Capital Gains Tax Indexation Explained: What Changed After the 2026 Federal Budget?

Prepared by Sunny Gandhi, Mortgage Broker & Credit Representative. This article is educational only and should not be relied upon as tax, financial, or investment advice.

The 12 May 2026 Federal Budget proposed the most significant overhaul of Australia’s Capital Gains Tax system in over 25 years. For property investors, business owners, and anyone holding assets in trusts, the proposed shift from a flat 50% CGT discount to cost base indexation — combined with a proposed 30% minimum tax — has raised many questions. This article explains the key proposed changes in plain language and highlights areas to discuss with your accountant or tax adviser.

What Is Capital Gains Tax (CGT)?

Capital Gains Tax is the tax that may apply when you sell a capital asset for more than you originally paid for it. In Australia, CGT is not a standalone tax — any capital gain is added to your assessable income for that financial year and taxed at your marginal rate.

CGT can apply to a wide range of assets, including:

• Investment properties
• Shares and managed funds
• Business assets (including goodwill and business premises)
• Units in trusts
• Certain cryptocurrency holdings
• Collectibles above a value threshold

The basic formula is:

Your cost base is generally the original purchase price plus acquisition costs (stamp duty, legal fees), improvement costs, and certain holding costs.

Understanding the Two CGT Methods

Method 1: The 50% CGT Discount (Current Rules)

Since 1999, the most commonly used method has been the 50% discount. If you hold an asset for more than 12 months, you may reduce the full capital gain by 50%, and only the remaining half is added to your taxable income. This method is simple, predictable, and well understood.

Method 2: Cost Base Indexation

The indexation method was Australia’s original CGT framework, introduced in September 1985. Under this approach, the purchase price of an asset is adjusted upward for inflation using the Consumer Price Index (CPI). Only the “real” gain — above and beyond inflation — attracts tax.

Indexation was replaced in 1999 by the Howard Government. The 2026 Budget proposes to reverse that decision, subject to the legislation passing Parliament.

Which Method Is Better?

There is no universal answer. The relative outcome depends on holding period, inflation rate, actual capital growth, marginal tax rate, and ownership structure. In high-inflation environments with long holds, indexation may produce a lower taxable gain. In low-inflation periods with strong growth, the old 50% discount may have been more beneficial. Both scenarios should be modelled with a qualified accountant before any sale decision is made.

What Did the 12 May 2026 Federal Budget Announce?

The key proposed CGT measures announced on 12 May 2026 are:

• The Government has proposed abolishing the 50% CGT discount for individuals, trusts, and partnerships — replacing it with cost base indexation — proposed to take effect from 1 July 2027, subject to legislation passing Parliament
• If enacted, a 30% minimum tax rate is proposed to apply to capital gains accruing after 1 July 2027, regardless of the investor’s marginal rate
• Under the proposals, pre-CGT assets (acquired before 20 September 1985) would no longer be fully exempt — gains accruing after 1 July 2027 would enter the CGT regime
• Superannuation funds are proposed to retain their one-third CGT discount — no changes have been announced for SMSFs or other super vehicles
• Under the proposals, new residential properties would receive a choice — investors may elect either the old 50% discount or the new indexation regime when they sell
• Negative gearing for established residential properties acquired after Budget night (7:30pm AEST, 12 May 2026) is proposed to be restricted from 1 July 2027, subject to legislation passing
• Discretionary trusts are proposed to face an additional measure — a 30% minimum tax on trust distributions from 1 July 2028, subject to separate legislation

Why Did the Government Change the CGT Rules?

The stated rationale centres on housing affordability and tax equity. The Government argues that the 50% CGT discount has contributed to property price inflation by making investment properties disproportionately tax-advantaged. Switching to indexation — which only shelters inflation-adjusted gains — is presented as a more neutral approach. The 30% minimum tax floor addresses the strategy of timing asset sales to retirement years to attract very low effective rates.

