How you can pay Less Capital Gains Tax - with the recent budget changes.

When the 2026 budget changes were announced there was strong criticism because for the most part, taxes were increasing.

Whilst tax increases were specifically true in relation to the family trust changes and negative gearing limitations, it is important to note that Capital Gains Taxes will actually reduce on certain assets, post 1 July 2027.

For assets purchased after 21 September 1999 and held for 12 months, the 50% CGT discount will be applicable discount method until 30 June 2027.

The indexation method will be used on the portion of the gains occurring from 1 July 2027 on most assets and can sometimes produce a better tax outcome than the 50% CGT discount.

The indexation method can sometimes produce a better tax outcome when:

• The capital growth rate has been low and

• The holding period has been long

So, how low is low and how long is long?

If an asset grows faster than the growth rates listed below, then, the 50% Discount method is better:

Years Held	Breakeven Growth % p.a.
3	5.27%
5	5.14%
7	5.03%
10	4.88%
12	4.79%
15	4.67%

Note: this is based on the long term CPI of 2.7% p.a.

CGT Case Study - Apartment versus Home

It is widely documented that apartments and units on average generate lower capital growth than houses.

For a recent client, we ran the numbers on both the historical capital growth and theoretical CGT implications for each home under both methods:

	Years Held	Growth Rate	Purchase Price	Value	Indexed Cost Base Method	Net Gain Using Indexed Cost Base Method	Net Gain Using 50% Discount Method
Apartment	13	3.33%	$392,000	$600,000	$554,245	$45,755	$104,000
House	11	5.39%	$421,000	$750,000	$564,361	$185,639	$164,500

As you can see, the net gain that would need to be added to a person's marginal tax rate is significantly lower when capital growth has been low whilst using the indexation method, whilst is a bit higher when capital growth has been good.

It is important to clarify: you do not get a choice of which method to use. The 50% discount is applied for growth on assets from 21 September 1999 to 30 June 2027.

Then CGT is applicable using the indexation method after that. Therefore, for assets held across both periods, the gain will need to be calculated using both methods, then added together. This is why the need for asset valuations as at 30 June 2027 will become such an important task.

Therefore, for the case study above, you can't choose to use the indexation method for the time period in which the discount method was in place just to choose a lower net tax. However, the case study does show that going forward post 1 July 2027, if low capital growth rates occurred on an apartment or any other type of asset, the indexation method would be more favourable.

However, to work out whether you should even be selling assets in the first place is another decision entirely which should be worked through with a Financial Planner based on your goals, objectives and financial situation.

The treatment of Capital Gains tax is nuanced and people should speak with a Financial Planner to understand how it will affect them.

As we have demonstrated the changes can actually produce a positive tax outcome. By contrast in situations where the assets have had high capital growth and/or the individual will be subject to the minimum 30% tax (rather than at lower marginal tax rates) the tax outcome could potentially be worse post 1 July 2027.

If you would like to understand your options you can:

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The purpose of this blog is to provide general information only and the contents of this blog do not purport to provide personal financial advice.  We strongly recommend that investors consult a financial adviser prior to making any investment decision. The contents of the our blog does not take into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making any financial or other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation to invest in any particular product, investment or security. The information provided on this blog is given in good faith and is believed to be accurate at the time of compilation.