Introduction: Why CGT Has Never Mattered More Than Right Now

Capital Gains Tax Australia just got a whole lot more complicated — and a whole lot more expensive for many investors if they don’t act now.

The 2026–27 Federal Budget represents a generational shift in Australian tax policy. The 50% CGT discount that investors have relied on since 1999 is on its way out. In its place: inflation-indexed cost bases and a 30% minimum tax from 1 July 2027. Negative gearing on established residential properties purchased after Budget night is being quarantined. Pre-1985 assets, long exempt from CGT entirely, are being swept into the new regime for gains accruing post-1 July 2027.

These are not tweaks. This is a structural overhaul.

The window between today and 30 June 2027 is the most important CGT planning period Australia has seen in decades. This guide covers everything you need to know.

1. What Is Capital Gains Tax in Australia?

Definition and ATO Framework

CGT has applied in Australia since 20 September 1985. Under the Income Tax Assessment Act 1997 (ITAA 1997), CGT is not a standalone tax — a capital gain is included in your assessable income and taxed at your marginal rate in the year the CGT event occurs.

Why the 2025–26 Income Year Is Pivotal

The 2025–26 income year (ending 30 June 2026) is the last full income year under the current CGT rules in place since 1999. The 50% discount, negative gearing against all income, and full pre-CGT asset exemptions all apply without restriction right now.

From 1 July 2027, subject to legislation, the landscape changes fundamentally. Taxpayers who understand this window have real planning opportunities. Those who don’t may pay far more tax than necessary.

2. Current CGT Rules (2025–26): What Applies Right Now

CGT Assets in Australia

The ATO defines a CGT asset broadly. It includes:

• Real property — investment properties, land, commercial property
• Shares and units — listed and unlisted shares, managed fund units
• ETFs — all exchange-traded funds
• Cryptocurrency — treated as a CGT asset, not currency
• Business assets — goodwill, contractual rights
• Collectibles — artwork, antiques, jewellery (subject to thresholds)
• Trust assets on disposal or distribution

What Is Currently Exempt from CGT

• Your main residence (subject to conditions — see Section 8)
• Assets acquired before 20 September 1985 (“pre-CGT assets”) — this exemption is being partially wound back from 1 July 2027
• Motor vehicles
• Personal use assets below $10,000

3. The 2026 Budget: What Is Changing and When

On 12 May 2026, the Government announced the three most significant CGT changes in a generation — all proposed to take effect from 1 July 2027, subject to legislation.

What is NOT Changing

• Superannuation funds retain the one-third (33.33%) CGT discount permanently
• Companies retain their current treatment (no CGT discount)
• The main residence exemption is fully preserved
• Income support recipients (including Age Pension) are exempt from the 30% minimum tax

Transitional Rules for Existing Assets

To split the gain, taxpayers must either obtain a formal market valuation as at 1 July 2027, or use an ATO apportionment formula based on holding period. ATO tools will be developed to support this.

New Residential Builds: A Special Election

Investors in new residential builds can elect at the time of sale between the 50% CGT discount (current arrangement) or the new CPI indexation + 30% minimum tax framework. However, this election is personal — subsequent buyers cannot apply the 50% discount to the same property.

Negative Gearing: Who Is Grandfathered?

• Properties held or under contract at 7:30pm AEST on 12 May 2026 retain full negative gearing under current rules until sold — unconditionally
• Eligible new builds are fully exempt from negative gearing restrictions
• Widely held trusts, superannuation funds, build-to-rent developments, and investors supporting Government housing programs are excluded
• Commercial property is unaffected — these changes apply only to residential property

Discretionary Trusts: 30% Minimum Tax from 1 July 2028

Separately, a 30% minimum tax on discretionary trusts is proposed from 1 July 2028. Detailed legislation has not yet been released, but the structural benefit of streaming capital gains through family trusts is being deliberately wound back on two fronts.

