Key Highlights

  • From 1 July 2027, resident individuals will lose the 50% capital gains tax discount and instead get inflation indexation of their cost base, alongside a 30% minimum tax, under.
  • indexation is not available if an individual is a foreign resident or temporary resident at any time between the later of 1 July 2027 and the date they acquired.
  • That test is broad.
  • In practice, access to the new inflation protection would depend not only on where someone lives when they sell, but on where they lived at any point during the.

From 1 July 2027, resident individuals will lose the 50% capital gains tax discount and instead get inflation indexation of their cost base, alongside a 30% minimum tax, under the already-enacted Tax Reform No. 1 Act 2026. Australians living overseas and temporary visa holders will not get the indexation. According to MLC's analysis, even a short spell as a foreign resident after July 2027 could rule it out. Parliament returns on 12 October with part-year resident rules unfinished.

Who misses out on indexation

indexation is not available if an individual is a foreign resident or temporary resident at any time between the later of 1 July 2027 and the date they acquired the asset, and the date of the capital gains tax event, which is usually the sale.

That test is broad. On MLC's reading, it catches long-term expats and temporary visa holders, and it can also catch an Australian who leaves for an overseas job for part of the time they own the asset.

In practice, access to the new inflation protection would depend not only on where someone lives when they sell, but on where they lived at any point during the post-2027 ownership period.

How indexation will work for residents

Indexation lifts an asset's cost base for inflation, so tax applies to the real gain rather than the nominal one. According to MLC, the indexed amount of each cost element is that element multiplied by the consumer price index for the quarter of sale, then divided by the index for the quarter in which the cost was incurred.

Indexation runs only from 1 July 2027. The National Tax and Accountants' Association (NTAA) says only expenditure from that date is indexed, so "a 2004 purchase gets no indexation for earlier years". For assets held before then, growth to 30 June 2027 keeps the 50% discount through a deemed sale at market value, with no tax payable until a real sale.

The government's Budget explainer shows how the two parts combine for a resident called Jane. She bought a property for $800,000 in 2022. It is worth $1,131,371 on 1 July 2027 and she sells it for $1.6 million in 2032.

Hypothetical example: a two-year posting overseas

Hypothetical example: an Australian resident buys shares for $100,000 in September 2027 and sells them for $130,000 in September 2031. Assume the consumer price index is 140.0 in the purchase quarter and 151.2 in the sale quarter, a rise of 8%.

If she stays a resident throughout, her indexed cost base is $100,000 multiplied by 151.2 and divided by 140.0, which is $108,000. Her real gain is $130,000 minus $108,000, or $22,000, and that is the amount subject to the 30% minimum tax rules.

Now suppose she takes a two-year job overseas in 2029 and is a foreign resident for that period. On MLC's reading, she cannot index the cost base at all, because she was a foreign resident at some time after acquiring the shares.