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Capital Gains Tax on Property: How the 2026 Budget Changes the Rules

The 2026-27 Budget's CGT change is now law. From 1 July 2027 the 50% discount gives way to cost base indexation and a 30% minimum tax for individuals, on gains that accrue from that date, including on property you already own. New builds keep a choice. How it works, with worked examples.

Andy McMaster

By Andy McMaster, Founder and editor

Updated First published 12 min read

How we keep this accurateSources

In this article13 sections

Selling before 1 July 2027 doesn’t protect more of the 50% discount: gains up to that date keep it whenever you sell. For an investor, knowing your number means getting the tax worked out before you list, not after the sale.

Correction, 1 October 2026: earlier versions of this article (published 13 May 2026, updated 24 July 2026) said that property owned on 12 May 2026 keeps the 50% CGT discount, that the change covers only residential investment property bought after budget night, that it applies to sales from 1 July 2026, and that shares and pre-1985 assets are untouched. None of that is the law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, passed on 25 June 2026, replaces the 50% discount from 1 July 2027 for gains that accrue from that date, on assets you already own as well as new purchases, and on shares as well as property. The 12 May 2026 cut-off belongs to the negative gearing change, not the CGT change. We have rewritten the article below to match the Act, its explanatory memoranda, the Budget explainer and the ATO. The sources are listed at the end.

Since 1999, Australian individuals and trusts selling an asset held for at least 12 months have paid capital gains tax on half the nominal gain. The 2026-27 federal budget, handed down on 12 May 2026, announced the end of that 50% CGT discount, and Parliament passed the change on 25 June 2026 (Royal Assent 26 June 2026). From 1 July 2027, gains that accrue on or after that date are worked out with cost base indexation instead of the discount, and Australian resident individuals pay a minimum 30% tax on them. The ATO's summary, last updated 29 June 2026, says the measures are now law and that the CGT reforms only apply to gains that accrue after 1 July 2027.

This article explains how the new system works, what happens to property you already own, who is outside the change, worked examples from the government's explainer and our own, and what to do before 1 July 2027.

How the 50% CGT discount works until 30 June 2027

For a sale before 1 July 2027 nothing changes. Under those rules:

  1. You sell. The capital gain is the sale price less your cost base (purchase price, buying costs and capital improvements)
  2. If you held the asset for at least 12 months, an individual or trust halves the gain, so only half is added to assessable income
  3. That half is taxed at your marginal rate, from 0% to 45%, plus the 2% Medicare levy

For an investor on the 45% rate, a $400,000 gain meant $200,000 of assessable income and $90,000 of tax before the Medicare levy, an effective rate of 22.5% on the whole gain.

The new system in three parts

1. Cost base indexation

Before the discount arrived in 1999, capital gains were taxed on the real, inflation-adjusted gain. The Act brings that back for individuals, trusts and partnerships, for every CGT asset held at least 12 months: property, shares and other investments alike (Budget explainer, 12 May 2026). Your purchase price, buying costs and improvements are each indexed by the consumer price index from the quarter you paid them, and only the gain above inflation is taxed. The explainer says indexation will work much as it did between 1985 and 1999, and that the ATO will provide guidance and tools to calculate it.

2. A 30% minimum tax on capital gains

Australian resident individuals pay at least 30% on capital gains that accrue from 1 July 2027, measured before tax offsets and without the Medicare levy. If your marginal rates would tax the gain at less than that, you pay the difference as extra tax. Anyone whose gains are already taxed at 30% or more is not affected. Three limits apply:

  • You are exempt in any year you receive one of the payments listed in section 119-15 of the Act, including the Age Pension, JobSeeker Payment, the Disability Support Pension, Carer Payment, Parenting Payment, Youth Allowance, Family Tax Benefit, Parental Leave Pay and several veterans' pensions
  • Deductible gifts and donations reduce the gain the minimum applies to (added by a Government amendment in the Senate)
  • It does not apply to a gain on a new build or on affordable housing where you take the discount instead (see below)

3. New builds keep a choice

An individual investor who sells a new residential dwelling can choose, in the tax return for the year they sell, either the 50% discount or indexation with the minimum tax. A Government amendment in the Senate removed a ministerial power to add other kinds of asset, so new residential dwellings are the only assets that keep the 50% discount for individuals and trusts from 1 July 2027 (supplementary explanatory memorandum, June 2026). Affordable housing keeps its separate discount of up to 60%. The concession belongs to the first buyer: later buyers of the same dwelling get neither the 50% discount nor negative gearing on it (Budget explainer).

