The 50% CGT Discount Is Now Legally Dead. Australia Has 11 Months to Rethink Everything.

It Passed. Quietly.

When Australia announced in May that it was killing the 50% capital gains discount, most of the coverage treated it the way you'd treat any budget-night thought bubble — interesting, contentious, probably doomed in the Senate. Investors made a note to watch it. Then everyone went back to work.

It's law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received Royal Assent on 26 June 2026, after Senate amendments announced on 18 June were folded in and the House agreed to them. There is no more "if." From 1 July 2027, the single most important number in Australian investing changes.

That gives you about eleven months. And the thing worth understanding first is that this isn't a rate rise dressed up in reform language — it's a genuinely different way of measuring a gain, with a floor underneath it that catches high earners regardless. Some investors will do better under it. Most won't. The difference comes down to how long you've held and how fast inflation ran while you did.

§ 01What Replaces the 50% Discount

The old rule was beautifully simple. Hold a CGT asset more than 12 months, and only half the gain is assessable. Buy at $400,000, sell at $700,000, and you declare $150,000 instead of $300,000. That's been the deal since 1999.

From 1 July 2027, resident individuals, trusts and partnerships get cost base indexation instead. You uplift what you paid for the asset in line with the Consumer Price Index across your holding period, and you're taxed on the difference between the sale price and that inflated cost base. The stated principle: you should only pay tax on profit that beat inflation.

Two details that matter more than they sound:

• Indexation covers most, but not all, of the cost base. It applies to every cost base element except the third — ownership costs like rates, land tax, insurance and interest. Those come in at face value.
• You still need 12 months. Indexation is only available on assets held at least a year. Sell inside 12 months and the full nominal gain is assessable, exactly as now.

Whether indexation beats the old 50% discount depends entirely on one variable: how much of your gain was inflation and how much was real. A property bought in 2005 that tripled in a low-CPI decade gets a modest cost base uplift and a much bigger taxable gain than the old discount would have produced. A modest gain over a high-inflation stretch could go the other way. If you've held something a long time through cheap money and a hot market, you are almost certainly worse off.

§ 02The 30% Floor Is the Real Story

Indexation got the headlines. The provision that will actually generate the tax is the new minimum tax, sitting in a fresh Division 119.

From 1 July 2027, resident individuals face a 30% minimum rate on net capital gains. Whatever the indexation maths produces, the effective rate on the gain doesn't fall below 30%. And the gain is treated as the last portion of income you received in the year — it stacks on top of your salary, so it's assessed against your highest marginal position, not averaged into it.

Run the old numbers to see why this bites. Under the current system, a top-bracket investor pays 45% on half the gain — an effective 22.5%, or 23.5% with the Medicare levy. That's been the number every Australian property spruiker has quoted for two decades. A 30% floor is roughly a six-and-a-half point increase on the effective rate for the highest earners, before you even get to whether indexation shrank the gain.

For middle earners the picture is muddier and occasionally worse in a way people won't expect: if your marginal rate is 30% or 32%, the floor does nothing to you, but the loss of the 50% discount does everything. You go from being taxed on half your gain to being taxed on an inflation-adjusted whole. That's the group that gets quietly hammered here — not the top bracket, who at least saw it coming.

§ 03Who Escapes Entirely

The reform is aimed squarely at resident individuals holding property and shares directly. A meaningful set of holders were left alone:

Superannuation surviving intact is the most consequential exemption in the package. A complying fund in accumulation phase still pays 15%, still gets the one-third discount on assets held over 12 months, and still lands at roughly a 10% effective CGT rate. Against a 30% floor outside super, that gap just widened from meaningful to enormous.

The obvious implication is the one every Australian adviser is now having on repeat: for long-horizon growth assets, the case for holding inside super rather than in your own name got dramatically stronger overnight. Contribution caps still bind, and money in super is locked until preservation age — but the after-tax arithmetic on a twenty-year hold is no longer close.

§ 04Negative Gearing and the 7:30pm Line

The second half of the Act does something Australian governments have been too frightened to attempt since 2019: it clips negative gearing.

From the 2027-28 income year, net rental losses on residential dwellings are quarantined. They can't be offset against your salary. They can only be applied against residential rental income or residential capital gains — and, importantly, they carry forward rather than being lost, so the deduction is deferred rather than destroyed.

But the test isn't when the loss arises. It's when you acquired the dwelling, and the line is drawn with unusual precision: 7:30pm AEST on 12 May 2026. Budget night, to the minute.

