Australia's Labor government will replace the 50 per cent capital gains tax discount with cost-base indexation for assets held longer than 12 months, effective 1 July 2027, according to legislation before the Australian Parliament published 29 May 2026. A 30 per cent minimum tax on net capital gains applies alongside the new regime from the same date.

The mechanics matter for practitioners. Under current law, individual and trust taxpayers discount a nominal capital gain by 50 per cent if the asset has been held for more than 12 months, then add the discounted amount to assessable income. The incoming regime strips out that flat discount and instead indexes the cost base to inflation — meaning only real, inflation-adjusted gains are assessable. The 30 per cent minimum tax operates as a floor: if applying a taxpayer's marginal rate to the indexed net gain would otherwise produce a lower effective rate, the 30 per cent rate applies instead. Gains that crystallise before 1 July 2027 are unaffected; the 50 per cent discount continues to apply to those earlier gains without restriction.

The small business concessions receive a separate but complementary adjustment. Labor has announced an increase to the aggregated turnover threshold for the existing 50 per cent active asset CGT reduction — from $2 million to $10 million. This is a material change for growth-stage companies and operators who have long sat just above the old threshold, locking them out of a concession available to smaller competitors. At $10 million, the threshold now captures a substantially broader slice of the small-to-mid market.

The income tax side of the package is already moving faster. From 1 July 2026 — weeks away on the legislative calendar — the 16 per cent marginal rate applying to income between $18,201 and $45,000 drops to 15 per cent, per Labor's earlier announcement. That cut sits apart from the CGT reforms structurally, but together they form the government's broader framing of a tax system rebalanced toward wage earners.

The policy logic behind the CGT shift turns on a long-standing critique of the 50 per cent discount: that it was introduced in 1999 as a simplification measure but became, over time, a structural driver of asset-price inflation and a widening wedge between the effective tax rates paid on labour income versus investment returns. Indexation is the mechanism the discount replaced — Australia used cost-base indexation until the Howard government's 1999 reforms switched to the flat discount at the recommendation of the Ralph Review. The current government is, in effect, reversing a 27-year-old design choice.

Whether the new regime is materially more or less generous than the old one depends on the inflation environment and the holding period. For assets held over long periods during high-inflation years, indexation can erode assessable gains significantly. For assets with modest real gains but large nominal gains — the typical outcome during low-inflation, high-asset-price cycles — the 50 per cent discount was often the more favourable treatment. The 30 per cent minimum tax adds a binding floor that partly limits the benefit of indexation in the latter scenario.

For advisers, trustees, and fund managers, the 1 July 2027 commencement date opens a defined planning window. Asset disposals before that date can still access the 50 per cent discount. Decisions about whether to crystallise gains ahead of the transition — particularly in discretionary trusts, where the discount has historically been distributed to beneficiaries at low marginal rates — will hinge on individual cost-base positions, expected holding periods, and views on real asset appreciation through 2027.

The expanded small business threshold is likely to be welcomed with less ambivalence. At $2 million, the turnover test had become increasingly anachronistic; asset values and revenues in sectors like professional services, construction, and regional retail have moved well past that mark. The $10 million threshold aligns more closely with the broader small business tax concession framework and removes a distortion that had made the CGT concession largely irrelevant to the cohort it nominally served.

The legislation as tabled confirms the government intends no grandfathering of pre-existing positions beyond the hard date: the reform is clean-cut at 1 July 2027.