The Act leaves the exact definition of a new residential dwelling to a ministerial instrument, which must target homes that genuinely add to housing supply. The Budget explainer's examples of an eligible new build are an off-the-plan apartment, a home built on previously vacant land, a duplex that replaces a single house, and a newly built home occupied for less than 12 months before it is first sold. Its examples of homes that do not qualify are an extension to an established home, a knock-down rebuild that replaces one house with one house, and a granny flat added to an established property that is not itself eligible for negative gearing.

Property you already own: the gain is split at 1 July 2027

This is the part earlier versions of this article got wrong. The CGT discount is not kept by purchase date. For anything you own before 1 July 2027 and sell after it (Budget explainer, transitional arrangements; explanatory memorandum, table 1.2):

  • The gain up to 1 July 2027 is worked out under the old rules, so the 50% discount applies to it if you have owned the asset for at least 12 months by the time you sell
  • The gain from 1 July 2027 is worked out under the new rules: the asset's value at 1 July 2027 becomes its cost base, indexed from then, and the 30% minimum tax can apply
  • Nothing is taxed until you sell. The Act treats you as selling the asset on 30 June 2027 and buying it back on 1 July 2027, but the gain on that deemed sale waits until the real sale
  • An asset bought and sold before 1 July 2027 is untouched, and one bought on or after that date is wholly under the new rules

You will need the asset's value at 1 July 2027 when you sell, in the tax return for that year. The Act allows either its market value at that date (a valuation, or the quoted price for listed shares) or an apportioning method set by the Minister in a legislative instrument, which the Budget explainer describes as a formula based on the asset's growth over the whole holding period, with ATO tools to estimate it. You choose by the day you lodge that return.

Pre-CGT assets, bought before 20 September 1985, join the system too: gains up to 1 July 2027 stay exempt, and gains after it are taxed under the new rules. That part applies to every owner, companies included (explanatory memorandum, paragraphs 1.28 and 1.29).

Worked example: a property you already own

This is the Budget explainer's own example. Michael bought an investment property before budget night. He sells it two years after 1 July 2027 for $560,000, and the ATO's tools put its value on 1 July 2027 at $500,000.

  • The gain from his purchase to 1 July 2027 keeps the 50% discount
  • For the gain after 1 July 2027, his cost base is $500,000 indexed for two years of 2.5% inflation, leaving a taxable gain of $34,688
  • A 50% discount on the same $60,000 would have left $30,000 taxable
  • At the explainer's assumed 47% rate, the tax on the post-2027 gain is $16,303 instead of $14,100

Michael also keeps negative gearing on the property, because he held it at budget night, and pays nothing until he sells.

Worked example: bought after 1 July 2027, held 15 years

Our assumptions: an established house bought in July 2027 for $700,000 and sold 15 years later for $1,300,000; inflation of about 2.5% a year, 45% over the period; buying and selling costs left out; the investor's other income is above $190,000, so every dollar of gain is taxed at 45% (2026-27 resident rates, before the Medicare levy).

  • Nominal gain: $600,000
  • With a 50% discount (the old rules): $300,000 taxable, $135,000 of tax, 22.5% of the nominal gain
  • With indexation (the new rules): cost base $700,000 × 1.45 = $1,015,000, real gain $285,000, $128,250 of tax, 21.4% of the nominal gain

For a long hold with moderate growth the two come out close. The minimum tax does not bite, because the gain is already taxed above 30%.

Growth rate decides who pays more

The Budget explainer's cameos show the spread. Each buys a $500,000 asset in July 2027 and holds it for 10 years, with 2.5% inflation and $100,000 of other income a year:

  • At 5% growth a year, close to longer-term returns on residential property, the taxable gain is $174,405 under indexation against $157,224 under the discount: $8,075 more tax
  • At 2.5% a year there is no real gain, so nothing is taxable under indexation against $70,021 under the discount: $24,858 less tax
  • At 7.5% a year the taxable gain is $390,474 against $265,258: $58,851 more tax

Indexation only shelters inflation. The faster an asset grows beyond inflation, the more the new rules collect compared with the flat discount, and slow-growing assets do better than before.

Worked example: a lower-income seller and the 30% minimum

Our assumptions: an investment unit bought in July 2027 for $300,000 and sold 10 years later for $500,000 by a self-funded retiree with $25,000 of other taxable income who receives no income support payment that year; inflation of 28% over the period; the ATO's 2026-27 resident tax rates, with the Medicare levy and tax offsets left out.

