From 1 July 2027, the 50% capital gains discount (CGT discount) will be replaced with cost base indexation for assets held for more than 12 months, with a 30% minimum tax on net capital gains applying from that date. This will apply to all CGT assets except new homes, including pre-CGT assets, held by individuals, trusts and partnerships.
Cost base indexation, which was replaced in September 1999 with the CGT discount, works by adjusting the cost base of the relevant CGT asset. Broadly, the expenditure incurred for each element of the cost base of the asset (except for the third element dealing with non-capital costs of ownership) is indexed by multiplying it by the relevant indexation factor. The resulting adjusted cost base is then used to calculate the net capital gain when a CGT event is triggered.
The measure essentially restores the taxation of CGT assets by applying inflation-adjusted indexation based on the Consumer Price Index (CPI) to tax real gains. Indexation will be calculated using CPI similar to the pre-September 1999 method. The ATO will provide guidance and tools to support taxpayers calculating this adjustment.
Importantly, a minimum tax of 30% will be applicable to realised capital gains accrued from 1 July 2027, after indexation has been applied.
Transitional arrangements will apply to existing investments. Existing assets purchased and sold before 1 July 2027 will still be eligible for the CGT discount. The CGT discount will also continue to apply to gains accrued until 1 July 2027 for assets purchased prior to that date, regardless of when the actual CGT event is triggered. The difference will be calculated by reference to the difference in the asset’s cost base and its value as at 1 July 2027. Indexation and the minimum 30% tax will be used to calculate CGT on gains accruing from 1 July 2027 (using the asset’s value at 1 July 2027 as the asset’s cost base).
An asset’s value at 1 July 2027 will be determined by taxpayers as part of their tax return in the year the asset is realised. Taxpayers can either:
seek a valuation of the asset as at 1 July 2027, which will include using quoted prices for assets such as shares, or
use a specified apportionment formula that estimates the asset’s value on 1 July 2027, based on its growth rate over the asset’s holding period. The ATO will provide tools to estimate this value for taxpayers.
These transitional arrangements also apply to legacy assets, including pre-CGT assets. Capital gains arising on pre-CGT assets before 1 July 2027 will remain exempt from CGT.
Owners of new builds will be able to choose either the CGT discount or cost base indexation (with the 30% minimum tax still applicable). New builds include dwellings constructed on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings. Knock down rebuilds or substantial renovations are not considered new builds and therefore will not be eligible. A new build cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months.
Income support payment recipients (including Age Pension and JobSeeker payment recipients) will be exempt from the 30% minimum tax if they receive payment in the financial year in which they realise the capital gain.
Source: Budget Paper No 2, p 21; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations [joint press release], Tax Explainer – Negative gearing and capital gains tax reform, 12 May 2026.
A minimum tax rate of 30% has been introduced on discretionary trusts from 1 July 2028.
Currently, under Australian taxation laws, discretionary trusts are not considered separate taxable entities. Broadly, it is the beneficiaries of discretionary trusts who are ultimately entitled to receive and retain trust income that are taxed on the net income of the trust (as defined for income tax purposes). The trustee is then, generally, taxed on the balance (if any) of the net income (subject to certain exceptions). Trustees are also taxed if no beneficiaries are made presently entitled to trust income.
Under the new measure, trustees will pay a minimum tax of 30% (unless higher rates apply) on the taxable income of discretionary trusts from 1 July 2028. Beneficiaries (other than corporate beneficiaries) will receive non-refundable credits for any tax payable by the trustee.
Trustees will be required to calculate, report and pay the minimum tax, as well as to notify beneficiaries of their entitlements and associated tax credits. The mechanism for collecting the minimum tax will be subject to consultation, but is expected to be consistent with established collection mechanisms. Trustees that receive franked dividends will be required to use their franking credits to pay the minimum tax.
The minimum tax will not be applicable to:
other types of trusts (eg unit trusts or widely-held trusts)
Importantly, income from assets of discretionary testamentary trusts existing as at 7:30pm (AEST) on 12 May 2026 will be excluded from the minimum tax. Some other types of income such as primary production income, certain income relating to vulnerable minors and amounts to which non-resident withholding tax applies, will also be excluded.
Expanded rollover relief provisions will be available for 3 years from 1 July 2027 to support taxpayers that wish to restructure out of discretionary trusts to another entity type (such as a company or fixed trust).
Source: Budget Paper No 2, p 22; Prime Minister, Treasurer and Minister for Finance, Tax reform for workers, businesses and future generations, [joint press release]; Tax Explainer – Minimum tax on discretionary trusts, 12 May 2026.