Capital Gains Tax (CGT) Basics & The 2027 Reforms

The most important thing to understand about CGT is that it is not a separate tax. If you make a $4,000 capital gain on your shares, the ATO simply adds $4,000 to your regular taxable income for that year, and you pay tax on it at your standard marginal income tax rate.

You only pay CGT when you trigger a CGT Event — which usually means the moment you sell the asset. You do not pay tax just because the shares sit in your account and go up in value.

The 12-Month Rule: A System in Transition

To encourage Australians to invest for the long term rather than day-trading, the government offers a massive tax break if you hold an asset for longer than 12 months before selling it.

However, following the passage of the 2026 Tax Reform laws, how this tax break works is changing.

1. The Outgoing System (Applies to sales before 1 July 2027) Under the classic rules, if you hold an asset for at least 12 months and 1 day, you receive a 50% CGT Discount.

• Example: If you make a $10,000 profit on an ETF, you apply the 50% discount. The ATO ignores half of the profit, and only adds $5,000 to your taxable income.

2. The New System (Applies to gains accruing from 1 July 2027) The government abolished the flat 50% discount because it disproportionately benefited high-income earners. It has been replaced with an Inflation-Based (Indexation) Model alongside a 30% Minimum Tax Rate.

• How it works: Instead of a flat 50% cut, the ATO will adjust your original purchase price (your "cost base") for inflation before calculating your profit. This means you only pay tax on the real profit you made above the inflation rate.
• The Catch: To ensure investors pay their fair share, your final capital gain will now be taxed at a minimum floor rate of 30%, regardless of whether your standard income tax bracket is lower.

(Note: There are transition rules protecting gains made before July 2027, so you do not need to panic-sell your current portfolio.)

Capital Losses: Your Tax Shield

What happens if you buy a share for $10 and sell it for $2? You have made a Capital Loss.

While losing money hurts, it acts as a powerful tax shield. You can use your capital losses to cancel out your capital gains.

• If you make a $5,000 profit on Commonwealth Bank, but a $3,000 loss on a lithium mining stock, you subtract the loss first. You only pay CGT on the remaining $2,000 profit.
• The Golden Rule: You can only use capital losses to cancel out capital gains. You cannot use an investing loss to reduce the tax you pay on your day job salary. If you don't have any gains this year, your losses carry forward indefinitely to future years.

Interactive: The 2027 CGT Reform Calculator

Are you better off under the old 50% discount or the new 2027 inflation rules? Enter a hypothetical investment scenario below to compare your tax bill under both systems.

General Advice Warning: The information provided here is for general educational purposes only. It does not take into account your personal financial objectives, situation, or needs. Before making any financial decisions, please consider the appropriateness of the information and consult with a licensed financial adviser.