On Budget night, 12 May 2026, the Government announced what the Business Council of Australia called the most consequential tax changes in a quarter of a century.
Read past the housing headlines, and what emerges is something broader: a fundamental unwinding of the three assumptions on which a large share of private wealth in this country has been built.
| Setting | Before | After (from 1 July 2927) |
|---|---|---|
| CGT discount | 50% discount on gains from assets held 12+ months | Replaced by cost base indexation plus a 30% minimum tax |
| Negative gearing | Available on all investment property | Limited to new residential developments only |
| Discretionary trust income | Taxed at beneficiary rates | 30% minimum tax (announced for 1 July 2028, not yet legislated) |
None of these three changes is, on its own, unprecedented. Taken together, applied at once, and stacked on top of each other, they represent the most consequential change to the taxation of capital since the discount was introduced in 1999.
What is Replacing the Current CGT Discount?
The Government says real gains will be taxed and a 30% minimum will apply. Both are true, and neither tells the whole story.
Indexation lifts the cost base by inflation, so only the gain above inflation is taxed. It is not automatically worse than the flat 50% discount, and the Treasurer concedes some will pay less. But there is a structural reason to expect it will usually be worse. The Reserve Bank exists to keep inflation low and stable, around 2 to 3 per cent. The discount was worth a flat half of the gain. Indexation only removes that small inflation slice. Where an asset has grown well above inflation, which is the point of holding it, the taxable gain rises sharply, and the new 30% minimum then sets a floor under it.
The 30% minimum is a top-up. If a gain, taxed at the holder’s ordinary rates, would already bear 30% or more, the minimum does nothing. If it would bear less, tax is added to bring it to 30%, or 32% once the 2% Medicare levy is counted. It is wrong, though, to call the top-up irrelevant to high earners. They lose the discount entirely. A top-rate taxpayer who paid an effective 23.5% on a long-held gain now pays up to 47%. A low-income earner who paid little or nothing now faces a minimum of 32%. The change cuts at both ends.
How the Numbers Play Out: Three Examples
The following cases are illustrative, but the mechanics are real. Each applies cost base indexation first, at a conservative 4.5% a year (above the Reserve Bank’s 2 to 3 per cent band), then current resident tax rates and the 2% Medicare levy.
CASE 1: The university student investing part-time earnings
Aisha is 21 and earns $5,000 from part-time work. She sells shares held for three years, bought for $15,000 and now worth $35,000, a $20,000 nominal gain.
| Treatment | Taxed gain | Tax on the gain |
|---|---|---|
| Before: 50% discount | $10,000 (discounted) | Nil (income below $18,200) |
| After: indexation + 30% minimum | ~$17,900 (indexed) | ~$5,720 incl. Medicare |
The reform is sold as being for the young. A student building wealth through shares goes from paying nothing to about $5,720.
Indexing the $15,000 cost base at 4.5% over three years lifts it to about $17,100, so roughly $2,100 of inflation is removed and about $17,900 of real gain remains. With the old discount her total income sat below the tax-free threshold and she paid nothing. The 30% minimum overrides that: her income would tax the real gain far below 30%, so she is topped up to 30%, then Medicare applies.
CASE 2: The salaried parent selling shares for school fees
David earns $150,000 in salary. He sells shares held for four years, bought for $100,000 and now worth $250,000, a $150,000 nominal gain, to fund his children’s school fees.
| Treatment | Taxed gain | Tax on the gain |
|---|---|---|
| Before: 50% discount | $75,000 (discounted) | ~$32,050 (~21%) |
| After: indexation, no discount | ~$130,700 (indexed) | ~$58,250 (~39%) |
For a high earner the 30% minimum often does not bite, because the marginal rate on the indexed gain is already above 30%. Losing the discount is what hurts.
Over four years at 4.5%, indexation lifts his $100,000 cost base by about $19,300, so the real gain is about $130,700. Stacked on his $150,000 salary, that real gain is taxed at his marginal rates, which already exceed 30%, so the minimum tax does nothing here. The driver is the lost discount. It nearly doubles the tax on the same sale, and the after-tax proceeds for school fees fall by about $26,000.
