The 50% CGT discount under threat: what the 2026 Budget actually proposes

The 2026-27 Federal Budget, handed down by Treasurer Chalmers at 7:30pm AEST tonight, proposed replacing the 50% capital gains tax discount on individually-held investment property with two new mechanics: an inflation-indexed cost base, and a 30% minimum tax on the realised gain. The proposed effect date is 1 July 2027. Assets acquired before Budget night retain the existing discount under a grandfathering line set at 7:30pm AEST, 12 May 2026.

Announced is not legislated. No bill has been introduced. The Treasury press release and Budget Paper 2 set out the intent; the draft Bill and Explanatory Memorandum have not yet been published. The Coalition has signalled it will oppose the measure. The Greens have argued the threshold should be tighter. The actual statutory mechanics, and the date they bind, will be settled in the chamber over coming months. The numbers below are based on the announcement as delivered tonight and reported by the AFR, The Australian, ABC, and SBS.

What today's rule does

Under the current regime an individual taxpayer who holds an investment property for more than 12 months halves the nominal capital gain before applying their marginal income tax rate. The 50% discount is the headline number, and for any investor on the top marginal bracket it cuts the effective CGT rate on a long-held property from 47% to 23.5%. That arithmetic is the reason the deduction has been the most argued-about line in the Australian tax base for two decades. The sibling article on negative gearing in 2026 explains why the CGT discount and negative gearing are the two halves of the same investor-tax conversation rather than separate topics.

What the Budget proposes instead

Two changes stack. The first is an inflation-indexed cost base. The original purchase price would be uplifted by CPI over the hold period, so the taxable gain is the real gain rather than the nominal one. The second is a 30% minimum tax on the realised gain (defined against the nominal sale proceeds less the indexed cost base) for investors whose marginal rate would otherwise drop the effective tax below 30%. The 30% number is a floor, not a flat rate; investors on the top marginal bracket still pay 47% on the indexed gain.

New builds sit outside the default regime. An investor purchasing a newly-constructed dwelling can elect either the old 50% discount or the new indexed-plus-floor mechanic, whichever produces the lower tax on sale. That carve-out is the supply-side concession the government is using to defend the package against the "this will kill new construction" line of attack.

Main-residence treatment is unchanged. The CGT exemption on a primary place of residence (PPOR) is not touched by the announcement. A homeowner selling the house they live in continues to pay no CGT under the standard exemption rules. The main residence CGT exemption rules article walks through which circumstances qualify and which partial-use cases trigger a pro-rata gain.

The worked example

Take an individual investor on the top marginal rate (combined 47% including Medicare). They sell an investment property after an eight-year hold and crystallise an $800,000 nominal capital gain. Assume CPI over the hold delivered roughly a 25% uplift on the original cost base, equivalent to about $200,000 of indexation protection.

Under today's rule the 50% discount halves the gain to $400,000, which is taxed at the top marginal rate. The CGT bill is roughly $188,000(400,000 × 0.47).

Under the proposed rule the indexed cost base shrinks the gain to a real $600,000 (800,000 nominal minus the 200,000 CPI uplift). Marginal tax on that real gain at 47% comes to $282,000. The 30% floor on the nominal gain is 30% × $800,000, which is $240,000. The investor pays the higher of the two: $282,000. The delta versus today is roughly $94,000 of additional CGT on the same eight-year, $800k-nominal-gain sale.

Two things to notice. The 30% floor is not what bites the top-bracket investor in this example; their marginal calculation already exceeds the floor. The floor matters for investors on lower marginal rates and for very long holds where the CPI uplift is large enough to push the real gain below 60% of the nominal. The capital gains tax calculator on Burbfinder lets you run the same comparison for your own cost base, marginal rate, and hold period. A second sibling article on CGT indexation versus the discount, worked examples runs the comparison across hold periods, marginal rates, and CPI scenarios in more detail.

How the 30% floor interacts with marginal rates

The minimum tax is the part of the package most likely to get misread in the next forty-eight hours of commentary. It is not a flat 30% replacement for the 23.5% effective rate the discount produced. It is a floor, applied to the nominal realised gain, that kicks in only when the indexed marginal calculation lands lower.

