The level of media misinformation following the 2026 Federal Budget has reached new record levels, so let’s take some time to look at the reality of the impact of the changes*.
Example 1
- David, bought an investment property in 1995 for $950,000
- It is currently worth $1.75m
- The property has always been an investment property
- David is currently, and has always been and Australian resident
- His acquisition costs were $25k
- His disposal costs are $30k
- He has made no capital improvements to the property and has claimed no Capital Works deductions against his rental income
|
SALE BEFORE BUDGET NIGHT |
SALE AFTER BUDGET NIGHT BUT BEFORE 1 JULY 2027 |
|
| GROSS TAXABLE GAIN $ |
745,000 |
745,000 |
| DISCOUNTED GAIN $ |
372,500 |
372,500 |
So, if David sells his property before 1 July 2027, nothing has changed from a tax perspective.
Example 2
The facts are the same as for Example 1 except for:
- David sells the property in June 2029
- The sale price is $1.95m
- The disposal costs are $35k
- The property is valued at $1.8m on 1 July 2027
- The indexation factor from 1 July 2027 to June 2029 is 8%
The gain is split into two parts:
- The part accruing up to 1 July 2027 and
- The part accruing from 1 July 2027 to 30 June 2029 (the date of sale)
The pre-1 July 2027 gain is calculated as:
|
$ |
||
| Proceeds |
1,800,000 |
|
| Base Cost: | ||
| Purchase Cost |
(950,000) |
|
| Acquisition Costs |
(25,000) |
|
| Disposal Costs (proportional) |
(32,307) |
|
| Total Base Cost |
(892,693) |
|
| Gain before Discount |
907,307 |
|
| Less Discount |
(453,653) |
|
| Taxable Gain
(taxed at David’s marginal income tax rates) |
453,654 |
The post-1 July 2027 gain is calculated as:
|
$ |
||
| Proceeds |
1,950,000 |
|
| Base Cost: | ||
| Value at 1 July 2027 |
(1,800,000) |
|
| Indexation from 1 July 2027 to Sale |
(144,000) |
|
| Disposal Costs (proportional) |
(2,693) |
|
| Total Base Cost |
(1,946,693) |
|
| Taxable Gain
(min tax rate on this gain 30%) |
3,307 |
So, the total taxable gain is $456,961.
David still got his CGT discount on the part of his gain accruing up to 1 July 2027, he made an investment decision to continue to hold the property past that date, so part of his gain is subject to the new indexation and minimum tax rate.
The impact of new rules will depend on:
- How long the property is held in total before sale and what proportion of the ownership is pre and post 1 July 2027
- The valuation of the property at 1 July 2027
- The indexation rate applicable to the post 1 July 2027 period – which will be impacted by inflation
Example 3
- Jenny inherited an investment property from her grandfather
- Her grandfather had acquired the property in 1980 for $50,000, before the introduction of CGT – so it is a pre-CGT property
- Jenny is Australian-resident and her grandfather was Australian-resident for his whole life too
- If Jenny sold the property before 1 July 2027, the gain would have been exempt from tax but she retains the property and sells it on 30 June 2030 for $3.5m
- The property was valued 1 July 2027 at $3m
- The indexation factor from 1 July 2027 to 30 June 2030 is 11%
The gain accruing to 1 July 2027 $3,000,000 – $50,000 = $2,950,000 remains exempt from tax.
The gain accruing from 1 July 2027 is calculated as follows (ignoring expenses):
|
|
$ |
|
| Proceeds |
3,500,000 |
|
| Less Base Cost: | ||
| Value at 1 July 2027 |
(3,000,000) |
|
| Indexation from 1 July 2027 to Sale |
(330,000) |
|
| Total Base Cost |
(3,330,000) |
|
| Taxable Gain
(min tax rate on this gain 30%) |
170,000 |
Summary
From the above examples you can see that the position existing up to budget night is preserved for gains accruing up to 1 July 2027. So, property owners who do not want to be impacted by the new rules have time to divest of their properties, if they wish.
If they choose to retain their assets past 1 July 2027 then they will be impacted by the new rules but only on the part of the gain accruing from this date.
So, you can see that the valuation of the property at this date will be important.