The Albanese government plans to replace the 50% capital gains tax discount on assets held longer than 12 months with a system that taxes the full real gain after adjusting for inflation.
What the new model would look like
Under current rules, individuals and trusts can exclude half of any capital gain from tax if they've held the asset for more than a year. The proposed model flips that: investors would first subtract the effect of inflation from their nominal gain, then pay tax on the entire remaining real gain at their marginal rate.
Here's how it could work. Say someone buys a property for $500,000 and sells it five years later for $600,000. The nominal gain is $100,000. Today, with the discount, only $50,000 is taxable. Under the new plan, the government would adjust the purchase price for inflation. If prices rose 15% over those five years, the adjusted cost base becomes $575,000. The real gain is $25,000 — and that full amount would be taxed.
For investors in the top tax bracket, the difference is stark. The current discount effectively caps the tax rate on long-term gains at 22.5%. The new model would push it back toward 45% on the real portion.
How investors might be affected
The change targets asset holders who benefit most from the existing discount — particularly property investors and share traders. Owner-occupiers selling their primary home are exempt from capital gains tax entirely and wouldn't see a difference.
Lower-income investors with smaller marginal rates would face a smaller hit, but the shift still removes the blanket 50% reduction. Superannuation funds, which already enjoy a concessional tax rate, could also be affected depending on how the final legislation is written.
The timing matters. In periods of high inflation, the inflation adjustment would shrink the taxable gain significantly. In low-inflation years, the adjustment is modest, and the new model looks more like taxing the full nominal gain. That means the policy's impact will vary with the economic cycle.
Unresolved questions
The government hasn't released draft legislation or a timeline. Key details are still unknown: which inflation index will be used, whether there are transitional rules for assets bought before the change, and how the new rules interact with other parts of the tax system.
The proposal will need to pass parliament, where it's likely to face pushback from property and investment groups. For now, investors are left waiting for the fine print.