4. How to Calculate Capital Gains Tax (Current 2025–26 Rules)

The Basic Formula

Worked Example — Investment Property (2025–26 Rules)

Sale price: $1,040,000 (contracts exchanged June 2026 — 2025–26 income year)

Capital Gain: $1,040,000 − $675,700 = $364,300

After 50% Discount: $364,300 × 50% = $182,150 added to assessable income

At 47% marginal rate: CGT payable ≈ $85,610

2025–26 Tax Rate Bands

From 1 July 2026 (2026–27 income year), the rate for $18,201–$45,000 reduces from 16% to 15%.

5. The Cost Base: The Most Common Source of CGT Errors

The Five Elements of the Cost Base

1. Purchase price — the acquisition consideration
2. Incidental acquisition costs — stamp duty, legal fees, title searches, buyer’s agent fees
3. Ownership costs — holding costs such as rates and land tax, only to the extent they were not claimed as a tax deduction
4. Capital expenditure — amounts spent to increase, preserve, or restore the value of the asset (capital improvements, not repairs)
5. Title preservation costs — legal costs to establish, preserve, or defend title

Capital Improvements vs. Repairs: The Most Consequential Distinction

• Repairs → deductible against rental income → cannot be added to cost base
• Capital improvements → not deductible → added to cost base → reduce capital gain at sale

With the new indexation rules incoming, every dollar of documentable cost base is more valuable than ever — because from 1 July 2027 it is the indexed cost base, not a flat 50% discount, that protects your gain from tax.

The Division 43 Cost Base Trap

Capital works deductions claimed under Division 43 (building construction costs) reduce the cost base of the property. If you’ve claimed $60,000 in Division 43 deductions, your cost base is $60,000 lower — meaning your capital gain at sale is $60,000 higher. This applies under both current and proposed rules.

6. Capital Losses: The Carry-Forward Advantage

Current Rules (Unchanged Under Proposals)

Capital losses can only offset capital gains — not ordinary income. Net capital losses carry forward indefinitely. The correct ordering rule is:

1. Apply current year capital losses against current year capital gains
2. Apply carry-forward capital losses
3. THEN apply the 50% CGT discount (currently) or indexation (from 1 July 2027)

7. The CGT Discount in 2026: Still 50% — But the Clock Is Ticking

Current Eligibility (2025–26)

• Individuals — 50% discount on assets held 12+ months
• Trusts — 50% discount, capable of being streamed to beneficiaries
• Complying superannuation funds — 33.33% (unchanged permanently)
• Companies — no discount (unchanged)

What Changes from 1 July 2027

For individuals, trusts, and partnerships: the 50% discount is replaced by CPI indexation for the post-1 July 2027 portion of gains on all assets.

The 50% discount is preserved for:

• Gains accrued on existing assets before 1 July 2027
• Eligible new residential builds (by election)
• Superannuation funds (1/3 discount retained permanently)

8. The Main Residence Exemption: Unchanged — But Watch the Details

Full Exemption Conditions

• You are an individual (not a company or trust)
• The dwelling was your main residence for the entire ownership period
• The land area is 2 hectares or less
• The property was not used to produce assessable income during ownership

Partial Exemption: When the Exemption Is Reduced

• You rented out part of your home
• Part of the home was used for income-producing purposes (home office with deductions claimed)
• The property was only your main residence for part of the ownership period

The Six-Year Absence Rule

If you vacate and rent out your main residence, you may continue to treat it as your main residence for up to six years — provided you do not elect another property as your main residence simultaneously. The clock resets each time you move back in.

9. Capital Gains Tax on Investment Properties: The New Landscape

Planning Implication: Sell Before 1 July 2027?

For long-held investment properties with large embedded gains — especially pre-CGT or early post-CGT acquisitions — a key question now is whether realising the gain before 1 July 2027 under the 50% discount produces a better after-tax outcome than holding.

This must be modelled asset-by-asset. Key variables: acquisition date, current value, expected future growth, investor’s income profile, and inflation assumptions. A blanket answer does not exist — but the analysis must happen now.

