Should the CGT Discount Cut Change How You Invest?

If you invest outside super, through shares, ETFs, managed funds or property, the way capital gains are taxed can make a meaningful difference to your after-tax return.

That doesn’t mean tax should drive every investment decision. But when the rules change, it’s worth pausing and asking a simple question.

Does this change the best structure, timing or strategy for me?

The Australian Government announced major capital gains tax reforms in the May 2026 Federal Budget, and the ATO now states these measures are law, with the main CGT changes applying from 1 July 2027. In broad terms, the current 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation, and a 30% minimum tax rate will apply to capital gains.

For some investors, the difference may be modest. For others, particularly people planning to realise gains in a low-income year, the tax outcome could look very different. Let’s break it down.

Wondering how the CGT discount cut could affect your investment strategy? Get clarity from Precision Wealth Management’s financial advisers. Contact us today for guidance tailored to your situation.

 

First, what is CGT?

Capital gains tax, or CGT, is the tax outcome that arises when you sell an asset for more than it cost you. The ATO explains that if you sell an asset, such as shares or property, for more than it cost, you have a capital gain. If you sell it for less, you have a capital loss.

CGT isn’t a separate tax in its own right. Your net capital gain is included in your income tax return and taxed at your marginal income tax rate under the current system. The basic calculation works like this.

1. 1. Work out what you received for the asset, your capital proceeds.
   2. Work out your cost base, broadly what it cost to acquire, hold and dispose of the asset.
   3. Subtract the cost base from the proceeds to calculate the capital gain or loss.
   4. Subtract any available capital losses in the current or previous financial years.
   5. Apply any CGT discount you’re entitled to.
   6. Include the net capital gain in your tax return and pay tax at your marginal rate.

The current 50% discount means an Australian resident individual who has owned an eligible asset for at least 12 months can generally reduce the capital gain by 50% before it’s added to their taxable income.

 

What’s changed from 1 July 2027?

Under the reforms, the Government removed the 50% CGT discount for individuals, trusts and partnerships with cost base indexation, and introduced a 30% minimum tax rate on capital gains, from 1 July 2027.

Previously, if an Australian resident individual holds an eligible asset for at least 12 months, only half the capital gain is included in taxable income. From 1 July 2027, that 50% discount is no longer the method for affected taxpayers. Instead, the cost base will be indexed to inflation.

Cost base indexation reintroduced

Indexation means adjusting the cost base of an asset for inflation, using CPI, so tax is aimed more at the real gain rather than the inflationary component. The Budget explainer notes that the current 50% discount was introduced in 1999 and doesn’t always accurately approximate the inflation component of a gain. The ATO is expected to provide guidance and tools to support the new calculation.

A 30% minimum tax rate will apply

A minimum tax rate of 30% applies to real capital gains accruing from 1 July 2027, with no tax impact until the gain is realised. This is the key change. Under the previous system, someone with little other taxable income may realise a capital gain and pay relatively little tax, because the discounted gain is taxed through the ordinary marginal brackets. Under the new system, the 30% minimum tax rate can increase the tax payable on the real gain even for someone with low taxable income.

Transitional rules matter

The CGT reforms apply only to gains accruing after 1 July 2027. For assets already owned before that date and sold after it, the gain is split. The 50% discount applies to the portion of the gain made before 1 July 2027, while indexation and the minimum tax apply to the portion accruing after that date. This matters for anyone who already holds investment assets, since the changes don’t tax the entire historical gain under the new rules.

 

Who’s helped and who’s hurt by the change?

There’s no single answer, because the outcome depends on a number of factors.

• • The return on the asset
  • Inflation over the holding period
  • How long the asset is held
  • The investor’s marginal tax rate
  • Whether the gain occurs before or after 1 July 2027
  • Whether any exemptions apply
  • Whether the investor receives certain income support payments in the year of sale

That said, some broad patterns are clear.

