The 50% CGT discount has been the quiet constant of Australian property investment for a quarter of a century. For established properties bought after Budget night 2026, it is on the way out. Here is what the CGT changes 2027 actually do, who keeps the old treatment, and the numbers worth running before your next purchase or sale.
What the CGT changes actually are
Under the measures announced in the May 2026 Federal Budget, residential investment property purchased after 7:30pm on 12 May 2026 loses the 50% CGT discount for sales on or after 1 July 2027. In its place, the cost base is indexed to CPI from the date of purchase to the date of sale. The old rule halved the taxable gain after twelve months of ownership, regardless of how much of that gain was simply inflation. The new rule instead inflates what you paid by CPI before calculating the gain, so tax only applies to the part of the gain above inflation, and it applies to all of that part. The measures remain subject to the passage of legislation.
This runs alongside the better-known change with the same start date, the end of negative gearing against salary for the same affected purchases, covered in the negative gearing changes explained. Two mechanisms, one cut-off, one effective date.
The old rules and the new rules, side by side
| Old rules | New rules | |
|---|---|---|
| What reduces the taxable gain | A flat 50% discount after twelve months of ownership | The cost base is indexed to CPI from purchase to sale |
| Which purchases it applies to | All eligible assets, including property bought before the cut-off | Established residential property bought after 7:30pm on 12 May 2026 |
| Does the benefit grow the longer you hold | No, the discount is the same at year two and year twenty | Yes, the indexed uplift keeps building across the hold |
| Does it scale with how far the gain outpaces inflation | No, half the gain is sheltered whatever the gain is made of | No shelter beyond inflation, the full real gain is taxable |
| Effective date | Current law, retained for grandfathered and exempt assets | Sales from 1 July 2027, subject to the passage of legislation |
How CPI indexation works, with the numbers
A clearly invented example, in round numbers. Say you buy an established property for $600,000 after Budget night and sell it about ten years later for $850,000. Say published CPI over that hold adds $140,000 to the cost base, taking it to $740,000. Under the new rules the taxable gain is $850,000 minus $740,000, so $110,000.
Run the old rules on the same sale and the gain is $250,000, halved by the discount to $125,000 taxable. On these numbers the new treatment produces the smaller tax bill, because the sale price only modestly outran inflation.
Now say the same property sells for $950,000 instead. The old rules would tax half of the $350,000 gain, so $175,000. The new rules tax $950,000 minus $740,000, so $210,000. Once a gain runs past roughly double the inflation uplift, the old discount would have been the better deal, and the further the asset outperforms inflation, the wider that gap gets.
None of these figures are real client outcomes or forecasts. The actual uplift depends on published CPI across your specific hold, which nobody knows in advance. The point is the mechanism: the discount sheltered half of everything, indexation shelters inflation and nothing else.
Who is grandfathered and who is not
Property held, or under contract, before 7:30pm on 12 May 2026 keeps the current 50% discount treatment until sold, however far past 2027 that sale lands. Eligible new builds are also exempt from the switch, the same carve-out that preserves their negative gearing, covered in the new-build exemption explained. The indexation rule bites on one combination: an established residential property purchased after Budget night and sold on or after 1 July 2027.
Why this changes which deals are worth buying
The old discount was blind to what a gain was made of. Half of every gain was sheltered whether it reflected genuine growth or just inflation working on a nominal price. Indexation ends that. The shelter is exactly the inflation component, nothing more. A property that merely tracks inflation now produces little or no taxable gain, because it made no real money. A property with genuine above-inflation growth pays tax on the whole real gain rather than half the nominal one.
Either way, the number that decides your after-tax outcome is real growth, and the tax system has stopped flattering paper gains. That is why deal selection matters more under the new settings, not less. Every cash flow model I run for clients is built on the post-May 2027 basis, the rules that will actually apply to a purchase made today, while much of what you will read on this subject still quotes the old 50% discount as if it were the future. Which properties clear the bar changes when you model the real rules. That is a claim about method, not a promise about any particular return.
What to model before you buy or sell
Two runs are worth doing before you commit. First, an illustrative sale of the property you are considering, worked under CPI indexation with conservative assumptions, next to the same sale under the old 50% discount, so you can see what the switch costs or saves on that specific deal. Second, a check of which side of the cut-off dates a given purchase or planned sale sits: the 7:30pm 12 May 2026 commencement line and the 1 July 2027 effective date. Timing is a decision in its own right, covered in buying before July 2027.
The eventual sale also interacts with the new carry-forward loss pool, because whatever remains in the pool comes off the taxable gain when you sell. The free Cash Flow Check is a two-minute screen of whether your next purchase stacks up under the post-2027 rules. The property analysis and cash flow model are free on your strategy call.
Frequently asked questions
Does the CGT change apply to property I already own?
No. Holdings and contracts in place before 7:30pm on 12 May 2026 are grandfathered and keep the 50% discount until sold, subject to the passage of legislation.
Is the 50% CGT discount gone completely?
No. It remains for property held or contracted before the Budget-night cut-off and for eligible new builds. What changes is the treatment of established residential property bought after the cut-off and sold from 1 July 2027.
How is this different from the indexation method that existed before 1999?
It is the same idea returning. Australia indexed cost bases to CPI before September 1999, when the 50% discount replaced indexation as the standard treatment. The announced 2027 method applies CPI indexation to the affected residential purchases, while the discount continues for grandfathered and exempt assets.
Does this affect property inside an SMSF?
Super funds run their own CGT settings and their own rules on property, which this article does not cover. Start with can my SMSF buy property for the fund-side picture.