Practical Examples: How the Numbers Stack Up

Example A — Current Rules (50% Discount)

Example B — Proposed Rules (Indexation + 30% Min. Tax)

Assuming cumulative CPI inflation from 2015 to 2028 is approximately 35%:

Side-by-Side Comparison

Capital Losses: What Still Works?

Can I Still Use Capital Losses to Offset Capital Gains?

Yes. Capital losses can still be used to offset capital gains. This basic principle remains intact. If you sell an asset at a loss, that loss can be applied against capital gains from other asset disposals in the same income year.

Can I Carry Forward Capital Losses?

Yes. Capital losses that cannot be fully utilised in the year they arise can be carried forward indefinitely to offset future capital gains. There is no time limit. This rule is unchanged by the 2026 Budget proposals.

Can I Use Capital Losses Against My Salary or Other Income?

No. Capital losses can only be offset against capital gains — not against ordinary income such as salary, wages, rent, or business income. This has not changed.

What Happens to Capital Losses Accumulated Before the Budget?

Carried-forward losses accumulated before the Budget are expected to remain available to offset future capital gains under the proposed rules. The precise interaction will depend on final legislation and ATO guidance. Confirm with your accountant how your existing loss register may apply going forward.

Can Capital Losses Offset Gains from Both Shares and Property?

Yes. Capital losses are not ring-fenced by asset type. A loss on shares can offset a gain on property, and vice versa. This cross-asset offsetting remains available under the proposed framework.

Can Spouses Transfer Capital Losses to Each Other?

No. Capital losses are not transferable between spouses or related individuals. Each taxpayer’s capital losses are their own. Transfers of assets between spouses can themselves trigger CGT events, so advance planning and specific advice is needed.

What If My Investment Property Decreases in Value?

If you sell an investment property for less than your cost base, the result is a capital loss that can be carried forward to offset future capital gains. Under the proposed indexation framework, the cost base is also indexed for inflation — meaning the threshold for a capital loss is effectively the indexed cost base, not just the original purchase price.

Transition Rules in Detail

The transition rules are arguably the most practically important aspect of the 2026 Budget changes — they determine how investors who already hold assets will be treated as the new regime comes into effect.

How the Split-Gain Model Works

• Gains accrued on assets held through the transition date will be split at 1 July 2027
• Under the proposed transitional rules, gains accrued up to 30 June 2027 would retain access to the existing 50% discount
• Gains accruing from 1 July 2027 onward would fall under the new proposed indexation + 30% minimum tax regime
• Assets valued at their market value as at 1 July 2027 to determine the split
• Assets sold before 1 July 2027 would remain fully subject to existing rules
• Assets purchased after 1 July 2027 would fall entirely under the new proposed rules from day one

Do I Need to Get Every Investment Property Valued?

A formal valuation is not strictly mandatory in all circumstances, but is strongly advisable for most investors. The transition date valuation is the key reference point for splitting gains between old and new regimes. A formal, documented valuation by a registered valuer is far more defensible than an informal estimate and much harder for the ATO to challenge later.

What If I Don’t Obtain a Valuation Before the Transition Date?

Without a contemporaneous valuation, the ATO may apply alternative methods that could be less favourable. Relying on retrospective or ATO-determined values introduces uncertainty. For investors with material property holdings, obtaining a formal valuation well before 1 July 2027 is a prudent step worth taking.

How Are Improvements Treated After the Transition Date?

If the legislation passes, capital improvements made after 1 July 2027 would form part of the cost base under the new rules and would be indexed going forward. Keeping detailed records of all improvement expenditure — invoices, contracts, council approvals — is more important than ever under the new framework.

What Records Should I Keep for Future CGT Calculations?