Investor type	Current 50% discount	New CPI indexation + 30% minimum tax
Low-income investor realising a large gain	Can be very favourable, because only half the gain is taxable and marginal rates may be low	May be disadvantaged, because the real gain can still be subject to a 30% minimum tax rate
High-income investor with strong real returns	Often pays tax on half the nominal gain at a high marginal rate	May pay more, if CPI indexation is less valuable than the 50% discount was
Investor with low real returns close to inflation	May still pay tax on half the nominal gain	May benefit, because indexation can reduce or eliminate the real taxable gain
Long-term investor in high-inflation periods	50% discount may under or over-compensate for inflation	Indexation adjusts more directly for inflation
Superannuation investor	Super has separate CGT settings, including a 33.33% discount for complying super funds under current ATO guidance	The Budget change is framed as applying to individuals, trusts and partnerships, not to super funds

 

The most disadvantaged group may be investors who were planning to wait until retirement or a low-income year to sell assets outside super. Under the previous rules, that’s a legitimate tax planning strategy, because the discounted capital gain is taxed through marginal rates. Under the new rules, the 30% minimum tax rate reduces the benefit of deferring capital gains to a low-income year.

 

Worked example: $200,000 joint share portfolio over 10 years

Here’s a simplified example, based on these assumptions.

• • Joint investment portfolio of $200,000
  • Ownership split 50/50 between two individuals
  • Investment return of 8% per annum, compounded over 10 years
  • Portfolio fully sold at the end of year 10
  • No other taxable income for either person, and no capital losses
  • Australian resident taxpayers, using the ATO’s 2025–26 resident tax rates, excluding Medicare levy and Medicare levy surcharge
  • LITO included where applicable
  • New-rules modelling assumes 2.5% CPI per annum, matching the Budget explainer’s cameo assumption

This is a simplified model. It doesn’t include brokerage, tax parcels, franking credits, distributions, Medicare levy, tax advice costs, or personal tax offsets other than LITO.

Investment growth

A $200,000 portfolio growing at 8% per annum for 10 years becomes $431,785. That’s a nominal capital gain of $231,785, or $115,892.50 each once split between the two joint owners.

Scenario A: previous rules, 50% CGT discount

Assuming the portfolio has been held for more than 12 months, each person can generally apply the 50% CGT discount, bringing their taxable capital gain to $57,946.25.

Using the ATO’s 2025–26 resident tax rates, tax on $57,946.25 works out to $4,288 up to $45,000, plus 30% on the remaining $12,946.25 ($3,883.88), for gross income tax of $8,171.88. Less LITO of approximately $130.81, that’s an estimated $8,041.07 tax per person, excluding Medicare, or $16,082.14 total for the couple.

Scenario B: new rules, CPI indexation plus 30% minimum tax

Using CPI of 2.5% per annum, the indexed cost base is $256,016.91, which brings the real capital gain down to $175,768.09, or $87,884.05 each.

Taxed under ordinary marginal rates, each person’s tax on that amount would be approximately $17,153.21 before offsets, excluding Medicare. But the 30% minimum tax test applies to the real capital gain, which works out to $26,365.21 per person, or $52,730.43 total for the couple.

Final comparison.

Scenario	Estimated tax payable, excluding Medicare
Previous rules: 50% CGT discount	$16,082
New rules: CPI indexation + 30% minimum tax	$52,730
Difference	+$36,648

In this scenario, the new system produces a much higher tax outcome, because the investors have no other taxable income and the 30% minimum tax removes much of the benefit of realising gains in a low-income year.

Want to know what this could mean for your own portfolio? Book a conversation with Precision Wealth Management and get a strategy built around your numbers, not a generic example.

 

So, should this change how you invest?

Firstly, should you still invest? Absolutely. Will this chance how you invest? Potentially.

At Precision Wealth Management, we generally prefer simple, straightforward, tax-effective strategies where appropriate, rather than adding complexity for complexity’s sake. We also look at the whole picture, superannuation, insurance, estate planning and non-super assets, and how they all tie together to support your goals.

The CGT changes may make investors think more carefully about the following areas.

