Top 10 things you need to know about the CGT changes

Ten months out from commencement, the design is still moving, one legislative instrument central to the regime has not yet been registered, and several significant matters have been openly deferred to a later tranche, expected to be released before the end of 2026.

Meanwhile, clients are asking whether they should sell assets to sidestep the reforms or obtain valuations of assets that they will continue to hold, and all this amid misinformation circulating about these measures. Here is what the rules actually do.

The changes apply to individuals and trusts across all asset classes, including shares, business assets, cryptocurrencies, collectables and personal use assets, as well as property. As a recap, the core CGT changes:

• replace the 50% CGT discount with inflation-based indexation for capital gains accruing from 1 July 2027;

• introduce a minimum tax rate of 30% on capital gains accruing from 1 July 2027;

•  

   

  deem CGT assets (including pre-CGT assets) held just before 1 July 2027 to be sold just before 1 July 2027 and reacquired just after that sale at their market value; and

• retain the existing CGT discount for new residential dwellings and affordable housing.

All legislative references in this article are to the Income Tax Assessment Act 1997 (Cth) (ITAA 1997).

Things you need to know about the changes

1. The ‘widow’s tax’ has been removed for negatively geared properties

Amendments to remove the so-called ‘widow’s tax’ were fast-tracked and included in the Tax Reform No. 2 Act.

Of note, these amendments broadly provide grandfathering of residential properties acquired before 7:30 pm AEST on 12 May 2026 (Budget night) where, due to inheritance or relationship breakdown, a person later acquires an ownership interest in a residential dwelling from their spouse (or former spouse) or a co-owner, and that ownership interest was capable of being negatively geared. This ensures that the person can continue to negatively gear the property in respect of their new ownership interest.

2. You do not lose the CGT discount on gains already accrued

The new rules deem a taxpayer who holds a CGT asset on 30 June 2027, and continues to hold it, to have disposed of it just before 1 July 2027 and to have reacquired it just after that sale — in each case for its market value just before 1 July 2027, unless the apportioning method is chosen (see the discussion at 10. below). 

Gains accrued to that date are deferred until the asset is actually sold, at which time the gain is able to be reduced under the 50% CGT discount (if eligible and after any capital losses have been applied).

Selling before 1 July 2027 to ‘lock in the 50% CGT discount’ may be pointless and unnecessary. The law does it for you. There is no tax payable on 1 July 2027, no brokerage and no need to find a buyer. A client who is advised to bring forward a disposal to preserve the 50% CGT discount is being told to pay real transaction costs, and to accelerate a tax liability by years or decades, to obtain something the transitional rules give them for nothing.

3. Don’t assume the family home is not affected

The main residence exemption provisions are unchanged. However, individuals who use their home partly to produce income, such as for carrying on a business from home or renting out a room, are within the changes to the extent the exemption does not apply.

The application of the main residence exemption to homes acquired before 1 July 2027 (to which the deemed sale and reacquisition rule applies) is complex. NTAA has raised this issue with Treasury.

4. The end of pre-CGT assets

For the first time, assets acquired before 20 September 1985 are brought into the CGT net from 1 July 2027, using the same deemed sale and reacquisition mechanism.

Any capital gain or loss accruing before 1 July 2027 is disregarded, and the cost base is reset to the asset’s market value just before 1 July 2027. While the pre-CGT gain itself is not taxed, the asset’s pre-CGT status ends.

But there is a trap. The deemed CGT event may trigger a capital gain under CGT event K6 for pre-CGT unlisted shares and trust interests. Any resulting K6 gain is deferred until the share or interest is actually sold and can be reduced under the 50% CGT discount (if eligible) but it still needs to be identified and recorded.

5. You lose the ability to choose how capital losses are applied

This issue has received little attention to date, and it is a real cost.

Under the current law, a taxpayer chooses which capital gains their capital losses are applied against.  Applying capital losses against non-discounted gains is generally preferable as this preserves the 50% CGT discount on discount capital gains.

The CGT reform has created four categories of capital gain: deferred non-residential, deferred residential, non-residential and residential. Capital losses must be applied against those categories in that order.

Under the new law, that choice is removed. The new ordering rule forces capital losses to be applied against deferred gains first, which are the gains that carry the 50% CGT discount. A benefit available under the current law disappears, without ever having been identified as a policy target.

