

Does the new CGT regime apply to shares as well as property?

Yes. The change applies to all CGT assets held by Australian resident individuals and trusts - shares, ETFs, managed funds, cryptocurrency, business assets, investment property. All of it.

Should I sell assets before 1 July 2027 to lock in the 50% discount?

It depends on the asset, your circumstances, and the transitional rules - which do protect historical gains even if you hold through July 2027. If you were already planning to sell, the timing is worth modelling carefully. Don't sell purely for tax reasons without considering the full picture.

What does 'inflation indexation' mean in practice?

Each element of your cost base gets adjusted upward by CPI from the quarter it was incurred to the quarter of sale. This reduces your taxable gain by stripping out inflation. Whether that's better or worse than the 50% discount depends on how long you held the asset and what inflation was over that period.

Are new residential builds exempt from the new CGT rules?

Investors disposing of new residential dwellings or affordable housing on or after 1 July 2027 may choose between the 50% CGT discount or the indexation-plus-minimum-tax regime. It's a choice - you pick whichever produces the better outcome.

The CGT discount change is the most significant investment tax reform since the discount itself was introduced in 1999. For high-income earners in the accumulation phase, the planning window between now and 30 June 2027 matters. Structure, timing, and what you hold where - all of it needs a fresh look.

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Andrew Romano is a Chartered Accountant and SMSF Specialist based in Sydney. He works with high-income individuals, business owners and investors on tax planning, structuring and self-managed super funds.

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