This one is law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, and from 1 July 2027 the 50 per cent capital gains tax discount for individuals and trusts is replaced by cost base indexation.
That is a fundamental change to how capital gains have been taxed since 1999.
The difference between a discount and indexation
Under the current system, if you hold an asset for more than twelve months, you include only half the gain in your assessable income. It does not matter whether the gain was caused by inflation or by a real increase in value.
Under indexation, you increase the cost base of the asset by movements in the index, and you are taxed on the gain above that indexed cost base. The theory is that you should be taxed on your real gain rather than on inflation.
Whether that is better or worse for any particular taxpayer depends almost entirely on two things: how long you held the asset and how much it went up. On a long held asset in a low inflation environment that grew strongly, the 50 per cent discount is generally more generous. On an asset held through a high inflation period that grew modestly, indexation can be better. For anything held a short time, indexation gives you very little.
For most people holding growth assets over a decade, this is a tax increase.
Who keeps the discount
The Act continues to make the 50 per cent discount available for eligible new residential dwellings and for affordable housing. This is part of a broader policy direction in the same package, which also limits negative gearing to new residential dwellings from the same date.
The government has also released a consultation paper on a new 50 per cent CGT discount for early stage investors, including founders and participants in employee share schemes in innovative start up businesses. That is separate and not yet law.
The change that affects small business owners most
Buried in the same package is a genuinely useful change. From 1 July 2027, the aggregated turnover threshold for a small business entity rises from $2 million to $10 million for the purposes of the small business 50 per cent reduction.
That is a substantial widening. It applies to that concession specifically, not to the other small business CGT concessions, which keep their existing tests.
For a business owner selling an active asset, the interaction between the small business concessions and the new indexation regime is going to be the whole ballgame, and it is not simple.
The other thing in the same Act
Capital losses. Under the Bill as introduced, taxpayers would be required to apply capital losses against discounted gains before non-discounted gains, overturning the current rule that lets you choose the order. That was one of the more criticised features and it remained in the Act as passed.
If you carry forward capital losses, that changes how efficiently they can be used.
What to do
Nothing hasty. The commencement is 1 July 2027, so there is a full income year between now and then.
What is worth doing is knowing which of your assets are sitting on substantial unrealised gains, when you acquired them, and whether any sale was already on the horizon. The timing of a disposal now has a consequence it did not have before, and that is a conversation to have well ahead of a transaction rather than in the week you sign a contract.