CASE 3: The self-funded retiree selling shares to live on
Margaret is retired, just above the pension assets test, and earns $5,000 of other income. She sells shares held for six years, bought for $60,000 and now worth $100,000, a $40,000 nominal gain, to fund living costs.
| Treatment | Taxed gain | Tax on the gain |
|---|---|---|
| Before: 50% discount | $20,000 (discounted) | ~$1,490 |
| After: indexation + 30% minimum | ~$21,900 (indexed) | ~$7,000 incl. Medicare |
The pension exemption is real but narrow. It depends on a payment test, not on being a retiree, and the self-funded retiree just over the line is exactly who loses the discount and meets the 30% floor.
Six years of indexation at 4.5% lifts her $60,000 cost base by about $18,100, so the real gain is about $21,900. Her income would tax that well below 30%, so the minimum tops her up to 30%. The exemption for Age Pension and JobSeeker recipients turns on receiving a prescribed payment in the year of sale, so a self-funded retiree just over the threshold is caught in full.
Even supporters of the reform are uneasy with this outcome. Economist Saul Eslake and former Productivity Commissioner Michael Brennan, now at the e61 think tank, have urged the Government to drop the 30% minimum and restore the five-year income averaging of the pre-1999 system, because charging 30% to someone earning under $45,000 is hard to defend.
The Complication Nobody Has Solved: Valuation
Because gains are split on 1 July 2027, with different rules applying to the pre-reform and post-reform portions, every CGT asset held on that date effectively needs a market value as at that date. That includes unlisted shares, business goodwill, and property held in private groups.
There are not enough qualified valuers in Australia to value every affected asset at a single point in time. The scramble is already beginning. Families who leave this until closer to 1 July 2027 are likely to face longer turnaround times and materially higher costs. Triaging which assets need a formal valuation, and commissioning them early, is one of the most concrete steps available right now.
What the June Backdown Actually Changed
On 18 June, the Government announced a $475 million partial concession. The small business CGT turnover threshold lifts from $2 million to $10 million, but only for one of the four small business concessions (the additional 50% reduction after indexation). The other three concessions, including the 15-year exemption, remain capped at $2 million. Qualifying start-ups retain the 50% discount and may opt out of indexation. Genuine testamentary trusts are exempted from the 30% trust minimum. There are also concessions for charitable donations.
The reaction from the business community was pointed. The Australian Chamber of Commerce and Industry described it as a rushed patch-up job and warned Australia will still carry one of the highest CGT rates in the developed world. The Council of Small Business Organisations welcomed the threshold increase but said businesses between $2 million and $10 million should get all four concessions, not one. Opposition Leader Angus Taylor dismissed the package outright: “There are no concessions here, they are still raising capital gains tax. Scrap the lot.”
That last statement matters beyond politics. We return to it in our second article.
Who Should Be Thinking About This Now?
| Exposure | Who is affected |
|---|---|
| High | Family groups holding long-term assets in discretionary trust |
| High | Founders approaching a sale of succession |
| High | Investors in established residential property bought after Budget night |
| Material | Individuals with concentrated holdings, including on modest incomes |
| Material | Owners of both commercial and residential assets |
| Material | Cross-border families and incoming migrants |
The central question has shifted from how much tax will I pay to does my current structure still work in the environment that is emerging. For most individuals and families, the right first steps are diagnostic. If you hold appreciating assets, shares, property, an interest in a business, that you intend to sell at any point in the foreseeable future, the timing of that disposal relative to 1 July 2027 is now a material consideration. Even the moment a contract is signed can affect which rules apply.
Our second article: 2026-27 Federal Budget: What the CGT Changes Mean for Family Trusts, and Why This is Legal Work as Much as Tax Work, covers what these changes mean for family trusts and private business structures specifically, and why the response is legal work as much as it is tax work.
Disclaimer: This article is based on the 2026–27 Federal Budget measures, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 as introduced, and the concessions announced on 18 June 2026. At the date of publication the Bills have not been enacted and remain before a Senate committee. Rates and figures are indicative and depend on individual circumstances. This article is general information only and does not constitute legal or tax advice. You should obtain advice tailored to your circumstances before acting.
