If you own an investment property, shares, a business or other assets that could eventually be subject to capital gains tax, there are some fairly significant tax changes coming that are worth understanding well before they arrive.
From 1 July 2027, Australia is changing the way capital gains are taxed, including replacing the existing 50% CGT discount with cost base indexation for many affected gains and introducing a minimum 30% tax rate on capital gains. At the same time, the rules around negative gearing for residential property are also changing.
There are quite a few details sitting underneath all of this, but the most important thing to understand right now is that some of these changes involve assets you already own. This isn't something we think investors should leave until June 2027 to start thinking about.
What's changing with Capital Gains Tax?
Under the current system, Australian resident individuals and trusts can generally access a 50% CGT discount on eligible capital gains where an asset has been held for at least 12 months.
From 1 July 2027, that changes.
For affected gains accruing from that date, the 50% discount will generally be replaced with cost base indexation, which adjusts the cost base of an asset for inflation. There will also be a minimum tax rate of 30% on capital gains under the new rules.
Importantly, the changes are prospective. Gains that accrued before 1 July 2027 can still retain access to the existing CGT treatment, while gains accruing after that date fall under the new arrangements.
That distinction is exactly why 1 July 2027 becomes such an important date.
What is cost base indexation?
Cost base indexation is basically a way of adjusting what you originally paid for an asset to account for inflation. Instead of calculating your capital gain and then applying the current 50% CGT discount, the cost base of the asset is increased to reflect inflation, and your capital gain is calculated from that adjusted amount. In simple terms, it recognises that $500,000 today isn't worth the same as $500,000 was many years ago.
What happens if you already own the asset?
This is where things become particularly relevant for people who already hold investments.
Broadly, affected assets held across the transition are treated as though they were sold immediately before 1 July 2027 and reacquired on 1 July 2027. The legislation provides a market-value approach as well as an alternative apportioning method for working out the transition between the old and new regimes.
You aren't actually selling the asset on that date and it doesn't mean you'll suddenly receive a CGT bill simply because 1 July arrives. Rather, the rules create a way of separating the gain that arose before the change from the gain that arises afterwards.
This is why we're already thinking about valuations and record keeping for clients who may be affected.
Depending on the asset and the method ultimately used, having good evidence of what an asset was worth around the transition date could become very important years down the track when it is eventually sold.
Trying to reconstruct the value of a property, business interest or other asset many years later is obviously a very different exercise from having the appropriate information available at the time.
If you hold assets that could be affected, this is something we'd suggest talking to your accountant about well before 1 July 2027, rather than trying to unravel it when you eventually decide to sell.
What about assets bought before CGT existed?
This is another significant part of the reform.
Assets acquired before 20 September 1985 have traditionally been referred to as pre-CGT assets, and in many circumstances gains on those assets have been outside the CGT regime.
From 1 July 2027, those assets are brought into the CGT system for gains arising from that point forward. Gains that arose before 1 July 2027 remain protected under the transitional arrangements.
For families, trusts and businesses that have held property or other assets for decades, this is particularly important. An asset that has effectively sat outside the CGT system for many years may now need much more careful record keeping and planning.
Negative gearing is changing too
The other major change affects residential property investors.
From 1 July 2027, negative gearing will generally be limited to new residential builds.
For affected established residential properties, rental losses will no longer be able to simply reduce unrelated income such as salary and wages. Instead, those losses will generally be quarantined so they can be used against residential property income or residential property capital gains, with unused amounts able to be carried forward.
There is, however, a very important date to know.
Properties acquired before 7:30pm AEST on 12 May 2026 are grandfathered under the existing negative gearing arrangements. This includes contracts entered into before that time even where settlement occurred afterwards.
So if you already owned an investment property before that date, don't read the headline “negative gearing is ending” and assume the rules suddenly change for your existing property on 1 July 2027.
They may not.
What does “grandfathered” mean?
When something is grandfathered, it basically means the old rules continue to apply even though the rules have changed for new investments. In this case, established residential properties acquired before 7:30pm AEST on 12 May 2026 can generally continue under the existing negative gearing rules until the property is disposed of. So if you already owned an affected investment property before the cut-off, the new negative gearing restrictions don't automatically apply to it from 1 July 2027.
What if you're buying a new property?
The Government has deliberately kept concessions available for eligible new residential builds as part of the changes.
Eligible new builds can continue to access negative gearing, and investors in qualifying new residential property will also have a choice between the existing 50% CGT discount and the new indexation and minimum-tax arrangements.
There are also specific exclusions and concessions relating to areas including widely held trusts, superannuation funds, build-to-rent developments and certain investments supporting government housing programs.
This is one of those areas where we'd be very careful about making an investment decision based purely on a headline or something you've read online. Exactly how the rules apply will depend on the property, when it was acquired and your own circumstances.
Why we're talking about this now
July 2027 might sound like it's a long way away, but from a tax-planning perspective it really isn't.
There are assets that may need to be considered, records that may need to be gathered and potentially valuations that should be discussed. Some people may also be considering selling an asset, buying an investment property or restructuring investments over the next year.
Those decisions shouldn't be made purely because tax rules are changing, but the tax consequences should absolutely be part of the conversation.
This is exactly what we mean when we talk about the difference between simply preparing tax returns and actually doing tax planning.
We've written before about why we prefer planning ahead rather than reacting in June. These changes are a pretty good example of why that matters.
There is a lot more value in sitting down ahead of time, looking at what you own, understanding which changes might affect you and working out whether anything needs to be done than discovering the consequences years later when an asset is sold.
Do these changes affect you?
Not everyone needs to do something immediately, and we certainly wouldn't suggest making major investment decisions based on one change to the tax rules.
But if you own investment property, shares, interests in a trust or business, or assets you've held for a very long time, it's worth understanding how the new rules may apply to you.
If you're already thinking about selling an asset, we've also got more tax and business information available through the Citrine Knowledge Hub.
For people whose investment or financial affairs are becoming more complicated, our tax and advisory services are about looking at the bigger picture rather than simply dealing with the numbers after the fact.
The important thing here isn't to panic about 1 July 2027. It's to make sure you understand what you own, what the changes mean for you and whether there is anything worth addressing while there is plenty of time to do it properly.
If you're not sure how the 2027 CGT or negative gearing changes affect you, come and have a chat with our team here at Citrine Advisory. We'd much rather work through it with you now than try to piece everything together after the rules have changed.
This information is general in nature and doesn't take into account your individual circumstances. The application of the new CGT and negative gearing rules can vary depending on the asset, ownership structure, acquisition date and other circumstances, so please seek advice specific to your situation.