6. Indexation does not run from when the asset was initially acquired

The return of indexation has been widely misunderstood as a restoration of the pre-21 September 1999 position. It is not.

Only cost base expenditure incurred on or after 1 July 2027 is indexed. This includes expenditure taken to have been incurred on 1 July 2027 under the deemed sale and reacquisition rule. A client who acquired a property in 2004 does not get 23 years of indexation for the period between 2004 and 30 June 2027. Indexation applies only from 1 July 2027, not from the date the asset was originally acquired.

Further, indexation cannot create or increase a capital loss. Where the sale proceeds fall between the reduced cost base and the indexed cost base, there is neither a capital gain nor a capital loss.

7. The 30% minimum tax on capital gains is a floor, not a flat rate

The new CGT rules benchmark this minimum tax on post-1 July 2027 capital gains at 30% and impose a top-up where the taxpayer falls short of that benchmark. It is not a flat 30% impost, and it is not confined to high-income taxpayers. In fact, it can bite hardest for taxpayers with modest amounts of other income.

That inverts the usual intuition. Retirees, part-year residents and taxpayers with substantial deductions, including personal superannuation contributions, are the most affected, because deductions that reduce taxable income increase the top-up. A client who makes a deductible personal contribution in the year they realise a capital gain may find that the deduction reduces their basic income tax liability but also increases their minimum tax gap amount by a corresponding amount.

8. Deferred capital gains sit outside the 30% minimum tax on capital gains

Deferred capital gains are those that accrue on or before 30 June 2027. The minimum tax does not apply to them. It applies only to gains accruing from 1 July 2027.

For clients with long-held assets, this materially changes the analysis. A large deferred gain crystallising on a sale in, say, 2035 is not exposed to the 30% floor. Only the post-1 July 2027 growth is.

9. Some negatively geared losses do not reduce a capital gain

This is one of the most serious design defects NTAA has identified in the second tranche, and it produces an unfair outcome.

Non-quarantined losses from negatively geared residential property (i.e. grandfathered pre-Budget night property, new residential dwellings and other excluded properties) effectively reduce a taxable residential capital gain when working out an individual’s basic income tax liability. They do not reduce that capital gain when working out how much of it is subject to the 30% minimum tax.

Section 119-5 defines an individual’s minimum tax capital gain (MTCG) by reference to the capital gains remaining after step 6 of the method statement in subsection 102-5(1). Losses quarantined under section 26-155 are applied within that method statement and so reduce the MTCG. Non-quarantined rental losses are ordinary section 8-1 deductions: they reduce taxable income, but they sit outside the method statement and leave the MTCG untouched.

Example

An individual’s only assessable income for 2031–32 is a $100,000 capital gain from residential property (assume the deferred capital gain is zero for simplicity), being the amount included in assessable income after applying indexation. They incur net rental losses of $100,000 on that property.

Net rental losses quarantined under section 26-155 reduce the capital gain to nil and no basic income tax liability arises under section 4-10. The MTCG would also be reduced to nil (as the quarantined amount reduces the capital gain at step 4 of the method statement) and, therefore, no minimum tax is payable.

However, if the losses in this case were not quarantined (because the property was acquired before Budget night), the MTCG is $100,000 (being the net capital gain remaining after step 6 of the method statement). As no basic income tax liability arises, the full $30,000 is a minimum tax gap amount and is payable. This is notwithstanding that the individual has nil taxable income due to fully absorbing the non-quarantined net rental losses, and carries nothing forward under Division 36. The losses deliver no tax benefit at all.

The outcome turns the grandfathering concession on its head. An owner of a property acquired before Budget night is excluded from quarantining because the Government accepted that the new rules should not disturb existing arrangements, yet that exclusion is the reason the minimum tax applies. The same result could follow for new residential dwellings which the Government has deliberately encouraged, where the taxpayer chooses to apply indexation and the minimum tax.

There is no equitable basis for distinguishing between the two scenarios where each individual has nil taxable income, has fully utilised their losses, and is in the same economic position in the year of disposal. The only difference is a quarantining rule introduced for an unrelated purpose. NTAA has recommended that Division 119 be amended so that non-quarantined residential rental losses applied against assessable income reduce the MTCG, capped at the amount of the MTCG.