• Owned before that moment? Grandfathered. Your current arrangements continue indefinitely.
• Acquired after it? Quarantined from 2027-28, even though you bought under the old rules and the restriction doesn't start for another year.
• Already under contract before the announcement? Also grandfathered.

The timestamp is deliberate. Drawing the line at announcement rather than commencement stops a fourteen-month buying stampede designed to lock in grandfathering — the exact behaviour that made previous attempts at this reform politically radioactive. Widely held unit trusts and attribution managed investment trusts are carved out of the negative gearing changes entirely.

So if you bought an established investment property on 13 May 2026, you're on the new regime. You have been since the day you signed, and you probably didn't know it.

§ 05The Two Carve-Outs That Survived

Both exceptions point the same direction — toward building rather than buying.

New residential dwellings get a choice. Buy a new build and, at sale, you elect between the old 50% CGT discount and the new indexation-plus-minimum-tax regime, whichever leaves you better off. Genuine optionality, and it's worth real money. New builds also keep full negative gearing. The catch: "new residential dwelling" will be defined by legislative instrument, described as dwellings that "genuinely add to supply" — and that instrument wasn't final at Royal Assent. Anyone structuring around it is currently building on a definition that hasn't been written.

Affordable housing keeps its discount outright. The existing CGT discount of up to 60% on qualifying affordable housing is retained in full — no election needed, no minimum tax. That's now the most generous CGT treatment available to an Australian individual anywhere in the code, and the gap between it and a standard investment property is about to become the widest it has ever been.

Read together, the policy is unsubtle: the government is content for you to be a property investor, provided the property didn't previously exist.

§ 06What to Do With the 11 Months

Commencement is 1 July 2027. That's a real window, and a few things are genuinely worth modelling now rather than next autumn:

• Model your actual position both ways. "Indexation is worse" is a rule of thumb, not an answer. It depends on your purchase date, your holding period, CPI across it, and your marginal rate. For a long hold through the low-inflation 2010s it's usually much worse. Get the number, don't assume it.
• Realising before 1 July 2027 is a live option — and a trap. Crystallising a gain under the 50% discount locks in known treatment. It also means paying tax years early and losing the compounding on it. That trade only works if the gap is wide and you were going to sell soon anyway. Selling a good asset purely to beat a rule change is usually how people lose more than they save.
• Re-run the super question. A ~10% effective rate inside super versus a 30% floor outside it changes the calculus for anything you intend to hold long. Caps and preservation rules still apply, but the comparison isn't close any more.
• Check your acquisition dates against 12 May 2026, 7:30pm. If you bought an established rental in the last few months, you're already on the new negative gearing regime. Better to find that now than in your 2027-28 return.
• Don't structure around the new-build definition yet. The legislative instrument defining "genuinely adds to supply" is still pending. Build the plan, hold the trigger.

And if you want the mechanics of the system this is replacing, our July 2026 rate-cut piece covers what else changed this financial year — including the 15% bracket that landed on 1 July and the automatic A$1,000 work-expense deduction. The Australia calculator runs current-year income tax; capital gains under the new regime will need the 2027-28 rules once the instruments are final.

§ 07Key Takeaways

This is law, not a proposal. Royal Assent 26 June 2026; commencement 1 July 2027.

The 50% discount is replaced by CPI cost base indexation plus a 30% minimum tax for resident individuals, trusts and partnerships. Indexation excludes ownership costs and still needs a 12-month hold.

The 30% floor is the binding constraint for high earners — roughly six and a half points above the old 23.5% effective top rate — while middle earners lose most from the discount going.

Super, companies and foreign residents are untouched. A complying fund's ~10% effective CGT rate is now a third of the floor applying outside it.

Negative gearing is quarantined on established dwellings acquired after 7:30pm AEST, 12 May 2026 — losses carry forward against residential income and gains, but no longer shelter your salary.

New builds get a choice of regime; affordable housing keeps up to a 60% discount. Both carve-outs push capital toward new supply.

Sources: Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and Income Tax Rates Amendment (Tax Reform No. 1) Act 2026, introduced 28 May 2026, Senate amendments announced 18 June 2026, Royal Assent 26 June 2026; ATO new-legislation guidance on reforming negative gearing and capital gains tax; Corrs Chambers Westgarth, KordaMentha, Baker McKenzie and PwC Australia analyses of the Bill; Colonial First State on the superannuation exemption. Key definitions — including "new residential dwelling" and the apportionment method for transitional assets — remain subject to legislative instruments not finalised at the time of writing. This is general information, not tax or investment advice; talk to a registered Australian tax agent before acting.