The 2026-27 Federal Budget announced significant changes to how capital gains are taxed in Australia. Since budget night, the Government has also announced a number of refinements following consultation with business groups and industry. The combined picture is more nuanced than the initial headlines suggested, and the practical impact will vary considerably depending on your circumstances, the types of assets you hold, and future asset price movements relative to inflation.
Here is what you need to know, incorporating the most recent announcements.
These changes are not yet law
Everything announced is still a proposal. Draft legislation was released on 28 May 2026 and further refinements have since been announced. Final legislation has not yet passed Parliament and some details, including the apportionment method for calculating transitional gains, remain subject to further guidance. We will keep you updated as things progress.
Negative Gearing: what is changing and what is not
From 1 July 2027, the ability to negatively gear a residential property will be limited to new builds.
- Properties you held at budget night (7:30pm AEST, 12 May 2026) are fully grandfathered. You can continue to negatively gear them in future years, right up until you sell. Properties that you already own are not impacted by these changes.
- New builds continue to attract full negative gearing, before and after 1 July 2027.
- If you purchase an established property after budget night but before 1 July 2027, you can negatively gear it during that window. From 1 July 2027, losses from that property can only be offset against rental income or capital gains from residential property, not against wages or business income. Unused losses carry forward to future years.
- Properties purchased after 1 July 2027 will not be able to be negatively geared unless they are new builds.
Capital Gains Tax: the core changes
From 1 July 2027, the 50% CGT discount for individuals, trusts and partnerships will be replaced with a two-step system for most assets:
- The cost base of your asset will be indexed for inflation (CPI) from when you bought it to when you sell it, so only your real gain is taxed.
- After indexation, net capital gains will be taxed at the greater of your marginal tax rate or 30%.
This applies to all CGT assets held by individuals, trusts and partnerships. Companies and superannuation funds are not affected; their existing rules continue.
For assets you already hold, the 50% discount continues to apply to gains built up to 1 July 2027. The new rules only apply to gains that accrue after that date.
Small Business CGT Concessions: expanded threshold
This is a significant development since budget night. The Government has announced that the turnover threshold for access to the existing 50% Active Asset CGT Reduction under the Small Business CGT concessions will increase from $2 million to $10 million. The Government estimates this will make approximately 98% of Australian businesses eligible.
For business owners considering a future sale, this is a material and positive change. The indexation model and 30% minimum tax that apply to most CGT assets are largely set aside for eligible business sales, and the concessions that have underpinned business sale planning for many years remain accessible to the vast majority of privately owned businesses.
Business sale planning remains important, and the conditions for accessing the concessions still need to be met. But the feared loss of CGT relief for business owners under $10 million turnover is largely avoided by this announcement.
Startup Investors: CGT discount retained
The Government has confirmed that investors in innovative startups and early-stage companies will continue to access the traditional 50% CGT discount arrangements rather than being moved to the proposed indexation model. This preserves the attractiveness of early-stage investment and supports better outcomes for founders and investors expecting a future exit.
Who will be most affected
Following the post-budget refinements, the harshest CGT outcomes are now primarily concentrated in two groups.
First, larger investors and businesses above $10 million turnover who fall outside the expanded small business concessions. For these clients the indexation model will apply in full and the comparison against the current 50% discount method needs careful analysis.
Second, business owners at any size who hold shares in their business at a low cost base, where the value of those shares as at 30 June 2027 is also low relative to a future disposal value. Even with access to the small business concessions, the 50% active asset reduction applies to the gain after the CGT calculation, and the indexation method on a low or negligible cost base may still produce a higher result than the current 50% discount in some scenarios. This cohort warrants individual attention.
How the transition works: the two methods
Under the draft legislation, all existing CGT assets are effectively split at 1 July 2027. The gain built up to that date is assessed under the old rules, and any gain accruing
after that date is assessed under the new rules. No tax is triggered at 1 July 2027 itself. Everything crystallises when you actually sell the asset.
The draft legislation provides two methods for working out how much of your total gain sits on each side of the 1 July 2027 line.
Method 1: Market value
Your asset is valued at market value as at 1 July 2027. This creates a clean split:
- The difference between your original cost base and the 1 July 2027 value is the pre-2027 gain, taxed under the old rules with the 50% CGT discount.
- The difference between the 1 July 2027 value and your eventual sale proceeds is the post-2027 gain, indexed for CPI from that date and subject to the 30% minimum tax.
- Your original acquisition date is preserved for the 12-month holding rule, so long-held assets continue to satisfy the holding period test for any post-2027 gain when you sell.
- Any additional costs incurred on the asset from 1 July 2027 onwards, such as capital improvements, will also form part of the indexed cost base for the post-2027 gain. Keeping records of these from that date will be important.
Method 2: Apportionment
As an alternative to a formal market valuation, the draft legislation provides for an apportionment method to calculate the split. This would apportion the total gain across the pre and post-2027 periods using a government-prescribed formula rather than requiring a valuation at a specific point in time.
The detail of how this method works has not yet been released. It will be prescribed by the Minister through a separate legislative instrument that is still outstanding. Until that instrument is published, it is not possible to determine which method will produce the better outcome for any given asset or client.
Our current position is that clients should not commission valuations or make any timing decisions based on the transition rules until the apportionment method detail is released. Once we have both methods available, we will be able to model the better outcome for each client’s specific circumstances.
A note on pre-CGT assets
If you hold assets acquired before 20 September 1985, historically exempt from capital gains tax entirely, these will be brought into the CGT system from 1 July 2027 under the proposed rules.
The gain from original acquisition to 30 June 2027 remains exempt. Any gains accruing after 1 July 2027 will be taxable under the new indexation rules. The 1 July 2027 value effectively becomes the cost base for all future gains on these assets. If you hold pre-CGT assets, please flag this with us so we can ensure your situation is on our radar
A note on private company shares
For business owners holding shares in a private company, the valuation question is more complex than for property. A formal business valuation as at 1 July 2027 involves considerably more work, cost, and judgement than a property valuation. This cohort will need particular attention once the apportionment method is available, as the choice of method may make a significant difference to the tax outcome on what are often the highest-value assets a business owner holds.
Our approach
Our primary message at this point is straightforward: do not take any action now unless you have a specific transaction on the horizon that needs to be considered in light of these proposed changes. For the vast majority of clients, the right move is to wait until the legislation is finalised and the apportionment method is published before making any structural or timing decisions.
We are working through what these changes mean across different structures and situations, and we will be in touch as the detail becomes clearer. If you have a specific transaction planned, or if something in this summary has raised a question about your circumstances, we are here to help you think it through.
Note: All measures referenced are based on budget announcements, draft legislation released 28 May 2026, and subsequent government refinements. Final legislation has not yet passed Parliament. The apportionment method for calculating pre and post-2027 gains remains subject to a separate legislative instrument not yet released. The expanded SMCGT threshold and startup investor carve-out are announcements only and subject to legislation.
