Major Capital Gains Tax Changes from 1 July 2027: What You Need to Know

The Government’s significant changes to Australia’s capital gains tax rules have now become law.

From 1 July 2027, the existing 50% capital gains tax discount will generally be replaced with an inflation-based indexation system for individuals, trusts and partnerships.

A new minimum tax rate of 30% will also apply to certain capital gains made by individuals.

These changes may significantly affect the tax payable when selling investment properties, shares, businesses and other appreciating assets.

What is changing?

Under the current rules, an individual or trust that has held an eligible asset for at least 12 months can generally reduce the capital gain by 50%.

From 1 July 2027, the 50% discount will generally be replaced with cost base indexation.

Instead of reducing the capital gain by half, the original cost of the asset will be increased to reflect inflation during the ownership period. Tax will then apply to the gain remaining after this adjustment.

A simple example

Assume an investment is purchased for $500,000 and later sold for $800,000.

Under the current rules, the capital gain would be $300,000. Subject to satisfying the relevant requirements, the 50% CGT discount would reduce the taxable gain to $150,000.

Under the new rules, the original $500,000 cost base would first be increased for inflation. The taxable gain would then be calculated using the indexed cost base.

Whether the new rules produce a better or worse outcome will depend on:

• How long the asset has been owned

• Inflation during the ownership period

• How much the asset has increased in value

• The owner’s other taxable income

• Whether any exemptions or concessions are available

Assets that increase in value substantially faster than inflation may receive less favourable treatment than under the existing 50% discount.

A minimum 30% tax on certain capital gains

From 1 July 2027, certain capital gains made individuals will also be subject to a minimum tax rate of 30%.

The rule is designed to limit the benefit of deliberately selling assets in a low-income year, such as after retirement or during a temporary break from work.

Additional tax may apply where the tax otherwise payable on the relevant capital gain is less than 30%.

This does not mean every capital gain will automatically be taxed at 30%. The calculation may still be affected by capital losses, exemptions, concessions and tax offsets.

However, the change means that timing a large capital gain into a low-income year may no longer produce the same tax benefit.

What happens to assets you already own?

The new rules are intended to apply to gains accruing from 1 July 2027 rather than retrospectively taxing earlier growth.

For assets owned before 1 July 2027, the capital gain may need to be divided between:

• The gain attributable to the period before 1 July 2027

• The gain attributable to the period from 1 July 2027 onwards

The pre-1 July 2027 component may continue to qualify for the existing CGT discount, while the later component will generally be subject to indexation and the new minimum tax rules.

Special transitional rules also apply to assets acquired before the introduction of CGT on 20 September 1985. Gains accruing before 1 July 2027 may continue to be disregarded, while growth occurring after that date may become taxable.

Record keeping will become even more important

The transitional rules mean taxpayers may need to establish the value of an asset at or around 1 July 2027 and accurately identify when different parts of a gain accrued.

Owners of long-held assets should ensure they retain:

• Purchase contracts and settlement statements

• Records of stamp duty and legal fees

• Renovation and improvement invoices

• Ownership and restructuring documents

• Historical valuations

• Records of private and income-producing use

• Details of any previous capital losses

Reconstructing these records shortly before an asset is sold can be difficult and may result in legitimate costs being excluded from the cost base.

Small business CGT concessions remain available

The existing small business CGT concessions have been retained.

These concessions may allow eligible business owners to reduce or completely disregard a capital gain made on the sale of an active business asset.

From 1 July 2027, the aggregated turnover threshold for accessing the small business 50 per cent active asset reduction will also increase from $2 million to $10 million.

The other eligibility conditions will continue to apply, including the active asset requirements and either the relevant turnover test or maximum net asset value test.

Business owners considering a future sale should obtain advice well before signing any agreement, as the ownership structure and steps taken before the sale can materially affect access to the concessions.

What should you do now?

Although the changes do not commence until 1 July 2027, they should be considered when making decisions about:

• Selling an investment property or share portfolio

• Selling a business or business asset

• Retiring or reducing taxable income

• Restructuring a family group

• Transferring assets between individuals, trusts or companies

• Undertaking succession or estate planning

Selling an asset before or after 1 July 2027 may produce materially different outcomes. However, tax should not be considered in isolation from commercial, legal and investment factors.

If you are considering commencing or expanding an investment portfolio, please contact us before deciding on the ownership structure. The most appropriate structure will depend on the type of investments, expected income and capital growth, your age, asset protection needs, estate planning objectives and longer-term financial goals.

The new CGT rules may also affect whether investments are best held personally, jointly, through a discretionary trust, company or another structure. Establishing the correct structure from the outset is generally simpler and more cost-effective than restructuring after assets have increased in value.

Proposed minimum tax for discretionary trusts

The Government has also proposed a separate 30% minimum tax for discretionary trusts from 1 July 2028.

The measure is not yet law and important details remain subject to consultation and final legislation.

We are monitoring these developments closely. Once the final rules are available, we will contact affected clients to discuss whether any restructuring or other action may be required.

We are here to help

These changes represent a major shift in the taxation of investments, businesses and family wealth.

If you are considering selling an asset, restructuring an investment or commencing a new investment portfolio, please contact our office before proceeding.

We are here to help you understand the new rules, consider the most appropriate ownership structure, identify available concessions and avoid unexpected tax consequences.