At the time of writing there is a lot of pre-Federal Budget media speculation, or possibly even ‘leaks’ that part of the Federal Government’s tax reform proposals in the 2026/2027 Federal Budget will involve changes to the way capital gains are taxed.
Currently, only 50% of a capital gain made on sale of assets held for more than 12 months is included in taxable income. The maximum effective tax rate is therefore 23.5%.
There have been 2 key rumours of speculated changes:
Indexation of capital gains refers to tracking movements in the Consumer Price Index (CPI), a measure for inflation and only applying tax to inflation adjusted capital gains.
Each quarter, the Government measures any change in the CPI. The CPO Index has been reported by the ATO since capital gains tax was introduced in 1985 Consumer price index (CPI) rates | Australian Taxation Office.
The previous way of taxing capital gains was made by adjusting the CGT cost base of the asset by the increase in CPI. This adjusted cost base was deducted from the capital proceeds to calculate the capital gain.
As our tax advisors have the ‘Experience’ of the previous indexation calculations, we have compared CGT calculations based on a $1 million gain over 10 years:
Clearly, the CGT discount provides a significant advantage to taxpayers, so it is perhaps it is understandable why the Government may wish to change it?
As a comparison of capital gains tax rates (for individual taxpayers) with other countries, we understand that the UK has a maximum rate of 24% for long term gains and the USA has a maximum rate of 28% for long term gains.
Our experts have the capabilities to assist you with your CGT requirements, please contact your usual Exant adviser or our expert Jamie Towers via the form below or on 07 3218 3900.