10. Capital Gains Tax on Shares and ETFs

Record Keeping for the 1 July 2027 Transition

Every investor holding shares or ETFs at 1 July 2027 must establish the market value of each parcel at that date. For shares, this means recording the closing price of each holding on 30 June / 1 July 2027. Add a calendar reminder now.

If you do not capture this data at the time, reconstructing it later creates significant compliance risk.

DRP Participants: The Ongoing CGT Event Factory

Every DRP participation is a separate CGT acquisition event. After 10 years of DRPs, you may have 30–50+ separate parcels — each with a different acquisition date and cost base. Broker average cost reports are not ATO-compliant. Parcel-level records are non-negotiable.

ETF Annual Tax Statements (AMMA Statements)

Some ETF distributions carry capital gain components — meaning a CGT liability arises even without a disposal. These must be included in your tax return each year. Failure to do so triggers ATO data matching.

11. Inherited Assets and CGT

General Rule: No CGT on Inheritance Itself

When a person dies, no CGT event occurs at death. CGT arises when the legal personal representative (LPR) or beneficiary disposes of the asset.

Cost Base for Inherited Assets

12. Trusts and CGT: The Regime Is Under Major Pressure

Current Trust CGT Streaming Rules (Still Applicable 2025–26)

A discretionary trust can claim the 50% CGT discount and stream it to specific beneficiaries — but requires:

• Trust deed that permits streaming of capital gains and losses
• Valid trustee resolution made before 30 June each income year
• Resolution correctly identifying beneficiaries and proportions

The 30% Minimum Tax on Discretionary Trusts from 1 July 2028

The Government has announced a 30% minimum tax on discretionary trusts from 1 July 2028, with some exceptions. Detailed legislation is not yet released.

13. Record Keeping Requirements in 2026

What the ATO Requires

Records must generally be kept for five years after the CGT event. For property, the practical requirement is the entire ownership history plus five years.

New Compliance Obligations for 1 July 2027

Every taxpayer holding CGT assets at 1 July 2027 must establish values at that date. Begin preparing now:

• Obtain property valuations (engage valuers early — demand will be high)
• Record share and ETF prices at 30 June 2027 / 1 July 2027
• Document full cost bases for all CGT assets before that date

Core Documents to Maintain

• Purchase and sale contracts
• Stamp duty and conveyancing invoices (acquisition and disposal)
• Capital improvement invoices, council approvals, building contracts
• Division 43 depreciation schedules
• Brokerage confirmations for each share parcel
• DRP statements for every reinvestment
• ETF annual tax statements (AMMA statements)
• Trust deeds and all trustee resolutions
• Valuation reports (critical from 1 July 2027)

14. Common CGT Mistakes: What Practitioners See Every Day

• 1Incomplete cost base — missing stamp duty, legal fees, and conveyancing costs
• 2No documentation of capital improvements — the single most expensive and preventable CGT error
• 3Confusing repairs with capital improvements for both deductibility and cost base purposes
• 4Division 43 cost base reduction omitted — increasing the capital gain without realising it
• 5Applying the CGT discount before offsetting capital losses — incorrect ordering
• 6Using settlement date instead of contract date for the CGT event
• 7Assuming properties “under contract” at Budget night are not grandfathered — they are
• 8Assuming negative gearing changes affect existing properties — they don’t (for properties held at 12 May 2026)
• 9No parcel-level records for shares and ETFs — relying on broker average cost reports
• 10Missing ETF capital gain distributions — not reviewing AMMA statements
• 11Main residence exemption assumed to be automatic without checking partial use or foreign residency status
• 12Trust distributions not resolved before 30 June — invalidating CGT discount streaming
• 13Trust deeds without streaming provisions — requiring expensive legal remediation
• 14Inherited asset cost base errors — particularly for pre-CGT assets where market value at death applies
• 15Not planning for the 1 July 2027 transition — no valuation strategy, no cost base records, no modelling
• 16Assuming the 50% discount continues after 1 July 2027 for new acquisitions
• 17No planning around the 30% minimum tax — assuming a low-income retirement year will still minimise CGT

15. Legitimate CGT Tax Planning Strategies for 2026 and Beyond

• Realise Gains Before 1 July 2027 — Under the 50% Discount

  For long-held assets with large embedded gains, model whether the 50% discount plus current marginal rates beats indexation + 30% minimum tax on the post-2027 component. This analysis must happen asset-by-asset, now.

