Capital Gains Tax Australia 2026: How CGT Works and What Changed After the Budget
Australia's capital gains tax system just went through its biggest change since 1999. The 50% CGT discount that investors have relied on for 27 years is being replaced — and if you own investment property, shares, or any other CGT asset, understanding what changes, when, and for whom is now genuinely urgent.
This guide covers how CGT works under the current rules, exactly what the 2026 budget reforms change from 1 July 2027, and what it means for different types of investors depending on when they bought and what they own.
How CGT Works — The Basics
Capital Gains Tax isn't a separate tax — it's the tax you pay on a capital gain when you sell (or otherwise dispose of) an asset. The gain is added to your taxable income in the year you sell, and taxed at your marginal rate.
For most assets, a "capital gain" is simply the difference between what you received for the asset and what you paid for it (your cost base). The cost base also includes certain expenses — stamp duty, legal costs, improvement costs, and borrowing costs in some cases.
What triggers a CGT event?
- Selling investment property, shares, or other investments
- Gifting an asset (market value applies at the time of the gift)
- Converting an investment property to your main residence
- A property being destroyed or compulsorily acquired
- A company being wound up or shares being cancelled
What is exempt from CGT?
- Your main residence — the family home is generally fully exempt
- Cars and motorcycles
- Personal use assets under $10,000 (furniture, electronics bought for personal use)
- Winnings from gambling or lotteries
The 2026 Budget CGT Reforms Major Change
On 12 May 2026, the federal government announced — and has now legislated — the most significant CGT reform since the Howard Government introduced the 50% discount in 1999. These are now law.
What's changing
- 50% CGT discount replaced with cost base indexation — your cost base is adjusted for inflation (CPI), so you only pay tax on the "real" gain above inflation, not the full nominal gain
- 30% minimum tax rate on net capital gains from 1 July 2027 — even if your marginal rate is lower (e.g., in a low-income year), you pay at least 30%
- Pre-1985 CGT-exempt assets lose their blanket exemption for gains accruing after 1 July 2027 — their cost base is reset to their 1 July 2027 value
What's NOT changing
- Main residence exemption — fully intact, no change
- Assets already held — gains accruing before 1 July 2027 still get the 50% discount
- New residential builds — investors can choose between the old 50% discount OR the new indexation system when they sell
- Income support recipients (age pension, JobSeeker) — exempt from the 30% minimum tax
- Small business CGT concessions — remain available (with some adjustments)
| Asset situation | Gains before 1 Jul 2027 | Gains after 1 Jul 2027 |
|---|---|---|
| Property held before 12 May 2026 | 50% discount ✅ | Indexation + 30% min tax ❌ |
| Established property bought after 12 May 2026 | 50% discount ✅ | Indexation + 30% min tax ❌ |
| New residential build (any purchase date) | 50% discount ✅ | Choose 50% OR indexation ✅ |
| Pre-1985 assets (pre-CGT) | Exempt ✅ | Cost base reset to Jul 2027 value, then taxed ❌ |
| Main residence | Exempt ✅ | Still exempt ✅ |
| Shares / ETFs | 50% discount ✅ | Indexation + 30% min tax ❌ |
CGT Calculator — Old vs New Rules
📊 Capital Gains Tax Calculator — 2026
Compare CGT under old 50% discount rules vs new 2027 indexation rules.
Gross capital gain
$400,000
Taxable gain (50% discount)
$200,000
CGT payable (old rules)
$78,000
Indexed cost base
$609,202
adjusted for inflation
Real gain (after indexation)
$290,798
CGT payable (new rules)
$113,411
incl. 30% minimum tax
Extra tax under new rules
$35,411
Effective tax rate (new)
28.3%
on gross capital gain
Simplified estimate. Old rules: 50% discount on gains held 12+ months, taxed at marginal rate. New rules: cost base indexed by CPI, 30% minimum tax applies. Transitional rules mean gains pre-1 July 2027 still get 50% discount. New builds can choose either method. Seek tax advice for your specific situation.
The Main Residence Exemption — Still Intact
Your family home remains fully exempt from CGT. This is one of the most valuable tax concessions in Australian law and it wasn't touched by the 2026 reforms. To qualify for the full exemption:
- The property must have been your main residence for the entire period you owned it
- The land must be two hectares or less
- You must not have used it to produce income during any part of the ownership period (if you did, a partial exemption applies)
The 6-year rule
If you move out of your main residence and rent it out, you can treat it as your main residence for CGT purposes for up to 6 years — meaning you can sell it CGT-free within that window. This rule remains unchanged under the 2026 reforms and is one of the most useful CGT planning tools available to homeowners.
CGT and Different Asset Classes
The 50% Discount vs Indexation — Which Is Better?
This depends on inflation and the actual growth of your asset. The government's stated intention is that indexation better reflects "real" gains — but in practice, the outcome varies:
- If inflation is high and your asset's real growth was modest, indexation reduces the taxable gain more than the 50% discount would
- If your asset grew strongly above inflation (common in hot property markets), the 50% discount would have produced a smaller taxable gain than indexation
- The 30% minimum tax removes the strategy of selling in a low-income year (e.g., early retirement) to access a lower effective tax rate — one of the most commonly used CGT planning tools
Common Questions
Related Articles
Sources: ATO — CGT Reform, Federal Budget 2026-27, ATO — Capital Gains Tax
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