Chalmers overhauls negative gearing, CGT discount

Treasurer Jim Chalmers has affirmed the highly anticipated overhauls to the capital gains tax (CGT) discount and negative gearing in a bid to "level the playing field for first home buyers."

The 50% CGT discount will be replaced with inflation-adjusted indexation as the federal government seeks to restore the taxation of real gains. This takes back the CGT discount to the pre-1999 framework where the cost base of an asset is adjusted for inflation. The new rules will apply from 1 July 2027.

The 50% CGT discount for individuals, trusts and partnerships will be replaced with cost base indexation and a 30% minimum tax rate.

"Cost base indexation will ensure that in future, only real capital gains are subject to tax, encouraging investment to flow to where it's most productive," Chalmers said.

"The minimum tax will complement these changes by reducing incentives to hold onto assets to realise a gain when it's most tax advantageous. The minimum tax will also support more consistent taxation of lifetime income by aligning the tax rate on real capital gains with the marginal tax rate faced by the average worker."

Chalmers introduced transitional arrangements to limit the impact on existing investments.

Investors who acquire new homes will be able to choose either the 50% CGT discount or the new arrangements when they sell the property.

Negative gearing reforms are also set to take effect on 1 July 2027.

Residential property will be limited to "new builds that genuinely add to housing supply."

Properties held as of 12 May 2026, meanwhile, will be exempt and arrangements will not change for existing investors.

Investments that support government housing programs, for example, through the provision of affordable housing, will also be exempt.

Chalmers said reforms to negative gearing and CGT are "prospective and respect previous investment decisions and will not impact the main residence CGT exemption or superannuation tax arrangements."

The exemption of superannuation was met with resounding relief.

The Association of Superannuation Funds of Australia (ASFA) chief executive Mary Delahunty said this is a win for 19 million Australians with a super account, who value stability in super's tax settings.

"Super offers every Australian a deal: if you set aside money for your retirement and reduce your future reliance on the age pension, you are rewarded by paying less tax. Australians rightly expect those tax concessions to remain stable, and that's what this Budget has delivered," Delahunty said.

For the next steps, Chalmers will consult with stakeholders on key details of the CGT reforms, including the treatment of early-stage and start-up businesses given the "unique features of the tech and start-up sector."

He calculates the changes to support some 75,000 additional first home buyers into the market over the next decade.

"Combined with additional housing supply measures, this Budget will support up to 30,000 new homes over the same period, and more as the benefit of productivity-enhancing reform flows through into the housing market," he said.