The 50% CGT discount is set to be replaced by an inflation-based indexation system. From 1 July 2027, the long-standing CGT discount introduced in 1999 will shift to a new framework built around two key features:

1. cost-base indexation, which adjusts an asset’s original purchase price for inflation
2. a minimum 30% tax rate on capital gains.

The change is expected to apply to assets held for more than 12 months by individuals, trusts and partnerships. In many ways, this marks a move back toward the pre-1999 CGT system with the addition of new rules, but without the gain averaging system available under Keating-era tax rules.

Assume an investor starts with $100,000 in a single share or ETF and adds $1,000 per month for 10 years.

The investment earns a total return of 8.0% p.a., made up of 4.0% income and 4.0% capital growth. The investor’s marginal tax rate is 47%, inflation is assumed to be 2.5% p.a., and no franking credits are included.

Based on these assumptions, the calculator estimates:

In this example, the proposed indexation-based CGT rules leave the investor with $3,622 more after tax than the current 50% CGT discount system.

One important note — results can vary depending on the mix of income and capital growth. Higher-yield ETFs may look more favourable under indexation because less of the return may come from taxable capital gains at sale. However, income is usually taxed along the way, so the outcome still depends on yield, growth, inflation, franking credits, tax rate and holding period.

This is an estimate only. Results can change depending on returns, inflation, tax rate, income yield, franking credits and holding period. You should refer to the calculator’s Key Assumptions and Important Information.

There is no need to panic. The proposed changes do not take effect until 1 July 2027, which gives investors time to understand the new rules, seek advice if needed, and make any adjustments in a considered way. Decisions made under time pressure are rarely the best decisions. 

For investors holding assets outside super, index-tracking ETFs remain a structurally tax-efficient way to invest. ETFs generally support low turnover, broad diversification and long-term holding, all of which can help reduce unnecessary taxable events. Additionally, investors can allow capital losses within the ETF to offset capital gain, helping create a more tax efficient outcome.

The proposed changes make tax-triggering decisions, particularly unnecessary selling and portfolio turnover, more important to consider. But they do not change the underlying role that ETFs can play in a long-term portfolio.

The updates on CGT may change certain tax decisions, but it has not changed the fundamentals of long-term investing.

The following principles still hold true:

• Time in the market still matters
• Compounding still works
• Diversification still works
• Low costs remain an advantage
• Avoiding unnecessary trading may become even more important

For most investors, the key takeaway is not to react abruptly, but to review calmly. The right response will depend on your circumstances, your investment structure, your time horizon and your broader financial goals.