Holding investments outside super

A non-super diversified share portfolio still has advantages. It’s flexible, accessible, and can support goals before preservation age, which matters if you’re aiming to retire early, take time out of work, help your children, start a business, or buy property. But after 1 July 2027, the tax benefit of waiting until a low-income year to sell may be reduced by the 30% minimum tax.

Holding periods and rebalancing

The old system rewarded holding assets for at least 12 months, because that unlocked the 50% discount. The new system still has a 12-month concept, but the benefit shifts from a flat 50% discount to inflation indexation. That may change how investors think about rebalancing, switching investments and realising gains, and it makes record keeping more important, particularly for assets held across the 1 July 2027 transition.

Asset selection

Assets with high real growth may be more exposed to CGT under indexation than assets with low real growth, because inflation indexation only shelters the inflation component, not the real return. That doesn’t mean investors should chase low-return assets to save tax. It means expected after-tax return becomes more important in the decision.

Structures

Trusts, partnerships, and individuals are directly referenced in the Budget CGT changes. Companies don’t currently access the 50% CGT discount under ATO guidance, and super has its own tax framework, including a 33.33% CGT discount for complying super funds. Structures shouldn’t be chosen for tax alone. Administrative cost, flexibility, asset protection, estate planning and access to funds all matter.

Timing

For assets already owned before 1 July 2027, the transitional rules matter, because gains before and after that date may be treated differently. It’s worth planning for both scenarios and avoiding rushed decisions before the final impact is clear for your own circumstances.

 

Does super become more attractive?

In many cases, yes. If tax on investments outside super becomes less favourable, superannuation may look more attractive, because it’s already a concessionally taxed environment. Current ATO guidance states complying super funds can discount eligible capital gains by 33.33%, while companies can’t use the CGT discount at all.

The May 2026 Budget CGT changes are framed as replacing the 50% discount for individuals, trusts and partnerships, not the CGT treatment for super funds.

However, super isn’t a magic bucket. The biggest trade-off is access. The ATO says you can generally withdraw super when you turn 65, reach preservation age and retire, reach preservation age and start a transition to retirement income stream, or meet another condition of release. For people born from 1 July 1964, preservation age is 60.

That means super can be excellent for retirement planning, but it may be unsuitable for money you need before preservation age. For younger investors, this is the key risk. Putting too much into super may improve tax efficiency, but it may also reduce flexibility. If your goal is early retirement, semi-retirement, buying a future home, or having funds available for children or a business opportunity, super alone may not provide the access you need.

 

What should investors consider before acting?

A few practical questions are worth asking before you make any changes.

• • When will I likely need the money? If the answer is before age 60, super may not be the right home for all of it.
  • Am I investing for flexibility, retirement, or both? Non-super investments may still play an important role for early retirement and pre-preservation-age goals.
  • Do I already hold assets with large unrealised gains? Transitional rules may matter significantly for assets held before 1 July 2027.
  • Would realising gains earlier make sense? The reforms only apply to gains accruing after 1 July 2027, which reduces the incentive to rush, but individual circumstances still matter.
  • Am I relying on a low-income year to sell investments tax-effectively? The 30% minimum tax may reduce the effectiveness of that strategy.
  • Is my investment strategy still sound before tax? Tax matters, but it shouldn’t override diversification, risk tolerance, time horizon and expected return.

 

Your path to a CGT-ready investment strategy

A CGT discount cut shouldn’t automatically change how you invest. But it should change the conversation.

The shift from a 50% CGT discount to CPI indexation, combined with a 30% minimum tax rate, may reduce the benefit of holding investments outside super and selling them in a low-income year. For some people, that makes superannuation more attractive. For others, the access restrictions of super mean a non-super portfolio remains essential.

The right answer depends on your age, goals, taxable income, investment timeframe, existing unrealised gains, and how much flexibility you need before retirement. The aim isn’t to pay the least tax in isolation. It’s to build a strategy that supports the life you want, tax-effectively and practically.

If you hold investments outside super and you’re unsure how these CGT changes could affect you, it may be worth reviewing your strategy before 1 July 2027. At Precision Wealth Management, we provide transparent, fee-for-service advice built around your actual numbers and goals.

Book a conversation with Precision Wealth Management