CGT changes - is 30 June 2027 a transaction deadline

From 1 July 2027 the 50% CGT discount for Australian resident individuals and trusts is replaced with cost base indexation, a 30% minimum tax on capital gains is introduced, and all pre-CGT assets (including those held by companies) are brought into the CGT regime. To transition to the new rules, CGT assets held at the end of 30 June 2027 are generally deemed to be sold just before 1 July 2027 and reacquired on 1 July 2027 at their market value (or at a value worked out under an apportioning method). 

Because the earliest direct tax impact does not arise until after 1 July 2027, it can be tempting to treat 30 June 2027 as a hard "deadline" by which transactions should be completed. In our view, it is generally not a deadline in that sense. The reforms do, however, make 30 June 2027 an important valuation and planning reference point, and there are particular circumstances - notably where a sale or a succession restructure is already genuinely contemplated in the short term - in which acting before 1 July 2027 may be preferable. This Alert summarises the CGT reforms and works through some of the practical considerations that should inform whether, and when, to transact. 

Our overarching theme is that normal commercial considerations should continue to drive decisions, informed by the new rules, rather than tax outcomes driving the commercial decision.

Background to the CGT reforms

The 2026-27 Budget reforms represent the most far-reaching overhaul of Australia's CGT regime since the CGT discount was introduced in 1999. From 1 July 2027 the rules change for almost every Australian resident individual and trust holding a CGT asset - cost base indexation returns in place of the CGT discount, a minimum rate of tax on capital gains is imposed, and the pre-CGT status of assets acquired before 20 September 1985 comes to an end. The measures are already enacted (on 26 June 2026 in Treasury Laws Amendment (Tax Reform No. 1) Act 2026), and exposure drafts of the second tranche of legislation dealing with further design elements, including the apportioning method, were released on 4 August 2026. 

There are additional design elements, including the treatment of small and start-up businesses, that remain subject to further consultation and legislation. We summarise below the key elements of the reforms.

Replacement of the 50% CGT discount with cost base indexation. For CGT events happening on or after 1 July 2027, the 50% CGT discount available to Australian resident individuals (including individual partners in a partnership) and trusts is removed and replaced with cost base indexation. Indexation applies to expenditure in each element of the asset's cost base other than the third element (costs of ownership), provided the asset has been held for at least 12 months, and the residency requirements are met. Indexation is not available to foreign or temporary residents, and existing settings continue to apply for companies, superannuation funds and life insurance companies. A significant consequence is that indexation is of limited benefit to assets with a low or nil cost base - for example, founder shares, interests in new and emerging companies, or internally generated goodwill - which is a marked contrast to the outcome that would have emerged under the current CGT discount on ultimate realisation. The small business CGT concessions continue to apply however the turnover threshold for the 50% active asset reduction has increased from $2 million to $10 million with effect from 1 July 2027, but not all taxpayers will meet the eligibility requirements.

Transitional deemed disposal and reacquisition. Assets held by Australian resident individuals and trusts on 30 June 2027 (including pre-CGT assets) are deemed to be sold just before 1 July 2027 and reacquired on 1 July 2027 at market value, or at an amount worked out under an apportioning method. Any gain or loss on the deemed sale (the initial notional gain or loss) is disregarded and deferred until a later realisation event happens to the asset. At that point, both the deferred pre-1 July 2027 component (calculated under the existing law, including any applicable 50% discount) and the post-1 July 2027 component (calculated using the indexed cost base) are brought to account. Importantly, the choice between using the market value of the transitioned asset and the value determined under the apportioning method does not need to be made until the taxpayer lodges the return for the income year in which the actual realisation event occurs. While this defers the decision, it also means taxpayers may hold assets for years without certainty as to the outcome of the deemed disposal at 1 July 2027.

