Australia is changing how it taxes profits from selling investments and property. Starting 1 July 2027, the government will stop using a simple flat discount and switch to a system based on inflation, according to legislation before Parliament published 29 May 2026.

Here's the current setup in plain terms. When you sell an asset you've owned for more than a year, the government lets you ignore half the profit before calculating tax. If you made $100,000, only $50,000 counts. Starting in 2027, that changes.

The new system works differently. Instead of ignoring half your profit, the government adjusts what you originally paid for the asset to account for inflation. Only the profit above inflation counts as taxable income. Think of it like this: if inflation pushes up prices generally, the system acknowledges that some of your gain was just due to rising prices, not real profit.

There's also a safety floor: the government will tax you at no less than 30 per cent on these gains. If your normal tax rate would be lower, they use 30 per cent instead.

Small businesses get a separate benefit. The government is raising the threshold for a small business tax break from $2 million in turnover to $10 million. Companies that have grown past the old limit can now access a 50 per cent discount on capital gains from selling active business assets. This opens the door for more growing businesses.

The government is also cutting income tax. From 1 July 2026—coming up soon—people earning between $18,201 and $45,000 a year will pay 15 per cent tax instead of 16 per cent, per Labor's earlier announcement.

Why make this change? The government says the current 50 per cent discount, put in place in 1999, has gradually made asset prices rise faster and created an unfair gap: people who earn wages and salaries pay higher effective tax rates than people who invest and sell assets. The new inflation-based system existed in Australia before 1999; the government is going back to that approach.

Whether the new system is better or worse for investors depends on circumstances. If you hold an asset for many years during a time of high inflation, the inflation adjustment helps you. If you hold an asset that makes a big profit quickly because asset prices jumped—but inflation was low—the old 50 per cent discount was often better. The 30 per cent floor limits how much the inflation adjustment can help in that second scenario.

For people managing investments and trusts, the July 2027 date matters because it creates a window. Selling assets before that date still gets the 50 per cent discount. Deciding whether to sell now or wait depends on individual situations—how much the asset has appreciated, how long you expect to hold it, and what you think will happen to asset prices.

The higher small business threshold is less complicated. At $2 million, the old limit had fallen out of touch with how much modern businesses earn and own. The new $10 million level makes more sense for companies in fields like accounting, construction, and local retail.

The government has made clear the change takes effect 1 July 2027 with no exceptions for assets already owned. That certainty helps people plan.