Legislative Status
The Three Core Changes
The FY27 Budget introduces a structural return to Australia's pre-1999 CGT framework, fundamentally altering the tax landscape for property and share investors.
The flat 50% CGT discount for assets held longer than 12 months will be removed for all gains accrued after 1 July 2027.
Replaced by a system where the asset's cost base is indexed to the Consumer Price Index (CPI). You only pay tax on the "real" gain above inflation.
To prevent excessive tax minimization, a minimum 30% tax rate will apply to the indexed (real) capital gain, regardless of your marginal tax bracket.
How Indexation Works
Under the new system, the government acknowledges that part of your asset's growth is simply inflation. You will no longer be taxed on the inflationary component of your capital gain.
Instead, your original purchase price (cost base) is multiplied by the inflation rate over your holding period. The resulting "Indexed Cost Base" is subtracted from your sale price to determine your taxable "Real Gain".
Grandfathering Provisions
Properties purchased before 1 July 2027 are subject to special transitional rules. The capital gain is split into two distinct periods, ensuring you don't lose the 50% discount on growth that has already occurred.
Any capital growth that occurs between your purchase date and 30 June 2027 is locked in under the current system. This portion of your gain remains eligible for the full 50% CGT discount when you eventually sell.
Any capital growth that occurs from 1 July 2027 onwards falls under the new indexation system. The 50% discount is removed, and this portion of the gain is adjusted for inflation instead.
How is the split determined?
To calculate the split between Period 1 and Period 2, the ATO provides two options:
Option A: Market Valuation
Obtain a professional, independent valuation of your property as of 1 July 2027. This sets a hard "reset" cost base for the new rules.
Option B: ATO Apportionment
If no valuation is obtained, the ATO will apply a formula (typically time-based or average-growth-based) to apportion the total gain across the two periods upon sale.
Detailed Calculation Example
Scenario: Long-term Property Investment
- Purchase Date & Price
- July 2008 at $500,000
- Valuation at 1 July 2027
- $1,400,000 (Option A selected)
- Sale Date & Price
- July 2032 at $1,800,000
- CPI Inflation (2027–2032)
- 15% (Multiplier: 1.15)
Calculate Pre-2027 Gain (Old Rules)
Calculate Post-2027 Gain (New Rules)
Total Taxable Capital Gain
Why Long-Held Properties Are Heavily Affected
The shift from a flat discount to inflation indexation creates distinct winners and losers depending on the asset's growth rate relative to inflation.
| Scenario Comparison | Current System (If unchanged) | New FY27 System |
|---|---|---|
| Total Capital Gain | $1,300,000 ($1.8m - $500k) | $1,300,000 |
| Discount Applied | 50% on entire $1.3m gain | 50% on pre-2027 gain only. Indexation on post-2027 gain. |
| Final Taxable Amount | $650,000 | $640,000 |
Assets that grow significantly faster than inflation will generally pay more tax under the new system, as the indexation benefit is smaller than a flat 50% discount.
Assets that grow at or slightly above inflation will pay less tax (or zero CGT), as the indexation wipes out the "paper" gain entirely.
Key Takeaways
Inflation indexation replaces the blanket 50% discount for assets sold after 1 July 2027.
Pre-2027 gains are grandfathered and retain the 50% discount.
Post-2027 gains are taxed on 'real' inflation-adjusted gains only.
Obtaining a professional valuation at 1 July 2027 is critical for property owners to maximize grandfathered benefits.