What Cost Base Indexation Means for Your Next Property Sale
Published by Byford Accountants | June 2026
The 2026-27 Federal Budget, handed down on 12 May, contains what Treasurer Jim Chalmers has called “the most important and ambitious Budget in decades.” For property investors, small business owners and families across WA, the centrepiece reform is one that will change the way capital gains are taxed in ways not seen since 1999.
The 50% CGT discount — the rule that has allowed property investors to halve their taxable capital gain if they’ve held an asset for more than 12 months — is being replaced. In its place: cost base indexation tied to the Consumer Price Index (CPI), coupled with a new 30% minimum tax on capital gains.
This isn’t a tweak. It’s the most fundamental restructuring of Australia’s capital gains tax system in 27 years, and it has major implications for anyone who owns an investment property, runs a business through a trust, or is planning to sell an asset in the years ahead.
Here’s what you need to know. What’s Changing, and When?
The new regime takes effect on 1 July 2027. From that date, the long-standing 50% CGT discount for individuals, trusts and partnerships will be gone, replaced by two new mechanisms.
The first is CPI-based cost base indexation. Rather than halving your capital gain, your property’s cost base (purchase price plus associated costs) will be adjusted upward in line with inflation. You’ll only be taxed on the real gain — the profit above and beyond what inflation accounts for.
The second is a 30% minimum tax rate on capital gains. Whatever gain remains after indexation is applied, it will be taxed at your marginal rate — but at no less than 30%. This floor rate is designed to prevent investors from timing sales to coincide with low-income years (such as early retirement) to minimise their tax.
How Does Indexation Compare to the 50% Discount? A Practical Example. To understand the real-world impact, consider a straightforward scenario.
Sarah, a Byford investor, purchased an investment property in 2022 for $600,000 (including stamp duty and legal costs). She sells it in 2028 for $800,000 — a $200,000 nominal gain.
Under the old 50% discount rule, the capital gain of $200,000 is halved to $100,000 taxable. At a 37% marginal rate, that’s approximately $37,000 in tax payable.
Under the new indexation model, assuming roughly 10% cumulative CPI growth over the holding period, the indexed cost base rises from $600,000 to around $660,000. The taxable gain becomes $140,000, taxed at the full marginal rate with a 30% floor. At a 37% marginal rate, that’s approximately $51,800 in tax payable.
For a property with strong real growth above inflation, the new rules will mean a materially higher tax bill. The discount is now dependent on how high inflation has been, not a flat 50% reduction.
The key insight: if your property’s growth has outpaced inflation significantly, the new rules will cost you more. If your gains are modest and inflation has been high, indexation could potentially work in your favour — but this will vary considerably by asset and timing.
The Transitional Rules: What Happens to Property You Already Own?
This is critically important for existing investors. The Government has confirmed transitional arrangements to protect gains already accrued.
For assets purchased before 1 July 2027, gains accrued up to 30 June 2027 will continue to receive the 50% CGT discount. Gains accruing from 1 July 2027 onwards will be subject to the new indexation and 30% minimum tax. The split is calculated using your asset’s market value at 1 July 2027 as the reference point.
In practical terms: if you sell a long-held investment property after 1 July 2027, your total gain will be divided into two portions. The pre-July 2027 portion is taxed under the existing discount rules; the post-July 2027 portion under the new regime.
What does this mean for timing? If you are considering selling an investment property in the near future, the window before 30 June 2027 is significant. Any sale completed before that date will receive the full 50% CGT discount on the entire gain. This is a genuine planning consideration — not a reason to rush, but absolutely a reason to talk to us.
New Builds: A Carve-Out Worth Noting
Investors in new residential properties have been given a choice. When selling a new build, you can elect to apply either the existing 50% CGT discount, or the new indexation and minimum tax rules.
This flexibility is designed to maintain investment incentives in new housing construction. If you are considering your next property purchase, the distinction between new and established property is now a significant tax variable — not just a lifestyle or yield question.
What About Your Home?
No change. The main residence CGT exemption is fully preserved. Your family home remains exempt from capital gains tax when you sell it.