For a top-bracket investor selling a moderate-hold property the floor is irrelevant. The 47% marginal on the indexed gain almost always exceeds 30% of the nominal. The floor starts to bind in three situations. An investor on the 32.5% bracket whose indexed marginal calculation drops below 30% of the nominal pays the floor instead. An investor on a very long hold whose CPI uplift has compounded above the marginal bill pays the floor. An investor in a tax-loss year, where carry-forward losses would otherwise zero out the gain, may still pay the floor depending on the final statutory wording. The last case is the one practitioners will scrutinise hardest once the draft Bill drops, because it is a meaningful departure from how CGT presently interacts with unused capital losses.

The grandfathering line

The grandfather is precise. Investment property acquired before 7:30pm AEST, 12 May 2026 (Budget night) retains the existing 50% CGT discount for the life of the asset. That is the time the Treasurer rose to deliver the speech, and the time the Treasury announcement was made public. Any contract exchanged after that moment falls under the new regime when the measure commences on 1 July 2027.

Two practical complications follow. The first is off-the-plan exchanges. A contract signed before Budget night that settles in 2028 should sit on the right side of the line, but the draft Bill will need to be explicit about whether the acquisition date is the exchange date or the settlement date for CGT purposes. The second is the 12-month rule. Investors who have held for less than 12 months at the commencement date have not yet qualified for the discount under existing law; whether they retain the right to qualify by reaching the 12-month mark after 1 July 2027 is, again, a draft-Bill question.

What changes for existing portfolios

• Holdings acquired before Budget night. No change. The 50% discount applies on sale whenever it happens.
• Holdings acquired after Budget night. The new regime applies on sales from 1 July 2027 onward, assuming the legislation passes substantially as announced. Investors in this cohort should model both regimes on their assumed exit before committing further capital.
• New-build purchases either side of the line. The investor election between regimes applies. Run the comparison on a realistic eight-to-ten-year hold; the right answer is not always the indexed regime, especially for shorter holds in low-CPI environments.
• Owner-occupied property. The main residence exemption is untouched. PPOR sales remain CGT free under the standard rules.
• Self-managed super and trusts. The announcement targets individually-held investment property. Treatment of property held in SMSFs (33.3% discount in pension phase) and in trusts that distribute gains to individual beneficiaries is not yet clarified. Treasury indicated detail in the Explanatory Memorandum.

Parliamentary process from here

Budget announcements of this magnitude typically follow a sequence. Treasury releases draft legislation for public consultation within four to eight weeks of Budget night. A revised Bill is introduced to the House. Senate debate, amendments, and committee inquiry follow. The Coalition has already indicated opposition; the Greens have flagged amendments. The most likely passage paths are either a Senate amendment that tightens or loosens the new-build carve-out, or a delay of the commencement date past 1 July 2027 if the consultation surfaces transition problems the Treasury did not flag tonight.

Investors with a transaction in the next twelve months sit in an unusually live policy window. The grandfathering line is locked at Budget night under the announcement, which means a purchase made now is in the old regime regardless of what the Senate does to the commencement date. The risk sits with investors who delay a purchase past Budget night and then discover the final Bill grandfathers a wider class of acquisitions, or vice versa.

Subject to legislation

Everything in this article is the announcement as delivered on Budget night. The draft Bill is not yet published. The Explanatory Memorandum is not yet published. The Senate has not voted. The mechanics described above may shift in material ways during the consultation and amendment process. Before acting on the announcement, check the Australian Parliament House bills tracker for the published Bill, the Treasury website for the EM, and the ATO website for any commencement guidance. Reporting from the AFR, The Australian, SMH, ABC and SBS in the next 48 hours will fill in the policy detail Treasury has not released yet.

For investors modelling a near-term purchase or sale the first arithmetic to run is the comparison on your own position. The CGT calculator models the existing discount; the CGT investment property worked example walks through how the cost-base adjustments interact with marginal rate. The companion article on negative gearing in the 2026 Budget and grandfathering covers the other Budget-night measure investors will be re-running their numbers against this week.

The 50% CGT discount has been the single most consequential line in the investor-tax code since 1999. Replacing it with an indexed cost base and a 30% floor is a structural change, not a rate tweak. The number to watch is not the headline rate; it is the interaction between CPI uplift, marginal rate, and the floor over a realistic hold. Whether the announcement survives the chamber in the form delivered tonight is the parliamentary question. The arithmetic above is what the package does if it does.