• Original purchase contracts and settlement statements
• Stamp duty and legal fee receipts
• All improvement and renovation invoices
• A formal valuation as at 1 July 2027
• Loan statements (relevant for some structures)
• Prior capital loss schedules lodged with the ATO
• Depreciation schedules where relevant

Impact on Residential Property Investors

Existing Investment Property Holders

Gains on properties sold before 1 July 2027 remain entirely under existing rules including the 50% discount. Holding through the transition requires obtaining a market valuation at that date. Long-term holders — particularly those with properties owned for 20+ years — should model both methods carefully with their accountant before deciding on timing.

Properties Purchased Before Budget Night (12 May 2026)

These properties sit in a transitional position. Gains accrued to 30 June 2027 retain access to the 50% discount. From 1 July 2027 onward, gains shift to the indexation model. The transition-date market valuation determines the split.

Properties Purchased After Budget Night

For established residential properties acquired after 7:30pm AEST on 12 May 2026, both the proposed CGT changes and the proposed negative gearing restrictions are intended to apply from 1 July 2027, subject to legislation passing. Investors should factor both measures into their financial modelling and discuss the implications with their tax adviser and finance broker.

Will Inflation Rising Reduce My CGT Bill?

Under the new indexation system, yes — higher inflation increases the indexed cost base, which reduces the taxable gain. An investor holding a property through a period of elevated inflation will have their cost base adjusted upward by more, leaving a smaller real gain subject to tax. This is the opposite of the 50% discount, which provides no additional benefit in high-inflation environments.

How Will Subdivision Projects Be Taxed?

Subdivision projects may attract different tax treatment depending on whether the ATO views them as capital (CGT) or revenue (income tax) transactions. The 2026 Budget does not appear to alter this threshold question — but once a gain is classified as a capital gain, the new indexation rules apply for gains accruing after 1 July 2027. Seek specialist tax and planning advice for subdivision projects.

The New Builds Exemption

Investors in new residential properties retain a choice at the time of sale: the existing 50% CGT discount or the new indexation + minimum tax regime. This deliberate policy choice encourages investment in new housing supply. Investors may wish to discuss with their accountant or financial adviser whether new or established property is more suitable for their circumstances in light of the proposed changes.

Are Commercial Properties Affected Differently?

Commercial property held by individuals, trusts, or partnerships is subject to the same CGT indexation rules as residential investment property from 1 July 2027. The new builds exemption appears limited to residential property. The Small Business CGT concessions may provide additional relief for eligible commercial properties — see the Business Owners section.

Owner-Occupiers, Inherited Property & the Main Residence

Does the CGT Change Affect My Family Home?

No. The main residence exemption is not being altered. Your primary home remains exempt from CGT, subject to the same conditions that have always applied.

Can I Still Use the Six-Year Rule?

Yes. The six-year absence rule — which allows you to treat a former primary residence as your main residence for up to six years while renting it out — has not been proposed to be altered. It operates within the main residence exemption framework, separate from the CGT discount or indexation framework.

What Happens If I Move Out and Rent My Home?

When you begin renting out your primary residence, the property transitions to an investment property for CGT purposes. The cost base resets to market value at the date you first used it for income-producing purposes. For properties that made this transition before 1 July 2027, existing rules may continue to apply to gains accrued up to that point. Obtain specialist tax advice for your specific situation.

What If I Convert My Home Into an Investment Property After 1 July 2027?

If you convert after 1 July 2027, the deemed cost base (market value at conversion) will be indexed going forward under the new rules. The main residence exemption covers the period the property was your primary home. Any future gain — from the indexed cost base to eventual sale price — falls under the new framework.

Are Inherited Properties Affected?

Inherited properties can be complex from a CGT perspective. Generally, the cost base resets to market value at the date of the deceased person’s death. For properties inherited after 1 July 2027, the new CGT rules apply from the date of acquisition. For properties inherited before that date, transitional rules apply. Estate planning involving investment properties should be reviewed with specialist tax and estate advice.

What If I Inherit a Property After the New Rules Commence?

A property inherited after 1 July 2027 is treated as acquired at that point. The cost base is the market value at the date of inheritance, and any future gain uses the indexation method. The 30% minimum tax applies. Estate planning strategies involving the timing of asset transfers may need to be revisited.