10. Not all assets can access the apportioning method

On the deemed disposal and reacquisition, the deemed proceeds and reset cost base are the asset’s market value just before 1 July 2027, unless a choice is made for eligible assets to use the apportioning method.

The Minister has not yet registered the legislative instrument. As drafted, the apportioning method will not be available for all assets: it is proposed to be confined to real property and assets without a ‘readily ascertainable market value’. Listed shares would not qualify.

That seems to be a departure from what was announced. The Budget papers framed the apportioning method as a genuine choice — taxpayers could seek a valuation, including by using quoted prices, or use a specified apportionment formula. Nothing at the time indicated that access would be conditional. Confining the method removes the choice and can impose valuation costs and additional record-keeping on taxpayers holding listed securities and similar assets. NTAA has recommended that the method be available for all CGT assets.

So what do you need to do now?

The better question is what you don’t need to do. There is no need to sell between now and 1 July 2027. There is no need to make a choice between the market value and the apportioning method until you lodge the return for the income year in which the asset is sold. For many clients that is years away, and for some it will be a generation away.

Most important, while preliminary work can be done with a valuer ahead of 1 July 2027, do not obtain or pay for a valuation before 1 July 2027.

Valuations before 1 July 2027

Valuation services are already being marketed on the basis that clients need to obtain the market value of an asset (for just before 1 July 2027) now.

Fact: there is no requirement to determine an asset’s market value by or on 1 July 2027.

More fundamentally, a valuation prepared today cannot do the job. The relevant figure is the market value just before 1 July 2027, and that value can be established only after the event. An advance valuation is merely a forecast of what a value might be, not evidence of what the asset was worth just before 1 July 2027, and will not be accepted by the ATO.

The sensible course is to identify the assets that will need a valuation, make sure the records that will support one are retained, and obtain the valuation soon after 1 July 2027. The further away from that date a valuation is obtained, the greater the risk the ATO may challenge it.

Only use a reputable or registered valuer, and be wary of approaches by spruikers and dodgy apps. If you or your clients are being pressed to lock in a valuation before 1 July 2027, ask who benefits.

We’re not done yet

Practitioners could be forgiven for thinking the reforms are settled. They are not.

The tranche 2 consultation closed on 21 August 2026. Tranche 3 is coming, which will address a range of technical matters. The interaction between the 30% minimum tax on capital gains and the proposed minimum tax on discretionary trusts has not been addressed at all to date.

Short consultation period

An 18-day consultation on reforms of this magnitude does not allow representative bodies to adequately canvass member views, test the drafting against practical scenarios and provide considered feedback. Nor is a compressed timetable necessary, given the substantive measures do not commence until 1 July 2027.

The Office of Impact Analysis guidance, issued by the Department of the Prime Minister and Cabinet, contemplates that between 30 and 60 days is usually appropriate for effective consultation, with 30 days as the minimum. A consultation that closes after the measures it concerns have passed both Houses cannot influence their design. The volume of errors and incorrect cross-references in the explanatory materials tells the same story: they are non-operative, but their recurrence indicates the materials were prepared in haste and raises a legitimate concern that substantive errors may also be present in the provisions.

The definition of a ‘new residential dwelling’ and the apportioning method are still in draft, and extensive exposure draft materials for the minimum tax on discretionary trust reforms were released on 3 September 2026.

What practitioners can do now is advise clients accurately about what the transitional rules already deliver, stop them acting on the misconceptions driving premature sales and premature valuations, and identify the assets and structures where the outstanding design questions actually bite.

About the Author

Robyn Jacobson is the Senior Advocate at the National Tax & Accountants’ Association Ltd (NTAA). She is a Fellow of NTAA, CA ANZ and CPA Australia, and is a Chartered Tax Adviser of The Tax Institute.

About NTAA

NTAA is a prominent not-for-profit association, established in 1992 to support tax agents, accountants and tax advisers. For more than 30 years, NTAA has advocated on behalf of its members and supported them through its highly regarded tax seminars, products and hotline service. NTAA is a major representative voice for the tax community, representing more than 45,000 practitioners.

Read more at ntaa.com.au