The Death of the 50% CGT Discount: What the Budget Changes Mean for Property Investors

The Albanese government’s 2026–27 Federal Budget quietly rewrote the rules for every property investor in Australia. From 1 July 2027, the 50% Capital Gains Tax (CGT) discount that’s been in place since 1999 is gone replaced by a new indexation system with a 30% minimum tax floor.

We modelled exactly what this means for a typical investor. Here’s what we found.

Under the current system, if you sell an investment property you’ve held for more than 12 months, you only pay tax on half the gain and that half gets stacked on top of your regular income and taxed at your marginal rate.

Under the new proposed system, the government strips out the “inflation component” of your gain first, then taxes the remaining real gain at your marginal rate with a hard floor of 30%, so no one can engineer their way to a near-zero rate by timing a sale in a low-income year.

It sounds fairer on paper. Here’s why it’s more expensive in practice.

We ran the numbers on a $500,000 property growing at 7% per year with 3.5% annual inflation realistic long-run assumptions for Australian residential property. The owner earns $150,000 in salary (sitting in the 37% marginal tax bracket).

For a $150,000 earner, the current system is cheaper in virtually every scenario. By Year 10, you’d pay $16,420 more under the new rules. By Year 20, that gap blows out to an extra $100,137 in tax on the exact same property.

Why? The maths is counterintuitive. Both systems tax you at your marginal rate (37% in this case). The difference is what they tax:

• Current system: taxes 50% of the nominal (headline) gain.
• New system: taxes 100% of the real (inflation-adjusted) gain.

When an asset grows faster than inflation which most Australian property historically does – the real gain ends up being larger than 50% of the nominal gain. You are effectively being taxed on more dollars, even though your marginal tax rate remains unchanged.

The 30% minimum floor only bites people below the 30% tax bracket – retirees, low-income earners, or anyone who times a sale in a low-income year. For them, the new system raises tax. For high earners already in the 37–47% bracket, the new system typically costs more too, because they were already above the 30% floor anyway- the indexation just doesn’t shelter as much gain as the old 50% discount did.

People will be affected differently depending on the rate of return on their assets. The new system genuinely does favour investors in low-growth, high-inflation environments , if inflation were eating most of your return, indexation would shelter most of your gain. But for typical Australian property returns, the 50% discount has historically been the better deal.

Grandfathered Assets: Properties you already own (purchased before 7:30pm on 12 May 2026) are protected. The existing rules will apply to all gains accrued up to 1 July 2027.

The Family Home: The main residence exemption remains completely unchanged.

Superannuation: Super funds (including SMSFs) are unaffected and retain their distinct tax concessions.

New Builds: To protect housing supply, investors who buy new builds get to choose the better of the two systems at the time of sale.

Established Properties: Any established residential property purchased after Budget night will be fully subject to the new rules from 1 July 2027.

This model assumes a single asset held by an individual Australian resident, with Medicare levy excluded from brackets for comparability (add ~2% across the board). The 30% minimum tax is waived for Age Pension and JobSeeker recipients in the year of sale. This is proposed legislation only – it has not yet passed Parliament. The numbers here are illustrative. Talk to a registered tax adviser before making any decisions.

Model inputs: $500,000 purchase price, 7% annual growth, 3.5% CPI, $150,000 other income. Tax brackets: ATO 2024–25 individual rates. Source: 2026–27 Federal Budget,
Source- 2026–27 Federal Budget, PM announcement 12 May 2026.

The information provided here is general in nature and does not constitute personal financial, legal, or tax advice. It has been prepared without taking into account your personal objectives, financial situation, or specific needs. Before making any investment or financial decisions based on this information, you should consider its appropriateness to your circumstances and seek independent advice from a registered tax agent, accountant, or licensed financial advisor. Past performance is not a reliable indicator of future results.