Will Downsizers Be Impacted?

Downsellers of their primary home are generally unaffected, as the main residence exemption continues. Downsizer superannuation contribution rules also remain separate. However, downsizers who also hold investment properties should review those holdings in light of the proposed changes — particularly if they planned to sell investments in retirement to fund their lifestyle.

High-Income Earners & the 30% Minimum Tax

What Is the 30% Minimum Tax Rate?

Under the proposed rules, a 30% minimum tax would act as a floor on the effective rate applied to real capital gains (after indexation) accruing after 1 July 2027. If enacted, even if your marginal rate in the year of sale is lower than 30%, the proposed minimum rate would still apply to your real capital gain. These measures are not yet law.

Who Does This Target?

The measure specifically targets the strategy of accumulating capital assets during high-income working years, then timing the sale during early retirement when taxable income is lower. Under the old rules, someone in early retirement could potentially sell an asset and attract an effective rate well below their working-year marginal rate. The 30% floor eliminates this strategy for gains accruing after the transition date.

How Does CGT Interact With My Marginal Tax Rate Under the New Rules?

Your real capital gain (post-indexation) is added to your taxable income. Tax is calculated on that combined income. If the effective rate on the gain portion falls below 30%, a top-up applies to bring it to 30%. If your marginal rate is already above 30% — as it is for most investors earning above approximately $135,000 — the minimum tax has no additional effect.

Is Investing Through a Trust More Tax-Effective Under the New Rules?

Trusts are directly affected by the CGT changes, and the additional proposed 30% minimum tax on discretionary trust distributions from 1 July 2028 means distributing capital gains to lower-income beneficiaries is also subject to a minimum rate. The trust-as-CGT-minimisation strategy is significantly curtailed. Trusts continue to have legitimate uses for asset protection, succession, and income management — but their CGT advantage is fundamentally altered.

Can I Still Distribute Gains to Family Members Through a Trust?

Technically yes, but the tax advantage is substantially reduced by the 30% minimum tax on distributions from 1 July 2028. Trusts remain useful for other purposes, but their role as a CGT minimisation vehicle is materially changed. Review all trust structures with your accountant.

Impact on Business Owners

The proposed changes apply to all CGT assets held by individuals, trusts, and partnerships — including business assets.

Sale of Business Premises and Goodwill

When a business is sold, the transaction typically involves multiple CGT assets: physical premises, goodwill, customer lists, and plant and equipment. Each may be affected by the new rules for gains accruing after 1 July 2027. Business owners planning an exit should model CGT impact under both old and new frameworks.

Do Small Business CGT Concessions Still Apply?

Small business CGT concessions — including the 15-year exemption, retirement exemption, rollover, and 50% active asset reduction — have not been specifically abolished. However, their interaction with the new indexation rules requires careful analysis. Do not assume these concessions operate identically under the new framework — seek specialist advice.

Can I Still Access the Retirement Exemption?

The small business retirement exemption has not been announced as removed. However, the 30% minimum tax floor may interact with this concession in complex ways. Confirm current status and applicability with a registered tax agent once final legislation passes.

Discretionary (Family) Trusts

Business owners using trusts face a double impact: new CGT indexation rules from 1 July 2027, and the proposed 30% minimum tax on discretionary trust distributions from 1 July 2028. Urgent review of existing trust structures with a qualified tax adviser is recommended.

Succession Planning and Retirement Strategies

The 30% minimum tax floor directly impacts the strategy of timing a business sale to coincide with low-income retirement years. Business owners who have incorporated this into their exit planning need to revisit those plans. A business sale in retirement is not impossible — but the assumed tax cost needs to be recalculated.

SMSF Investors

How Do the New CGT Rules Affect SMSFs?

SMSFs are not affected by the proposed CGT changes. Superannuation funds retain their existing one-third CGT discount and are excluded from the new indexation and 30% minimum tax measures. Some investors may wish to discuss with their accountant or financial adviser whether their current asset ownership structure — including SMSF ownership — remains appropriate in light of the proposed changes.

