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 will apply alongside this new regime.

Understanding the mechanics requires knowing how each system works. Under current law, when you sell an asset you've held for over a year, the government allows you to ignore 50 per cent of the nominal gain before calculating tax. So if you made a $100,000 profit, only $50,000 counts toward your tax bill.

The new approach scraps that flat discount and instead adjusts your original purchase price upward for inflation. Only gains that exceed inflation—your real profit, in economic terms—become taxable. A 30 per cent minimum tax acts as a floor: if your marginal income tax rate would normally produce a lower effective rate, the government taxes you at 30 per cent instead. The shift isn't retroactive; gains crystallised before 1 July 2027 remain subject to the 50 per cent discount without restriction.

Small businesses receive a related but separate benefit. 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. For growth-stage companies that have edged above the old threshold, this change unlocks a concession they previously couldn't access. At $10 million, the threshold now covers a substantially broader slice of the small-to-mid market.

On the income tax side, change is moving faster. From 1 July 2026—less than a year away—the 16 per cent marginal rate on income between $18,201 and $45,000 drops to 15 per cent, per Labor's earlier announcement. This sits structurally apart from the CGT reforms but functions within the government's broader framing: rebalancing the tax system toward wage earners.

Why the shift from discounts to indexation? The critique is decades old: the 50 per cent discount, introduced in 1999 as a simplification, became over time a structural driver of asset-price inflation and widened the gap between effective tax rates on labour income versus investment returns. Cost-base indexation is not new to Australia—the country used it before the Howard government's 1999 reforms switched to the flat discount on the recommendation of the Ralph Review. The current government is reversing a 27-year-old design choice.

Whether the new regime is more generous depends entirely on context. For assets held over long periods during high-inflation years, indexation can erode assessable gains substantially. For assets with modest real gains but large nominal gains—typical during low-inflation, high-asset-price cycles—the 50 per cent discount often proved more favourable. The 30 per cent minimum tax adds a binding floor that constrains the benefit of indexation in that latter scenario.

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

The expanded small business threshold is likely to prove less controversial. At $2 million, the turnover test had become increasingly out of step with reality; asset values and revenues in sectors like professional services, construction, and regional retail have moved well beyond that mark. The $10 million threshold aligns more closely with the broader small business tax concession framework and removes a distortion that had rendered the CGT concession largely irrelevant to the cohort it was meant to serve.

The legislation as tabled confirms the government intends a clean break at 1 July 2027—no grandfathering of pre-existing positions beyond that hard date. That clarity is valuable for planning purposes, even if the transition period opens genuine strategic questions about timing.