If You Hold Property Through a Discretionary Trust — Read This Carefully
Many of our clients hold investment properties or business assets through family discretionary trusts. The Budget introduces a second, separate reform that affects you directly.
From 1 July 2028, a 30% minimum tax on discretionary trust income will apply at the trustee level. This is a fundamental departure from the way trusts have been taxed for decades, where trust income flowed through to beneficiaries and was taxed at their individual marginal rates — often lower-income family members, which reduced the overall tax burden.
Under the proposed new rules, the trust itself will pay a minimum 30% tax on its taxable income, with beneficiaries receiving non-refundable tax credits for the tax paid by the trustee.
Key exceptions include fixed trusts, charitable trusts, special disability trusts, deceased estates, complying superannuation funds, and income support recipients such as Age Pensioners.
The Rollover Window for Small Business
Recognising the disruption this causes, the Government is offering expanded rollover relief from 1 July 2027 to 30 June 2030 — a three-year window during which small businesses can restructure out of a discretionary trust into a company or fixed trust, with CGT and income tax consequences deferred on the transfer of business assets.
This is a meaningful opportunity, but it comes with complexity. Past restructure rollovers have involved strict conditions around ownership continuity, business continuation and the form of the new structure. We expect this one will be no different, and the detail will emerge through legislation and ATO guidance over the coming months.
Small business CGT concessions — including the 15-year exemption, 50% active asset reduction, retirement exemption and rollover — are explicitly preserved. If your business qualifies for these concessions on eventual sale, they remain available regardless of the trust minimum tax changes.
What the Changes Mean for Superannuation
Good news on this front: the CGT discount for superannuation funds is not affected by these reforms. The existing one-third discount for super funds remains in place. For many Australians, super continues to be one of the most tax-effective vehicles for long-term investment.
Key Dates at a Glance
12 May 2026 — Budget night. Negative gearing changes apply to new established property purchases from this date.
30 June 2027 — Last day to sell an asset under the full 50% CGT discount on the entire gain.
1 July 2027 — New CGT indexation and 30% minimum tax on capital gains commences. Rollover relief window opens for trust restructures.
1 July 2028 — 30% minimum tax on discretionary trusts commences.
30 June 2030 — Rollover relief window for trust restructures closes.
What Should You Be Doing Now?
These changes are proposed legislation — they have not yet passed Parliament, and the Coalition has signalled opposition. The Government will need to negotiate their passage. That said, prudent planning does not wait for certainty, and the direction of travel is clear.
For property investors holding existing assets: review your portfolio with us. We can model the approximate tax impact on specific properties under both the pre- and post-July 2027 scenarios, and help you think through whether any timing decisions make sense for your situation.
For investors considering a new purchase: the distinction between new and established property has tax consequences now — not just at sale. Understand what you’re buying and how the new negative gearing and CGT rules interact before you commit.
For families and business owners with discretionary trusts: don’t restructure in a hurry — but do start the conversation. The three-year rollover window from July 2027 provides runway, but understanding whether restructuring is right for your situation takes time. We can help you model the costs, benefits and alternatives before the window opens.
For those approaching retirement: the 30% minimum tax rate is specifically designed to prevent low-income-year sales from minimising CGT. If you were planning to sell assets in early retirement to benefit from a lower marginal rate, your strategy needs revisiting.
Where Does This Leave You?
The 1999 shift to a 50% CGT discount fundamentally shaped how Australians invest — particularly in property. This Budget reverses that. The landscape for property investors, trust holders and small business owners is changing in ways that will take time to fully understand.
The detail still to come — exposure draft legislation, ATO guidance, and possible amendments — will matter enormously. We are monitoring developments closely and will update clients as the picture becomes clearer.
In the meantime, if you have questions about how any of this affects your specific situation, please don’t hesitate to reach out. This is exactly the kind of change where getting personalised advice early makes a real difference.
This article is general in nature and does not constitute financial or tax advice. The measures described are proposed legislation and have not yet been passed by Parliament. Please contact Byford Accountants to discuss how these changes may apply to your individual circumstances.
Byford Accountants — your local tax advisers in the heart of the Byford community. With clients all over Australia, Byford Accountants can help you, even if you are not located near Byford, WA.