Is Property Inside an SMSF Still Tax-Effective?

Yes — and arguably more so relative to the alternatives after the Budget changes. In accumulation phase, SMSFs pay 15% tax on fund income including capital gains (after the one-third discount). In pension phase, earnings and capital gains attributable to pension assets may be entirely tax-free, subject to the transfer balance cap. Neither rate has been altered.

Will Pension Phase Assets Still Be Exempt from CGT?

Yes, based on current announcements. The tax-free treatment of earnings and capital gains in the pension phase of superannuation has not been altered by the 2026 Budget. This remains one of the most significant tax advantages available to Australian investors.

Does Indexation Apply Inside an SMSF?

No. SMSFs use the one-third CGT discount, not the 50% discount or the new indexation method. The indexation framework applies to individuals, trusts, and partnerships outside of superannuation only.

Should I Reconsider Purchasing Property Through an SMSF?

The relative appeal of SMSF property investment has increased under the new framework. However, SMSF property investment carries significant compliance obligations, liquidity requirements, and restrictions. It is not suitable for all investors. Speak with a specialist SMSF finance broker and SMSF adviser before making decisions in this area.

Key Considerations Investors May Wish to Discuss With Their Advisers

Timing of Any Sale — A Question for Your Accountant

This depends entirely on your personal situation — the embedded gain, your marginal tax rate, your investment horizon, and whether the property continues to serve your goals. Selling before 1 July 2027 is only beneficial if the tax saving outweighs the loss of continued capital growth, rental income, and transaction costs. This question requires personalised modelling by your accountant — not a general rule of thumb.

Purchasing Decisions — A Question for Your Advisers

Purchasing before 1 July 2027 means your new acquisition goes through the transitional split framework when you eventually sell. For new residential properties, the choice-of-method exemption makes timing less critical from a CGT perspective. What matters most is whether the investment makes financial sense on its fundamentals.

Should I Consider Refinancing?

Whether refinancing makes sense for your situation depends on your personal financial circumstances, your existing loan structure, and your borrowing capacity — not on CGT rules alone. KeepEasy Finance can help you understand your current loan structure and what credit options may be available to you. Whether to invest, and how, is a decision that should be made with a licensed financial adviser and a qualified tax professional. We do not provide financial or investment advice — our role is to help you understand your credit options.

What About Debt Recycling?

Debt recycling is a concept that some investors discuss with their financial advisers and accountants as part of a broader wealth planning conversation. It is not something a mortgage broker can advise on. If this is relevant to your situation, you should obtain advice from a licensed financial adviser and a registered tax agent before taking any steps.

Will Negatively Geared Properties Still Make Sense?

For established residential properties purchased after Budget night, the proposed negative gearing restrictions reduce the tax deductibility of net rental losses against other income. Combined with the removal of the 50% CGT discount, the after-tax economics of negatively geared established residential property purchased after 12 May 2026 are materially different from what existed before. The assumptions underpinning many historical strategies need to be recalculated.

Should I Invest Through a Trust or Personally?

Ownership structure decisions — whether to hold assets personally, through a trust, a company, or within superannuation — are matters of tax and legal advice, not credit advice. Under the proposed rules, the CGT treatment of different structures is changing, and any decision about ownership structure should be made with a qualified accountant and solicitor who can assess your individual circumstances. Note that ownership structure also affects borrowing capacity and loan eligibility — once you have determined your preferred structure with your advisers, KeepEasy Finance can help you understand what lending options may be available within that structure.

Should I Restructure My Portfolio?

Restructuring an existing portfolio — for example, transferring assets from personal names into a trust or SMSF — may trigger a CGT event in itself. This needs to be weighed against the ongoing benefit of the new structure. Restructuring also has stamp duty implications in most states. Any portfolio restructuring should only be undertaken with specific legal, tax, and financial advice.

