For decades, the smartest money in Australia followed a simple rule: buy growth assets, hold them for the long haul, and let the 50% capital gains tax discount do the heavy lifting. That playbook now has an expiry date.
From 1 July 2027, the familiar CGT discount disappears. In its place comes inflation-linked cost base indexation and a hard 30% minimum tax rate on capital gains. Following Royal Assent on 26 June 2026, these are not proposals to debate. They are law, and they represent the most significant structural change to how Australia taxes investment profit since 1999.
That changes the entire calculation behind Australia CGT for income investors, and it shifts the balance between chasing capital growth and collecting franked dividends. Here is what the new rules actually do to your holdings, why franked income suddenly carries a bigger premium, and the concrete steps worth taking before the July 2027 deadline arrives.
How the 2027 capital gains overhaul actually works
The jargon around this reform sounds intimidating, but the mechanics come down to two moving parts. Get those two right and everything else falls into place.
The first change replaces the flat 50% discount on assets held longer than 12 months with cost base indexation. Instead of halving your taxable gain automatically, the system now lifts your original purchase cost in line with the Consumer Price Index (CPI), so you only pay tax on the real gain, the portion that beats inflation.
The second change is the floor. A 30% minimum tax rate applies to that indexed net gain. This is a floor, not a flat rate: if your marginal tax rate sits above 30%, you pay your normal rate on the real gain, but nobody eligible pays less than 30% on it.
Here are the three legislative shifts in plain terms:
- The 50% CGT discount for individuals, trusts and partnerships is removed for relevant CGT events on or after 1 July 2027.
- Cost base indexation returns, adjusting your purchase cost by CPI for assets held at least 12 months (the third element of the cost base, ongoing ownership costs, is excluded).
- A 30% minimum tax rate applies to the net capital gain after indexation.
According to the Parliamentary Bill digest for the Treasury Laws Amendment (Tax Reform No.1) Bill 2026, indexation applies only where the asset has been held for at least 12 months. Anything sold inside a year gets taxed under ordinary rules with no discount at all.
The CGT indexation mechanics that determine your real gain are more precise than the old 50% discount: the CPI adjustment applies only to the third element of your cost base, excluding ongoing ownership costs, so the gap between your indexed cost and sale proceeds is what faces the 30% floor.
Here is what this means for you in practice. Under the old system, any nominal gain was halved regardless of whether it came from real growth or simple inflation. Under the new system, your tax bill hinges on how far your asset outpaces inflation. An asset that doubles in real terms will be taxed heavily. One that barely tracks CPI may attract very little tax at all. The direction of your returns matters less than the size of your real return.
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Assessing the tax impact on your current holdings
Now open your brokerage account or property statement, because this is where the reform stops being abstract. Not every asset feels this change the same way, and the split between winners and losers is sharper than most investors expect.
High-growth assets take the hardest hit. Where real gains comfortably outrun inflation, indexation shaves off very little, and the 30% floor then locks in a heavy tax bill. Modest, inflation-matching assets fare far better, because indexation can strip out most or all of the taxable gain before the floor even applies.
The concern is widespread. An inquiry into the Tax Reform No.1 Bill, documented on the Australian Parliament House site, found the combined indexation-plus-30% floor was the single measure driving concern for 94.55% of surveyed investors and 89.86% of surveyed founders.
Transitional rules soften the timing but add complexity. Assets held on 30 June 2027 are subject to a deemed disposal and reacquisition mechanism, which effectively splits your gain into two eras: the portion accruing before 1 July 2027 keeps the old 50% discount, while the portion after that date falls under the new regime.
The dual-calculation grandfathering rules that apply to assets held across the 1 July 2027 boundary require investors to perform two separate gain calculations, applying the 50% discount to the pre-commencement portion and the indexation-plus-floor method to the post-commencement portion, using either a formal valuation or an ATO-approved apportionment formula.
That split matters for your long-held growth positions. It means the gain baked into an asset today is treated differently from the gain it earns tomorrow, so exactly when you trigger a capital event becomes a deliberate planning decision rather than an afterthought.
One long-standing shelter also disappears. H&R Block notes the reforms effectively end the 40-year blanket exemption for pre-CGT assets acquired before 20 September 1985, bringing gains accruing after 1 July 2027 into the tax net for holders who may never have expected a CGT bill.
There is one notable carve-out. PwC’s Federal Budget tax alert explains that individuals and trusts disposing of new residential dwellings or affordable housing after 1 July 2027 can elect between the new regime and a discount of up to 60% for affordable housing, giving that specific group optionality nobody else gets.
| Asset profile | Tax treatment before 2027 | Tax treatment after 2027 |
|---|---|---|
| High-growth shares or property (real gains far above inflation) | 50% discount on the full nominal gain | Small indexation benefit, then 30% minimum tax on the large real gain |
| Modest assets tracking inflation | 50% discount on nominal gain (could over-tax real returns) | Indexation removes most of the gain before the 30% floor applies |
| Pre-CGT assets (acquired before 20 September 1985) | Fully exempt from CGT | Deemed disposal brings post-2027 gains into the tax net |
Run your eye down that middle column against your own holdings and the vulnerable positions announce themselves.
