Australia to replace 50% CGT discount with indexation

The federal government plans to replace Australia’s 50% capital gains tax discount with an inflation indexation system. Under the proposal, an asset’s cost base would be adjusted for inflation and tax would apply to the real gain accumulated while the asset was held. The change is scheduled to take effect at the end of the 2026–27 financial year in July 2027 and would apply to gains from cryptocurrencies, shares, businesses, commercial property and other investments.

Currently, individuals who hold an asset for more than 12 months can reduce their taxable capital gain by 50%. The indexation method would remove that flat reduction and instead tax the inflation‑adjusted gain, increasing the taxable amount on many long‑held positions.

Detailed rules will appear in the government’s 2027 budget and later legislation. A transition arrangement links eligibility to a May 10 cutoff: assets acquired after May 10 would receive a one‑year grace period, while assets purchased before that date would be partially exempt. The final capital gains discount for partly exempt assets would be calculated proportionally based on how long the asset was held under each regime. During the transition the existing 50% discount would still apply for the relevant portion of an asset’s holding period.

Officials say the framework aims to tax gains in real terms rather than nominal terms. The budget papers and subsequent legislation will set out the final design, compliance rules and the method for calculating inflation adjustments.

Advisers and investors say some long‑term holders could face larger tax bills, particularly high‑income individuals holding assets with modest inflation‑adjusted returns. Chris Joye, a portfolio manager at Coolabah Capital Investments, warned the change could push investment into owner‑occupied housing that is tax‑exempt and argued it would “double the capital gains tax on productive businesses and assets from about 23.5% to 46–47%.” He added: “The single biggest winner from the budget: the tax‑free owner‑occupied home, which is where people will put their money.”

Scott Phillips, chief investment officer at an investment advice firm, commented that higher tax bills would not eliminate returns and could leave founders and growth investors with incentives to invest if they expected substantial gains. He observed, “That’s all the incentive they will need.”

Industry groups, tax advisers and investors will monitor the budget release and the legislative process to understand reporting requirements and how the transition provisions will operate in practice. The change will affect calculations of taxable gains once enacted and may influence asset allocation decisions by long‑term investors.