Pre-CGT assets brought into the regime. As at 1 July 2027, all pre-CGT assets (i.e. those acquired before 20 September 1985) are deemed to be sold and reacquired at market value (the default), or under the apportioning method, and cease to be pre-CGT assets. This applies to all entities holding pre-CGT assets, including companies. Gains accruing before 1 July 2027 continue to be disregarded, but the new regime applies to any gain or loss arising on a subsequent disposal after that date. Taxpayers holding pre-CGT interests in unlisted companies or trusts will also need to consider CGT event K6, which the amendments effectively require to be tested at 1 July 2027 to determine whether a latent gain exists (broadly, where post-CGT property makes up at least 75% of the entity's net value). Any resulting K6 gain is crystallised at 1 July 2027 but the liability is deferred until a later realisation of the share or interest. This raises the practical need to value not only the pre-CGT shares or units but also the underlying entity's assets as at 1 July 2027.

30% minimum tax on capital gains. An additional amount of tax may be imposed to ensure a minimum effective rate of 30% on the post-1 July 2027 portion of certain capital gains made by certain Australian resident individuals (including individuals entitled to a capital gain from a trust), to the extent the gain is not already taxed at 30% or more under their marginal rates. Gains on new residential dwellings and affordable housing (where the entity chooses the discount) and gains made by certain income support recipients are excluded.

The deemed disposal and reacquisition means that, for most affected taxpayers, the market value of the asset as at 30 June 2027 becomes critical. It fixes the allocation between the pre-1 July 2027 gain (which retains the 50% discount) and the post-1 July 2027 gain (which is subject to indexation and the 30% minimum tax). A higher 30 June 2027 value increases the discounted pre-transition gain and reduces the fully taxed post-transition gain; a lower value does the reverse. 

For founders and others holding low cost base assets directly or through family trusts, establishing a well-supported value at that date is an important step in preserving the benefit of the CGT discount to accumulated value as at 1 July 2027.

The concept of market value that underpins this exercise is long settled. Market value is well understood as the price that would be agreed between a willing but not anxious seller and a willing but not anxious purchaser, each fully informed of the advantages and disadvantages of the asset and aware of prevailing market conditions. Even applying that well-accepted standard, a valuation remains somewhat subjective - it is an opinion rather than a precise figure, and a range of defensible values will usually exist for the same asset. For assets that are unlisted, unique or closely held, and particularly where value is driven by intangibles rather than readily observable market data, arriving at a value is more difficult and more open to differing views, including as between the taxpayer and the ATO. Contemporaneous, independent and well-documented valuation evidence will accordingly be far more persuasive on any later review than an under-supported figure.

The alternative to a formal valuation is the apportioning method. An exposure draft of the legislative instrument introducing the apportionment method was released on 4 August 2026. The method proposed operates by assuming the CGT asset grew at a compounding daily growth rate (or declined in value at a negative daily compounding rate) over the entire ownership period. The capital proceeds on the deemed sale at the end of 30 June 2027 are determined using this growth rate. This formula assumes that value accrues at a consistent compounding rate across the years when the asset is held. Real assets rarely behave that way. Where most of the growth in fact occurred in the earlier years, a linear apportionment will tend to overstate the value attributed to the post-1 July 2027 period and therefore the fully taxed gain; where growth has been concentrated in recent years, it may understate it. The convenience of the formula, i.e. no valuation cost and that it can be applied at the time of ultimate sale, therefore comes at the price of a result that may not reflect the asset's true value at 30 June 2027. Because the choice between the two methods can be deferred until the realisation event, taxpayers can keep their options open, but a valuation obtained close to 30 June 2027 will generally be difficult to reconstruct reliably years later.

Some taxpayers will already hold periodic valuations of some assets, whether for financing, financial reporting, employee share plans or shareholder reporting purposes. These will be relevant, but they were commissioned for different purposes, on different bases and at different dates, and should not simply be adopted as the market value for CGT purposes without careful review. Also, not all assets will require formal valuations. Listed securities and interests in managed funds should have an available valuation as at 1 July 2027 (unless specific circumstances exist such as control premiums which may be a reason for the value to differ from a listed price). Low value assets may not justify the valuation cost.

Tax should not drive commercial decisions or bring forward a disposal that would not otherwise occur. Rather, it should be ensured that strong valuation evidence is in place at, or as close as practicable to, 30 June 2027. Where a sale is genuinely contemplated in the short term, however, completing it before 1 July 2027 removes the valuation issue altogether, as the whole gain remains eligible for the existing 50% discount.

