50% discount vs inflation indexation: 5 CGT scenarios compared

Strip the 30% floor out of the 2026-27 Budget proposal and inflation indexation is roughly neutral for a long-hold investor on the lowest marginal rate. Add the floor back in and every realistic scenario gets worse. The article most papers ran on Budget night called it the abolition of the CGT discount. The arithmetic says the indexation half of the new regime is the part most people will understand intuitively. The 30% minimum tax on the full nominal gain is the part that does the work.

Five worked scenarios below, all with 2026 brackets including the 2% Medicare levy, all assuming an individual owner who has held for more than twelve months.

How the two regimes compare on paper

Today's rule for an individual is straightforward. Take the capital gain, halve it, apply your marginal rate. A $400,000 gain for an investor in the 32% band (30% + 2% Medicare) produces a tax bill of $400,000 × 50% × 32% = $64,000.

The proposed rule has two moving parts. First, the cost base is indexed to cumulative inflation across the holding period, and only the real gain is taxed at the marginal rate. Second, the final tax cannot fall below 30% of the full nominal gain. If the inflation-adjusted calculation lands above the floor, you pay the higher figure. If it lands below, the floor binds and you pay 30% of the nominal gain regardless.

The proposed regime takes effect 1 July 2027 if legislated. Pre-Budget acquisitions are grandfathered under today's rules. Investors who acquire new builds get to choose which regime applies. Everything below assumes the proposed rules apply cleanly.

Scenario A: short hold, top bracket, moderate inflation

Three-year hold. $200,000 nominal gain on an $867,000 sale (cost base $667,000). Owner on the 47% top bracket (45% + 2%). Cumulative CPI uplift of 7.5% across the hold, roughly the observed run-rate of 2.4% to 2.6% annually.

• Today:$200,000 × 50% × 47% = $47,000.
• Proposed:indexed cost base $717,025; real gain $149,975; real-gain tax = $70,488. Floor = 30% × $200,000 = $60,000. Final = $70,488.

Today wins by $23,488. Short holds get the worst of the proposed regime because there's not enough cumulative inflation to carve real value out of the nominal gain.

Scenario B: long hold, top bracket, high cumulative inflation

Fifteen-year hold. $1,000,000 nominal gain on a $1.5M sale (cost base $500,000). Top bracket again. CPI uplift of 50% across the hold, which is what 2.7% annually compounds to over 15 years.

• Today:$1,000,000 × 50% × 47% = $235,000.
• Proposed:indexed cost base $750,000; real gain $750,000; real-gain tax = $352,500. Floor = $300,000. Final = $352,500.

Today wins by $117,500. This is the scenario most often cited as proof that indexation will be kinder to long-hold investors. It isn't. Even with cumulative CPI of 50% the proposed bill is 50% higher, because the real gain still sits in the top bracket and the discount is gone.

Scenario C: mid-bracket, mid-hold, low inflation

Eight-year hold. $400,000 nominal gain on a $1.0M sale (cost base $600,000). Owner on $135,000 of other taxable income, sitting at the top of the 32% band. CPI uplift of 20% across the hold.

• Today:$400,000 × 50% × 32% = $64,000.
• Proposed:indexed cost base $720,000; real gain $280,000; real-gain tax = $89,600. Floor = 30% × $400,000 = $120,000. Final = $120,000.

Today wins by $56,000, and the floor is what makes the gap so wide. The indexed calculation alone would have been $89,600. It's the 30% minimum that pushes the bill to $120,000.

Scenario D: long hold, lower bracket, very high inflation

Twenty-year hold. $700,000 nominal gain on a $1.1M sale (cost base $400,000). Retired investor on the 32% bracket. CPI uplift of 80% across the hold, which is a high but realistic figure across two decades.

• Today:$700,000 × 50% × 32% = $112,000.
• Proposed:indexed cost base $720,000; real gain $380,000; real-gain tax = $121,600. Floor = 30% × $700,000 = $210,000. Final = $210,000.

Today wins by $98,000. This is the cleanest illustration of how the floor works against retirees holding family properties across two decades of inflation. The real gain is modest. The indexed calculation lands at $121,600. But the floor doubles that to $210,000.

Scenario E: mid-hold, upper-middle bracket, low inflation

Five-year hold. $250,000 nominal gain on a $1.05M sale (cost base $800,000). Owner on the 39% band (37% + 2%). CPI uplift of 10% across the hold.

• Today:$250,000 × 50% × 39% = $48,750.
• Proposed:indexed cost base $880,000; real gain $170,000; real-gain tax = $66,300. Floor = 30% × $250,000 = $75,000. Final = $75,000.

Today wins by $26,250. This is the closest of the five scenarios in absolute terms, and the floor still bites. The proposed bill is 54% higher than today's.

Why the 30% floor matters more than the indexation

Run the same five scenarios with the floor removed and the story changes. Scenarios A and B still favour today because the marginal rate stays high enough that 47% of the real gain exceeds 23.5% of the nominal one. Scenarios C and D drift closer to neutral. And a sixth case becomes instructive.

A retired investor on the 18% band (16% + 2%) sells after twenty years for $1.2M. Cost base $400,000. CPI uplift of 100%.

• Today: $800,000 × 50% × 18% = $72,000.
• Proposed without the floor: indexed cost base $800,000; real gain $400,000; tax = $72,000. Exactly the same.
• Proposed as drafted with the floor: 30% × $800,000 = $240,000.

Indexation alone is roughly neutral for the low-bracket long-hold case. The floor triples the bill. That isn't accidental drafting. A 30% minimum on the full nominal gain is a deliberate revenue lever, and it's the lever that converts a theoretically defensible regime into a meaningful tax rise for every realistic investor profile.

What none of these scenarios capture

Three pieces of the new regime are not yet drafted. The interaction between the 30% floor and carried-forward capital losses is unclear; in particular, whether the floor binds before or after loss offsets changes the answer for any investor with a reserve of prior losses. Trust and SMSF treatment is similarly TBC. And the choice mechanism for new builds (proposed to allow investors to elect into either regime) hasn't been specified in writing.

For the cleanest single-property walk-through under today's rules, the CGT investment property worked example carries one $700k-to-$1.05M sale through all six steps. The sibling explainer on the policy change itself lives at CGT discount changes: 2026 Budget explained, and the longer-run market view is in property prices after CGT and negative-gearing reform.

Running your own numbers

Plug your actual cost base, sale price, hold period and marginal rate into the CGT calculator for today's rules. For a proposed-regime estimate, take the same cost base, multiply by your assumed CPI uplift, subtract from the sale price for a real gain, apply your marginal rate, and compare against 30% of the nominal gain. The higher figure is your proposed bill.

Two final things. Cash-flow modelling on the way through (rent minus costs, the deductibility side of the equation) is treated in negative gearing in 2026, and the main-residence carve-out, which makes most of this moot for owner-occupiers, is laid out in main-residence CGT exemption rules. None of the proposed changes touch the main-residence exemption.

The Budget announcement was 12 May 2026. Draft bill and explanatory memorandum are not yet public. Final mechanics may shift before any 1 July 2027 commencement, and grandfathering of pre-Budget acquisitions means investors holding today retain the 50% discount on sales whenever they happen. New money committed from now on is the cohort the arithmetic above is aimed at.