Australia's CGT Discount Is Gone From 2027: What Property Investors Need to Do Before Then

On 12 May 2026, the Australian Government announced the most significant change to capital gains tax in 27 years. The 50% CGT discount — the mechanism that has halved the taxable gain for every Australian property investor since 1999 — will be abolished from 1 July 2027 and replaced with a system of cost base indexation and a new 30% minimum tax on capital gains.

This is not yet law. But it has been announced, it is costed, it has strong parliamentary support, and property investors need to understand exactly what is changing, when, how the new system works, and what can still be done before the window closes.

What the Budget Actually Said

The 2026-27 Federal Budget announced three changes that take effect from 1 July 2027: the 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation; a 30% minimum tax will apply to net capital gains calculated under the new indexation method; and negative gearing on residential property will be limited to new builds for properties purchased after 7:30pm AEST on 12 May 2026.

Two groups are protected from the CGT changes: owners of new residential property (who can choose between the old 50% discount method or the new indexation method when they sell) and superannuation funds, which are unaffected because they already operate under a separate one-third discount regime.

Importantly, the changes only apply to gains that accrue after 1 July 2027. For properties already held, the 50% discount continues to apply to all gains realised before that date — and a proportional share of the gain can still access the discount for properties sold after 1 July 2027 based on the portion of the gain that accrued beforehand. This is a significant transitional protection that creates a real planning opportunity.

The Window That Closes on 1 July 2027

Here is the single most important thing for property investors to understand: if you sell before 1 July 2027, the entire gain is subject to the existing rules — 50% discount, taxed at your marginal rate. Nothing changes.

If you sell after 1 July 2027, only the portion of the gain that accrued before that date is eligible for the 50% discount. The remainder is subject to indexation and the 30% minimum tax. For a property purchased years ago with substantial unrealised gain, this apportionment could mean hundreds of thousands of dollars in additional tax depending on how long you hold after the transition.

This creates an explicit deadline. Every month you hold past 1 July 2027 without selling shifts more of your gain into the new, less favourable regime. The question is not whether to plan around this — it is how.

How Indexation Replaces the Discount: What It Actually Means

Under the current system, if you bought a property for $500,000 and sell it for $900,000 after holding for more than 12 months, your gain is $400,000. You apply the 50% discount to get $200,000 taxable. At a 37% marginal rate, you pay $74,000 in tax.

Under the new indexation system, the cost base is adjusted for inflation between the date of purchase and the date of sale using the Consumer Price Index (CPI). If inflation averaged 3% per year and you held for 10 years, the indexed cost base might rise from $500,000 to approximately $672,000. Your taxable gain would be $900,000 minus $672,000 = $228,000. The 30% minimum tax then applies to this amount, meaning you pay at least $68,400 regardless of your marginal rate — with no ability to use a lower marginal rate to reduce the bill below that floor.

For investors who held properties for many years in high-inflation periods, indexation can be better than the 50% discount. For investors who held for shorter periods or during low-inflation years, the 50% discount is almost always better. The post-2027 system removes the choice.

The 30% minimum tax is the mechanism that prevents high-income investors from using income-year timing to dramatically reduce their CGT bill — a key strategy under the old rules. After 1 July 2027, you cannot reduce your effective CGT rate below 30% no matter how low your income in the year of sale.

What Grandfathering Actually Protects

For negative gearing: any property held at 7:30pm AEST on 12 May 2026 keeps its negative gearing entitlements permanently — until that property is sold. You can continue offsetting rental losses against your salary income indefinitely, as long as you continue to hold that property.

For CGT: the grandfathering is partial rather than full. The 50% discount continues to apply to gains accruing up to 1 July 2027 on all properties, regardless of when they were purchased. There is no total exemption from the new rules for post-2027 gains on existing properties.

This distinction matters enormously. Many investors have assumed their existing properties are completely protected. They are protected on the negative gearing side — but not on the CGT side for gains accruing after 1 July 2027.

The Legal Strategies That Still Work

Sell before 1 July 2027 — and time the year of sale carefully. Any sale completed before 1 July 2027 is entirely under the existing rules. The full 50% CGT discount applies to the entire gain. Combine this with selling in a lower-income year and the tax outcome can be dramatically better than waiting. An investor who is approaching retirement, going part-time, or has a naturally lower-income year in 2026-27 should model whether selling before the transition date creates a substantially better after-tax result than holding longer.