The removal of pre-CGT status at 1 July 2027 is particularly significant for long-established family groups and for succession planning. Assets that have been held (often within the same family) since before 20 September 1985 have to date been able to pass between generations, or be restructured, without a CGT cost on the historical gain. From 1 July 2027 that shelter ends. While gains on pre-CGT assets accruing up to 30 June 2027 remain disregarded, any transaction on or after 1 July 2027 involving a former pre-CGT asset will expose the post-1 July 2027 gain to CGT and therefore give rise to a real tax leakage for the family group.

For a family group that is ready to implement a generational transfer or an internal restructure of pre-CGT assets, and for which the transaction is otherwise commercially and personally appropriate, there may be advantage in completing it before 1 July 2027 while the pre-CGT exemption still applies to the current owner. However, the same caution applies here as elsewhere - tax should not drive succession decisions. Succession is a personal and commercial matter, and a family that is not ready - for example, because the next generation is not prepared, governance is unresolved, or relationships would be strained - should not be pushed into a premature restructure. Bringing forward a transaction that is not otherwise warranted can create its own costs and risks, including stamp duty and other State-based taxes, loss of asset protection, and family friction, which may outweigh the CGT saved.

There are several other considerations that may be relevant as to whether and when to transact. 

• The proposed 30% minimum tax on discretionary trusts (from 1 July 2028): for family groups that hold business or investment assets through a discretionary trust, this proposal may prove as significant as the CGT changes themselves. This change should be weighed alongside the CGT reforms. Refer to our Tax Alert on the proposed changes.

• Cost base: where the asset has a low or nil cost base - as is common for founder shares, start-up interests or internally generated goodwill - indexation will provide little relief, so the loss of the 50% discount is more significant. In this regard, we are waiting on the Government's final position on providing a form of relief for investments in start-ups.

• Capital losses: the order in which capital losses must be applied, changes under the new regime, with losses required to be used against discounted gains first. Losses that can currently be deployed efficiently may therefore be less useful afterwards, which is relevant to the timing of any realisation.

• Small business CGT concessions: the turnover threshold for the small business 50% CGT concession to apply increases from $2m to $10m from the income year that includes 1 July 2027 and later, bringing many mid-sized private groups within reach of the concession, subject to meeting the other basic conditions. For the other small business CGT concessions, the $2m turnover threshold still applies. For groups already contemplating a disposal, access to the small business 50% CGT concession may be worth factoring into planning discussions, alongside the commercial drivers of the transaction, if this concession is to be accessed.

• Non-tax costs and commercial factors: transaction costs, State-based taxes, the commercial merits of the counterparty and whether that gives rise to transaction uncertainty and the price available today should all be appropriately considered against the tax outcome achieved.

• Anti-avoidance: as is usual, the anti-avoidance provisions should be considered for any transactions contemplated.

For many founders and long-term investors, the emotional reaction to these changes will be significant. Many owners will have modelled their eventual exit on the assumption that only half of their gain would be taxed, and the prospect of full CGT on potentially more of the exit proceeds - rather than 50% - can prompt a strong reaction.

It is important to keep the change in perspective. Full CGT is payable only in respect of gains accruing after 30 June 2027; gains up to that date should continue to enjoy the existing treatment (including the 50% discount on the deferred pre-transition component), and cost base indexation may provide some relief on the post-transition gain, albeit little where the asset's cost base is low.

Our recommendation is that normal commercial considerations should continue to be applied, now factoring in the new rules, so that an informed decision can be made. Taxpayers should revise their forecasts to reflect the post-1 July 2027 settings - taking into account the latent capital gain built up to 30 June 2027, expected holding periods, the likely profile and timing of future returns, and the availability of any concessions.

On that analysis, 30 June 2027 is generally not a transaction deadline. It is a valuation and modelling trigger, and only in specific cases, such as where a sale or a succession restructure that is already genuinely on foot and commercially appropriate, will completing the transaction before 1 July 2027 potentially be more appropriate. In our view, the preferred path for most taxpayers is to scope the implications now, secure robust valuation evidence at 30 June 2027, ensure all relevant documentation is up to date (for example, CGT asset registers) and let commercial merit drive the ultimate decision.

If you would like to discuss what these changes mean for your circumstances, please contact your usual PwC adviser.