  • With a 50% discount (the old rules): $100,000 taxable, taxable income $125,000, and $27,000 of tax on the gain
  • With indexation: cost base $300,000 × 1.28 = $384,000 and a real gain of $116,000; taxable income $141,000 puts $32,220 of tax on the gain, 27.8%
  • The minimum is 30% of $116,000, which is $34,800, so $2,580 of extra tax brings the total on the gain to $34,800

The minimum tax is aimed at people who sell in a low-income year. A retiree who receives the Age Pension in the year of sale is exempt from it.

What the 12 May 2026 cut-off does, and does not do

The 7:30pm AEST, 12 May 2026 cut-off belongs to the negative gearing change:

  • An established home held at that time, including one under a contract not yet settled, keeps negative gearing for as long as you own it
  • An established home contracted after that time can be negatively geared until 30 June 2027. From 1 July 2027 its losses only offset income from residential property, including capital gains, with the excess carried forward
  • A new build keeps negative gearing either way

The cut-off does nothing for CGT. A property held at budget night is in the same position as any other asset you own on 1 July 2027: the discount for the gain up to that date, indexation and the minimum tax after it. Our report on the law as passed covers both changes, and the negative gearing calculator shows the weekly cost before and after 1 July 2027.

Who and what is outside the change

  • Your home: the main residence exemption is unchanged (Budget explainer)
  • Companies, super funds (including SMSFs), life insurers, and foreign and temporary residents: indexation and the minimum tax do not apply to them, because they never had the 50% discount or have their own CGT rules (explanatory memorandum, paragraphs 1.25 and 1.26). Super funds keep their one-third discount
  • Small business: the four small business CGT concessions are unchanged, and a Government amendment in the Senate widened the 50% active asset reduction to businesses with turnover under $10 million, from $2 million
  • Affordable housing: the existing discount of up to 60% is kept

Commercial property, shares and pre-1985 assets are not outside it. The CGT change covers every CGT asset held by individuals, trusts and partnerships; only the negative gearing change is limited to residential property.

What this means for investors

  • Real growth is what is taxed. Indexation shelters inflation only, so fast-growing assets pay more than under the discount and slow growers pay less
  • Timing a sale for a low-income year saves less. The 30% minimum applies to gains accruing from 1 July 2027 unless you receive an exempting payment that year
  • Cash flow matters more for established homes bought after budget night. From 1 July 2027 their losses no longer cut the tax on your wages, so the property has to run closer to break-even
  • New builds keep both concessions for the first buyer: negative gearing, and the choice of the 50% discount on sale
  • Selling before 1 July 2027 does not protect more of the discount. The gain up to that date keeps the discount whenever you sell; the Budget explainer's view is that this removes any incentive to buy or sell before the start date

What to do before 1 July 2027

  1. List what you will own on 1 July 2027. Every investment asset, not just property, will need a 1 July 2027 value when it is eventually sold
  2. Decide how you will set that value. A market valuation as at 1 July 2027, or the apportioning method the Minister sets. Ask your accountant which suits each asset
  3. Keep your cost base records. Contracts, settlement statements, stamp duty, legal costs and improvements feed both the pre-2027 gain and the indexed cost base
  4. Check whether a purchase is a new build against the ministerial definition before you rely on the discount or on negative gearing
  5. Estimate the tax under the current rules with our CGT calculator. It applies the 50% discount, so for a gain that accrues after 1 July 2027 treat its result as the old-rules comparison, not the new bill

The bigger picture

The Budget explainer puts numbers on how the change lands by asset. Over the past 20 years, inflation made up on average 42% of a house's nominal gain over a five-year hold and 36% over ten years, against 59% and 50% for units and 53% and 56% for ASX 200 shares. Indexation would have sheltered less of a typical house gain than the 50% discount did, and about as much or more of a typical unit or share gain. Treasury's modelling, in the same explainer, has the package adding around 75,000 owner-occupiers over the next decade and house prices growing around 2% less over a couple of years than with no change.

On the minimum tax, the explanatory memorandum estimates that had it applied in 2022-23, over 95% of net capital gains income would have been earned by people either unaffected by it or on a marginal rate above 30% during their working lives.

This article is general information, not tax advice. The new rules turn on your circumstances, the 1 July 2027 value of what you own and the ministerial instruments that set the details; speak to a registered tax agent before acting.

Sources

Cover photo: Chris Olszewski, CC BY-SA 4.0, via Wikimedia Commons.

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