What Are the Biggest Mistakes Investors Will Make?

• Selling in a panic before 1 July 2027 without properly modelling the numbers
• Failing to obtain a formal market valuation before the transition date
• Assuming the new rules make property investment unviable (they do not necessarily)
• Ignoring the negative gearing restrictions for established properties purchased after Budget night
• Not reviewing trust structures in light of the proposed 30% minimum tax on distributions
• Making restructuring decisions without considering the CGT events that restructuring itself may trigger
• Acting on general commentary rather than personalised professional advice

How Will the Changes Affect Retirement Planning?

The 30% minimum tax floor significantly alters retirement CGT planning for investors who planned to sell assets in low-income retirement years. The SMSF pension-phase exemption remains valuable and becomes relatively more attractive. Superannuation contribution strategies should be reviewed in light of the new landscape. A coordinated approach involving both a financial adviser and a tax specialist is more important than ever.

What Should Property Investors Do Before the Transition Date?

1. Review all investment property holdings and model the numbers under both old and new CGT rules
2. Obtain formal market valuations for all investment properties you intend to hold past 1 July 2027
3. Review the cost base of all investment properties — ensure all eligible costs are captured
4. Review ownership structures (personal, trust, SMSF, company) with your accountant and solicitor
5. Consider the interaction of the negative gearing restrictions for established properties acquired after Budget night
6. Review trust structures in light of the proposed 30% minimum tax on distributions
7. Monitor legislative progress — these changes are proposed, not yet law
8. Speak with KeepEasy Finance about how your lending and finance structure aligns with your post-Budget strategy

Key Considerations Checklist

• Understand your full cost base for every CGT asset — purchase costs, stamp duty, legal fees, and all capital improvements
• Obtain a formal property valuation for any investment property you plan to hold past 1 July 2027
• Review your capital loss register — understand what carried-forward losses you hold
• Review your ownership structure (individual, trust, SMSF, company) with a tax adviser and solicitor
• Model the timing of any planned sale under both pre- and post-1 July 2027 scenarios
• Review negative gearing exposure for established residential properties acquired after 12 May 2026
• Review trust distribution strategies in light of the proposed 30% minimum trust distribution tax from 2028
• Consider how SMSF structures compare to personal or trust ownership for future acquisitions
• Assess whether small business CGT concessions apply to your business assets
• Seek advice from a registered tax agent or accountant before making any decisions
• Monitor legislative progress — these changes are proposed, not yet final law
• Speak with KeepEasy Finance to ensure your lending and finance structure supports your investment strategy going forward

Frequently Asked Questions

Final Thoughts

The 2026 Federal Budget has proposed the most significant overhaul of Australia’s CGT system in more than 25 years. For property investors, business owners, and trust beneficiaries, the shift from a flat 50% discount to cost base indexation — combined with a 30% minimum tax floor and restrictions on negative gearing for established residential properties — introduces new variables into virtually every long-term wealth strategy.

Three things stand out as clear priorities:

• Act before 1 July 2027 on the fundamentals. Obtain your transition-date property valuations, review your cost bases, and understand your capital loss position. These are practical steps that provide significant protection going forward.
• Ownership structure may be worth reviewing. The proposed changes affect different ownership structures differently. Whether any change is appropriate for your situation is a matter for your accountant and legal adviser — not a decision to be made based on general commentary.
• Do not act without qualified advice. These are proposed changes, not yet final law. Acting precipitously — whether selling in panic or restructuring without understanding the consequences — could cost more than the CGT you were trying to avoid.

At KeepEasy Finance, our role is to assist with your credit and lending needs. We can help you understand your loan structure, your borrowing capacity, and what lending options may be available to you. We are not tax advisers, financial advisers, or legal advisers — and we do not provide advice on investment strategy, asset structuring, or tax outcomes. What we can do is work alongside the qualified professionals who do, and ensure the lending side of your situation is clearly understood. If you would like to discuss your lending options, we are happy to help.