Why dividend yield is becoming the tax-efficient alternative
The fear is warranted, but fear is not a strategy. The same reform that penalises aggressive growth quietly hands income investors a structural advantage that has not existed for over two decades.
Here is the mechanism. Capital gains now face a 30% floor after indexation, while fully franked dividends continue to be taxed as ordinary income, with franking credits offsetting your tax liability. For investors on low or middle marginal rates, the effective tax on fully franked dividends can land below 30%, which flips the long-running maths in favour of income.
Franking credit calculations follow a precise formula tied to the 30% corporate tax rate: the credit attached to a fully franked dividend is the cash payment multiplied by 30, divided by 70, and for pension-phase SMSFs that credit is returned in full as a direct ATO cash refund rather than merely offsetting a tax bill.
The structural shift For over 20 years, capital growth enjoyed a clear tax edge over income. The 30% CGT floor narrows that gap sharply, lifting the relative value of every franked dividend already sitting in your portfolio.
This is not a small tweak in the rulebook. H&R Block situates the 2026-27 reforms as a direct reversal of the 1999 Ralph Review decision that scrapped indexation, introduced the 50% discount, and sparked the growth-investing boom in the first place. The pendulum is swinging back.
The behavioural response is already showing up. Morningstar research points to growing investor interest in income-oriented portfolios as a way to manage after-tax outcomes under a regime where capital gains face a harder floor. ABC’s budget coverage similarly notes some investors shifting focus toward cash flows as the tax advantage of growth narrows.
What this means for you is straightforward: the franked income stream you may have treated as the boring part of your portfolio now carries a higher premium in your total after-tax return. Reweighting toward yield-generating assets offers a clearer, more predictable tax outcome than betting on capital appreciation that will meet a 30% floor.
Navigating the yield trap
The catch is that chasing yield blindly creates its own problems.
Australia’s highest-yielding, most heavily franked names cluster in a narrow band of the market: the big banks, the major miners, and listed property trusts. Pile into those simply to harvest franking credits and you concentrate your risk in two or three sectors, which is a fragile position if either the financials or materials sector stumbles.
Sustainable income growth matters more than a static high headline yield. A distribution that looks generous today can compress if payout ratios tighten or capital requirements rise, so the quality and durability of the income stream should carry more weight in your decision than the number quoted on a screener.
Strategic moves to make before July 2027
The legislation is final. Royal Assent landed on 26 June 2026, and the countdown to 1 July 2027 is running. That gives you a finite window to restructure under the existing rules, which means choosing to do nothing is itself an active decision that carries a specific tax cost.
The point of this window is not to panic-sell. It is to make deliberate choices while you still have both tax regimes available to you. Here is a practical sequence to work through.
- Audit your unrealised gains. List every holding and identify which ones carry large real gains well above inflation. These are the positions most exposed to the 30% floor and the deemed disposal split.
- Evaluate alternative structures. Investment bonds and superannuation offer different tax environments that Morningstar and advisers flag as increasingly relevant, though suitability depends entirely on your circumstances.
- Model your total after-tax returns. Compare what a pre-2027 realisation costs you now against the projected tax under the new regime. For some assets the maths will favour acting; for others, holding still wins.
- Consult a tax professional. The transitional rules, indexation mechanics, and interaction with your marginal rate are genuinely complex. Triggering a premature capital event without advice can cost more than it saves.
That last point is not a formality. The deemed disposal mechanism, the CPI indexation formula, and the way the 30% floor interacts with your personal tax position all carry traps that are easy to miss and expensive to get wrong.
For investors who want a step-by-step sequence beyond the overview here, our dedicated guide to repositioning your portfolio before the 2027 deadline covers the specific actions around superannuation contribution timing, grandfathered gain crystallisation, and carry-forward cap space that are most time-critical before 30 June.
This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.
Past performance does not guarantee future results, and any modelling of future tax outcomes is subject to market conditions and your individual circumstances.
Calibrating your portfolio for the new tax era
Capital growth is not dead. It remains a core engine of long-term wealth, but its after-tax value has genuinely changed, and pretending otherwise leaves money on the table.
The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, which received Royal Assent on 26 June 2026, is the primary legislative instrument confirming the removal of the 50% CGT discount, the return of CPI-linked cost base indexation, and the 30% minimum tax rate applying to net capital gains from 1 July 2027.
The most durable response is not a wholesale flight into yield or a stubborn defence of growth. It is a total-return mindset: combining growth assets with tax-efficient franked income so your portfolio is not overly exposed to any single legislative lever.
Morningstar frames the reforms as a prompt for more deliberate portfolio construction rather than an abandonment of growth investing, and that nuance is worth holding onto. The transitional rules begin narrowing your options once the calendar turns to July 2027.
Review your asset allocation this financial year. The window to position under both tax regimes is open now, and it will not stay that way.
