Prerequisite. This article dives deep into CGT mechanics. If you haven't read the reforms overview yet, start there. This one assumes you understand the 1 July 2027 cutoff and the split-treatment concept.
How CGT works today (pre-1 July 2027)
Under current rules, if you sell an investment property held more than 12 months, only 50% of the capital gain is taxable. It gets added to your income for that year and taxed at your marginal rate.
Example: 5-year hold. Bought $600k, sold $850k. Salary $180k
The 50% discount effectively halves the tax bill on a long-held property. It's the single most valuable feature of the Australian CGT regime for property investors.
How CGT works from 1 July 2027
For property acquired after 12 May 2026 7:30pm AEST, or for the post-1 July 2027 portion of any gain on properties held through the cutoff, the 50% discount is replaced with:
- Cost-base indexation. Your original purchase price adjusts upward for CPI over the holding period. Only the gain above CPI-adjusted cost is taxable.
- 30% minimum inclusion. Whatever the CPI calculation shows, at least 30% of the raw gain is included as taxable. Prevents zero-tax outcomes in high-inflation scenarios.
Same example, under new rules
Bought post-1 July 2027 for $600k. Sold 5 years later for $850k. CPI 3.2%/yr
Slightly more tax than the old regime in this scenario ($57k vs $53k). If inflation had been lower (say 2%), the indexation would have been smaller, the 30% floor would apply, and the tax bill would be closer to $31.7k, actually less than the old regime.
The counterintuitive result. In LOW inflation periods, the new regime may be more favourable than the old 50% discount. In HIGH inflation periods, the 30% floor bites. The old 50% discount was simple and predictable. The new system is more sensitive to macroeconomic conditions over your holding period.
Split-treatment for pre-cutoff holdings
This is where it gets interesting. If you own a property that spans the 1 July 2027 cutoff, your gain is split into two portions:
- Pre-cutoff portion: capital gain accrued from purchase to 30 June 2027. Old 50% discount rule applies.
- Post-cutoff portion: capital gain accrued from 1 July 2027 to sale. Indexation + 30% floor applies.
Worked example
Bought 2020 for $500k. 30 June 2027 valuation $850k. Sold 2032 for $1.15M
Pre-cutoff portion (2020 to 30 June 2027)
Post-cutoff portion (1 July 2027 to 2032, 5 yrs)
Total CGT under split-treatment: $145,026. Under the pre-reform regime (50% discount on the whole gain), it would have been ~$140,000. Close but slightly worse under the new system for this specific holding period + inflation combo.
The 30 June 2027 valuation matters
Notice the whole calculation above hinges on the 30 June 2027 valuation of $850k. That number splits which portion of your total gain goes into "legacy" versus "new-regime" buckets.
If you don't have a professional valuation dated 30 June 2027, the ATO's default fallback is straight-line time apportionment. Meaning the gain is split proportionally to holding period.
Same property, straight-line apportionment if no valuation
Straight-line apportionment cost this owner ~$7,000 MORE than a professional valuation. On typical portfolio sizes, that number scales rapidly.
Action item. If you own or plan to hold Australian residential investment property through 1 July 2027, budget $500-800 for a professional valuation dated as close to 30 June 2027 as possible. It could save you tens of thousands over the holding period. Document it, keep it in your CGT file, hand it to your accountant at sale time.
The new-build election
Owners of qualifying new-build properties can elect to apply the old 50% discount to the entire gain, even for the post-1 July 2027 portion. This is a permanent election made at sale, not at purchase.
New-build qualification (same as the negative gearing carve-out):
- Vacant land with new dwelling constructed
- Demolition + replacement with greater dwelling count (e.g. house → 3-unit block)
- Does NOT include knock-down-rebuild same-count
- Does NOT include substantial renovations of existing dwelling
This carve-out is designed to steer investor demand toward new housing supply. It also creates a modelling variable: if you have new-build eligibility, you have optionality on the sale.
Strategic implications
1. Model holding periods carefully
Under the old regime, longer holds always won. Under the new regime, the maths depends on inflation trajectory and your marginal rate at sale. Two identical properties with different holding periods can produce very different CGT outcomes now.
2. Get valuations dated 30 June 2027
Not optional. Every property you plan to hold through the cutoff needs one. Cost is trivial ($500-800). Miss cost is 5-10x higher.
3. Consider harvesting gains pre-cutoff
For properties you were planning to sell in the next 3-5 years anyway, doing it before 30 June 2027 locks in the full 50% discount. Not a reason to sell a good property early, but a reason to accelerate decisions that were already on your radar.
4. Track your own CPI series
The indexed cost base grows with CPI. If you're doing back-of-envelope modelling, use the ABS quarterly CPI series. StratMap bakes in the exact ABS data through 2026 and projects forward using RBA target inflation.
Common misconceptions
"The 50% discount is being abolished"
Not exactly. It stays for pre-cutoff gains on properties you already own. It's replaced only for post-cutoff acquisitions and the post-cutoff portion of legacy holdings.
"I need to sell before 1 July 2027 to keep the discount"
No. Your pre-cutoff gain keeps the discount even if you sell in 2035. The cutoff affects when the calculation methodology changes, not when the tax treatment expires.
"New build gets a permanent 50% discount"
Only if you elect it at sale. The election is available, not automatic. Your accountant should model both options at disposal and pick the lower-tax outcome.
"Cost-base indexation is a new invention"
It's actually a return to pre-1999 CGT rules. Indexation was the original CGT mechanic; the 50% discount replaced it as a simplification. The 2026 reform reintroduces indexation with the modernisation of a 30% minimum floor.
The compliance frame. Every CGT calculation depends on your specific holding period, entity structure, marginal tax rate, and available deductions. This article shows methodology, not personal outcomes. Use a registered tax agent for actual planning around disposal.