Understanding Capital Gains Tax Reforms in Australia for 2026

Australia's 50% capital gains tax discount for individuals, trusts and partnerships is being replaced with cost base indexation and a 30% minimum tax rate on capital gains. This reform is now law, legislated as part of the May 2026 Federal Budget, and applies to gains that accrue from 1 July 2027, so the current 50% discount still applies to any gain accrued before that date. The change followed a Senate Select Committee inquiry into the discount's role in inequality and productivity, and Parliamentary Budget Office estimates that put its cost at $247 billion in foregone revenue over the next decade. Analysis also showed the top 1% of income earners received 59% of the discount's benefit in the 2025-26 financial year, against roughly 4% for Australians under 35.

The Nature and Function of Capital Gains Tax in Australia

Capital Gains Tax is integral to the Australian income tax system, applying to profits realized from the sale of various assets, such as:

• Real estate
• Stocks and shares
• Managed funds
• Cryptocurrency

The net capital gain, which represents the difference between the sale price and the purchase price minus eligible deductions, is typically taxed at the same marginal rate as ordinary income. Importantly, CGT events occur at the sale of the asset, meaning the timing of these transactions significantly affects tax liabilities.

A Brief History of CGT in Australia

From Introduction to Reform

Introduced in 1985, CGT marked a major shift in Australia’s tax policy. Initially, assets acquired before this date were exempt from CGT, leading to a significant tax advantage for older assets. In 1999, the introduction of a 50% discount for individuals holding assets for over a year transformed the landscape, simplifying the system and incentivizing long-term investment.

The Current CGT System Overview

As of 2026, the CGT operates under a structure that provides varying benefits based on the entity holding the asset:

Tax Rates and Implications

• Individuals: Gains are taxed at marginal rates, with a 50% discount for assets held for over 12 months.
• Trusts: Beneficiaries are taxed at their individual rates, allowing for strategic distribution of capital gains.
• Companies: They do not benefit from the CGT discount, facing a flat corporate tax rate of 30%.
• Self-Managed Super Funds (SMSFs): Superannuation funds enjoy favorable CGT treatments, reducing taxes to 15% in accumulation phase and zero in pension phase.

Exemptions and Special Cases

Key exemptions from CGT include:

• Your main residence, provided it meets specific conditions.
• Assets acquired before September 20, 1985.
• Personal use assets under a certain threshold.

The Economic and Social Impacts of CGT

Distribution of CGT Benefits and Inequality

The 50% capital gains discount has faced criticism due to its uneven distribution of benefits. Recent analyses indicate that the top 1% of income earners received 59% of the total benefit from the CGT discount in the 2025-26 financial year. Meanwhile, younger Australians (under the age of 35) only received about 4%, highlighting a concerning trend in wealth concentration.

CGT’s Influence on Housing Affordability

There’s an ongoing debate about the relationship between CGT and housing affordability. Critics argue that the CGT discount incentivizes property investing over owning a family home, reducing available housing supply for first-time buyers. In contrast, others cite broader supply constraints and demographic factors as the driving forces behind rising housing prices.

2026 Reform: How the CGT Discount Changed

The Senate Inquiry That Led to Reform

A Senate Select Committee examined the CGT discount’s role in income inequality and productivity suppression, holding public hearings and reviewing numerous submissions. That inquiry fed directly into the government’s May 2026 Budget decision to replace the discount rather than leave it unchanged.

Estimates of Revenue Loss

Analysis from the Parliamentary Budget Office reveals that the CGT discount is projected to result in $247 billion of foregone revenue over the next decade, highlighting the urgency for comprehensive reform.

What Actually Changed

Of the options debated during the inquiry, the government chose to replace the discount entirely rather than simply reduce it:

• The 50% discount for individuals, trusts and partnerships is replaced with cost base indexation plus a 30% minimum tax rate on capital gains.
• The change applies to gains accruing from 1 July 2027 onward; the existing discount still applies to any gain that accrued before that date.
• Complete elimination without offsetting indexation, further rate reductions, and a carve-out limited to investment properties were all raised during the inquiry but were not the model adopted.

What This Means Going Forward

With the reform now legislated, the practical question for taxpayers has shifted from whether change would happen to how to plan around it. Because the new rules apply only to gains accruing from 1 July 2027, decisions made before that date, including whether to sell an asset now or continue holding it, can still affect which set of rules applies to the resulting gain.

Conclusion: A New Era for CGT

The 2026 CGT reform is a significant structural change to how capital gains are taxed in Australia, replacing a 25-year-old discount with cost base indexation and a minimum tax rate. With significant implications for wealth distribution, housing affordability, and the investment market, anyone holding assets they expect to sell after 1 July 2027 should understand how the new rules will apply to their own position.

For a closer look at how these changes could play out for one common strategy, see our related article on rentvesting and the CGT discount.

Disclaimer: This article contains general information only and does not constitute financial, legal or tax advice. It has been prepared without regard to your objectives, financial situation or needs. Tax and superannuation laws change frequently, and the information in this article may not reflect the current law or may become inaccurate over time. Before acting on anything in this article, you should consider its appropriateness to your circumstances and seek advice from a registered tax agent or qualified adviser.