Get a formal valuation at 30 June 2027 if you are not selling. If you intend to hold through the transition, obtaining a formal property valuation as at 30 June 2027 creates a clear reference point that supports the maximum attribution of your gain to the pre-2027 period (eligible for the 50% discount). The government has signalled that accurate valuations at the transition date will be important for apportioning gains. This valuation will be worth far more than its cost.

Maximise your cost base before you sell — under either system. Every dollar of capital improvement (extensions, structural work, significant renovations — not repairs or maintenance) that you have made since purchase increases your cost base and reduces the taxable gain under both the old discount method and the new indexation method. Document every capital improvement thoroughly. Many investors leave tens of thousands of dollars of cost base unclaimed simply through poor record-keeping.

Use accumulated capital losses. Any capital losses you hold from shares, other properties sold at a loss, or other investments can be applied against capital gains before the discount (under the old system) or before the indexation calculation (under the new system). Capital losses carried forward from previous years have real value — they should be tracked and used strategically.

Consider SMSF property ownership for future purchases. SMSFs are explicitly excluded from the new CGT changes.

The existing one-third discount (equivalent to a 33% reduction, slightly less generous than the 50% discount) remains unchanged. Rental income in an SMSF pension phase remains tax-free, and capital gains in pension phase remain zero. For investors planning future property acquisitions, the SMSF structure becomes more attractive relative to personal ownership under the new rules.

New builds remain eligible for the 50% discount as a choice. If you are acquiring new investment properties after the transition, a new residential property qualifies for a choice between the old 50% method and the new indexation method. In most scenarios — particularly short-to-medium holds in low-inflation environments — the 50% discount will still be the better option. This is a genuine and underappreciated carve-out in the new rules.

What Changes for High-Income Investors Specifically

Under the old system, a high-income investor could dramatically reduce their effective CGT rate by timing a sale to coincide with a low-income year — retirement, for example — and using the 50% discount to halve the taxable gain. The combination of these two strategies could reduce an effective CGT rate from 47% to as low as 10-15%.

Under the new system, the 30% minimum tax eliminates the benefit of income-year timing for post-2027 gains. No matter how low your taxable income in the year of sale, you will pay at least 30% on the indexed capital gain. This is a structural change, not a marginal one. It is the reason why selling before 1 July 2027 — for investors who were planning to sell in retirement anyway — deserves serious modelling.

One exception: Age Pension recipients and income support recipients are exempt from the 30% minimum tax. This carve-out is genuinely significant for retirees on income support who hold investment properties.

What Has Not Changed

The main residence exemption is completely untouched. There is no CGT on the sale of your primary home — this remains unchanged under the new rules. The small business CGT concessions also remain unchanged. Company structures are not affected (companies have never had the 50% discount — they pay a flat 30% on capital gains). The CGT discount for superannuation funds is unchanged at one-third.

This Is Not Yet Law — But Plan As If It Is

The government has stated these changes apply from 1 July 2027. They are not enacted legislation as at May 2026. However: they have been announced in a formal budget, they are costed by the Parliamentary Budget Office, the government has a majority, and the direction of travel is clear. Planning decisions made in 2026 and 2027 will be made under conditions of uncertainty — but the prudent approach is to model scenarios under both the old and new rules and make decisions accordingly.

For investors who were already considering selling, the case for acting before 1 July 2027 is now substantially stronger. For investors who intend to hold for 10+ more years, the transition valuation and cost base documentation become priorities. For investors planning new acquisitions, new builds are now structurally preferable from a CGT perspective.

For how to reduce CGT under the current rules: How to Avoid Capital Gains Tax on Investment Property in Australia (Legally)

For how SMSF property remains CGT-efficient under the new rules: SMSF Property Investment Australia: The Complete 2026 Guide

For the interaction between retirement timing and CGT: How to Retire Through Property in Australia

For the broader context of negative gearing changes: Negative Gearing Investment Property Australia

General advice disclaimer: This article is general in nature and does not constitute specific advice. Tax law is complex and the Budget measures described are not yet enacted legislation. All investments carry risk, including potential loss of capital. Please consult a qualified tax adviser before making decisions based on proposed changes to CGT law.

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How to Avoid Capital Gains Tax on Investment Property in Australia (Legally) | Capital Gains Tax on Investment Property Australia | Negative Gearing Investment Property Australia | SMSF Property Investment Australia | How to Retire Through Property in Australia | Property Investment Strategy Australia