• Obtain Valuations at 1 July 2027 — Plan Ahead

  If you intend to hold CGT assets past 1 July 2027, begin groundwork for valuations now. Property valuers will be overwhelmed with requests as 1 July 2027 approaches. Engage early.

• Harvest Capital Losses Before 30 June

  Review unrealised capital losses before year end. Crystallising losses in the same income year as realised gains directly reduces your net CGT liability. Still entirely legitimate provided it is not a wash-sale arrangement.

• Manage Trust Distributions Urgently

  With the 50% discount available until 1 July 2027 and the trust minimum tax from 1 July 2028, the window to realise gains through trust structures at current rates is finite. Review trust portfolio positions now.

• Assess New Build vs. Established Property Before Buying

  The structural tax difference between new builds (full negative gearing, 50% election) and established properties (quarantined losses, no 50% discount) is now substantial. Model this upfront, before signing a contract.

• Time the 12-Month Threshold Carefully

  The 12-month CGT discount eligibility rule is unchanged. Settling contracts one week before the 12-month anniversary of acquisition remains an avoidable and expensive mistake.

• Maximise Concessional Super Contributions in the Year of Disposal

  The CGT gain is added to your taxable income. The concessional cap rises to $32,500 from 1 July 2026. Maximising contributions in the year of disposal reduces the effective marginal rate on the gain.

• Review Asset Ownership Structure Before Buying

  With both CGT discount access and negative gearing rules now varying by ownership structure and asset type, the structural decision at acquisition has never been more consequential. Advice before purchase is essential.

16. Lessons From Real-World Tax Practice

Twenty years in public practice dealing with CGT calculations, ATO reviews, new client onboarding, and now the seismic structural changes of 2026. Here is what actually happens.

What I See When Onboarding New Clients

The first thing I ask any new investment client: “Where is your cost base file?” Ninety percent of the time, there isn’t one. There’s a purchase contract (sometimes missing the stamp duty receipt), a vague recollection of renovations, and a depreciation schedule that the previous accountant prepared but no one reconciled with the cost base.

For properties held 15+ years, the difference between a fully documented cost base and a partially documented one can easily be $80,000–$200,000 in additional taxable gain. At 47%, that’s up to $94,000 in avoidable tax. Under the incoming indexation rules, a higher cost base means even greater inflation protection.

What I See in ATO Reviews

The ATO’s data-matching capabilities have continued to expand — property transactions, share registries, cryptocurrency exchanges, and financial institutions are all cross-referenced against tax returns. The most common review trigger: a property sale disclosed in state revenue data with no corresponding CGT event in the return.

With the incoming regime making 1 July 2027 valuations a legal necessity for transitional calculations, I expect a significant increase in ATO audit activity around valuation accuracy and documentation in 2027 and 2028.

Where Clients Overpay Tax

Just as common as underpaying CGT is overpaying it. Clients who never added stamp duty to the cost base, never reconciled Division 43 reductions, had carry-forward losses they didn’t know existed, or forgot capital improvements from a decade ago (but still have invoices). These are legal entitlements. Failing to claim them is not caution — it’s paying more tax than the law requires.

The Documentation Failure That Keeps Repeating

A client sells after a major renovation completed eight years ago. The builder has retired. Council approval exists but the invoice is gone. The amount claimed is “approximately $85,000 based on memory.” Under ATO scrutiny, this does not survive challenge. The cost base addition is disallowed, the gain is reassessed, shortfall penalties and interest apply.

This is entirely preventable. A simple folder — physical or cloud — maintained from the day of acquisition is all it takes.

Key Takeaways