CGT Reforms

From 1 July 2027, the 50% CGT discount will be replaced by cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains. These changes will apply to all CGT assets, including pre-1985 CGT assets, held by individuals, trusts and partnerships.   

For assets held prior to 1 July 2027, but sold thereafter, the 50% CGT discount will apply to the difference between the asset’s value at 1 July 2027 and its cost base, while indexation and the minimum tax will be used to calculate the CGT on gains accruing from 1 July 2027 (the asset’s value at that date will form its cost base). To determine the asset’s value at this date, taxpayers can either seek a valuation or use a specified apportionment formula that estimates the asset’s value based on its average return over the holding period (supported by ATO tools). These transitional arrangements are prospective, applying only to gains that accrue after the start date.  

The same approach will apply to assets acquired before the beginning of CGT in 1985. Bringing assets held before 1985 into the CGT regime will improve horizontal equity and enhance the intergenerational equity objectives of the package. At the same time, this approach preserves existing treatment of gains on pre-1985 assets earned before 1 July 2027. Gains on pre-1985 assets earned from 1 July 2027 will be taxed under the new arrangements upon realisation.  

To maintain incentives for new housing supply, investors in new residential properties will be able to choose either the 50% CGT discount, or cost base indexation and the 30% minimum tax.  

Income support payment recipients, including Age Pension recipients, will be exempt from the 30% minimum tax.  

The Budget Papers state that the 30% minimum tax will reduce incentives to defer the sale of assets to periods when other income and marginal tax rates are low. This will support a more consistent taxation of lifetime income by aligning the tax rate on real capital gains with the marginal tax rate faced by the average worker on incomes from $45,000 to $135,000.  

The Treasurer said in a media release that further consultation will be undertaken with stakeholders to settle the details for implementation, including the treatment of early‑stage and start‑up businesses given the unique features of the tech and start‑up sector.