Capital Gains Tax changes from 1 July 2027: What property investors need to know

From 1 July 2027, the way capital gains are taxed will change. If you own investment property, understanding which rules apply to you can help you plan ahead. 

The current 50% Capital Gains Tax (CGT) discount for assets held for more than 12 months will generally be replaced by a system based on cost base indexation from 1 July 2027. 

Under the new rules, the cost base of an asset will be adjusted for inflation, meaning that CGT will generally apply only to the real increase in the asset’s value. In addition, a minimum tax rate of 30% will apply to certain capital gains derived by Australian resident individuals and trusts, including gains arising through a partnership, from CGT events occurring on or after 1 July 2027. The minimum tax will apply only to the portion of the capital gain that accrues from 1 July 2027 and will operate as a “top-up” where the effective tax rate on the relevant gain is less than 30%. Taxpayers whose effective tax rate on the relevant capital gain is already 30% or higher will generally not be affected. 

Which scenario applies to you? 

Scenario 1: You sell your investment property before 1 July 2027: The current CGT rules continue to apply, including the 50% CGT discount where you are eligible. 

Scenario 2: You bought your investment property before 1 July 2027 and sell it after 1 July 2027: The new rules are prospective. Broadly, your property will be treated as though it were disposed of and reacquired on 1 July 2027.  

Any capital gain accrued up to 30 June 2027 will remain subject to the existing CGT rules, including access to the 50% CGT discount where applicable. Any further growth in value from 1 July 2027 will instead be subject to the new inflation-based indexation rules.  

The property’s value at 1 July 2027 may generally be determined by obtaining a valuation or, in certain circumstances, using a prescribed apportionment method. 

Scenario 3: You purchase an eligible new residential dwelling: Individual investors who purchase an eligible new residential dwelling may choose between applying the existing 50% CGT discount or using the new indexation approach.  

If you choose to apply the existing CGT discount, the new 30% minimum tax will not apply to the relevant capital gain. However, if you choose the indexation approach, the 30% minimum tax may apply. 

How could this work? 

Imagine you purchased an investment property in January 2025 for $1 million. By 1 July 2027, it is worth $1.3 million, and you eventually sell it for $1.5 million. 

For simplicity, assume the property is effectively reset at its 1 July 2027 value and that the relevant eligibility requirements for indexation, including the minimum 12-month holding period, are satisfied. 

This would result in: 

$300,000 growth before 1 July 2027 

This portion of the gain would remain subject to the existing CGT rules, including access to the 50% CGT discount. This would result in a taxable capital gain of $150,000. 

$200,000 growth after 1 July 2027 

Under the new rules, the property’s value as at 1 July 2027 would form the starting point for calculating the post-1 July 2027 capital gain, with the relevant cost base elements adjusted for inflation. For simplicity, this example assumes the $1.3 million value is increased by 10% for inflation, resulting in an indexed cost base of $1.43 million. 

The post-1 July 2027 real gain would therefore be: 

$1.5 million sale price
less $1.43 million indexed cost base
= $70,000 real gain 

In this simplified example, the total taxable capital gain would be $220,000, comprising: 

• $150,000 taxable capital gain relating to the growth before 1 July 2027; and 

• $70,000 real capital gain relating to the growth after 1 July 2027. 

This is a simplified illustration only. Under the proposed rules, indexation applies to relevant cost base elements rather than simply indexing the property’s value as at 1 July 2027 as a single amount. The actual calculation will also depend on the property’s value as at 1 July 2027, CPI movements, the relevant cost base elements, acquisition and sale costs, capital improvements, ownership structure, eligibility for indexation and other factors. 

What should property investors do? 

The changes do not necessarily mean you should sell an investment property before 1 July 2027. 

Instead, they are a good reminder to review your property portfolio strategy and consider: 

• properties you may be considering selling 

• the capital growth across your portfolio 

• your ownership structures 

• your longer-term investment and retirement plans 

• the records you hold for your property’s cost base and improvements. 

How Morrows Can Help  

If you own investment property and are considering selling, buying or restructuring your portfolio, speak with your Morrows adviser. We can help you understand the potential tax implications and how they fit within your broader wealth strategy. 

This article provides general information only and should not be relied upon as personal tax advice.