How cost base indexation will work after 1 July 2027

What changes on 1 July 2027

For more than 25 years, an individual or trust selling a business interest held for at least 12 months has usually been able to halve the capital gain. That 50% CGT discount is being replaced. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which is now law, gains that build up from 1 July 2027 are no longer halved. Instead, the cost base is indexed to inflation, and Australian resident individuals generally pay at least 30% tax on those gains.

The change is not retrospective. Growth in value up to 1 July 2027 can still get the 50% discount when you eventually sell. Only the growth after that date is treated the new way. So for most owners who hold a business interest across that date, one future sale produces a gain in two parts, each with its own rules.

What indexation actually does

Your cost base is, broadly, what you paid for an asset plus certain costs of buying, improving and selling it. Your capital gain is the sale price less the cost base. Indexation increases the cost base in line with the Consumer Price Index (CPI), the inflation measure published by the Australian Bureau of Statistics. The higher, indexed cost base is then taken away from the sale price.

You are taxed on the real gain, not the part that only keeps pace with prices. If prices rose 15% while you held an asset, the first 15% of growth on your cost base is not taxed. Anything above that is taxed in full.

• Most cost base spending, but not ownership costs, is indexed from the quarter it is incurred, if you held the asset at least 12 months.
• For an interest held before 1 July 2027, the starting cost base for the new part is its value just before that date, worked out by valuation or an apportioning method (once one is made).
• The indexed part of the gain gets no 50% discount. Indexation replaces the discount for that part; it does not sit on top of it.

The exact index numbers, periods and rounding come from the legislation, and your tax adviser applies them. Your part is to keep dated records of spending on the interest from 1 July 2027.

How one sale is split in two

The Act treats Australian resident individuals, and trusts with at least one eligible beneficiary, as if they sold each relevant CGT asset just before 1 July 2027 and bought it back on 1 July 2027. Nothing is actually sold and no tax is payable at that point. The gain on that deemed sale is held over until a later CGT event, usually a sale.

1. 01The part before 1 July 2027Market value just before 1 July 2027, less your original cost base. The 50% discount still applies to this part when you sell, if you meet the usual conditions.
2. 02The part from 1 July 2027Your eventual sale price, less the 30 June 2027 value as indexed for inflation. No discount applies to this part.
3. 03At the real saleBoth parts are worked out and reported in the tax return for the year of the real sale. That is also when you choose between a market value and an apportioning method, if one has been made.

The value just before 1 July 2027 is the hinge. It is where the discounted part ends and the indexed part begins. That is why the valuation date for this purpose is 30 June 2027.

A worked example in round numbers

The part that built up before 1 July 2027 is still halved. And the 30 June 2027 figure decides how much of the gain falls on each side of the line, so a different starting value changes both parts at once. That is why it needs to be a supportable market value, not a high or low guess.

When indexation gives more relief, and when it gives less

The old discount halved the whole gain, however large. Indexation only removes inflation. So the more an asset grows above inflation, the bigger the gap between the two approaches. In broad terms, indexation produces a smaller taxable gain only when the asset's growth is less than about twice the inflation over the same period.

For a business you expect to grow strongly, more of the post-2027 gain is generally taxed than under the old discount. There is no choice between the two for gains after 1 July 2027.

The 30% minimum tax on capital gains

The second half of the change is a floor on the tax rate. Under a new Division 119, Australian resident individuals generally pay tax at a rate of at least 30% on capital gains from CGT events on or after 1 July 2027. It matters most in a year when your other income is low, such as the year after you step back from the business, when part of a gain might otherwise have been taxed at a lower marginal rate.

• It applies to individuals, not to trusts or partnerships as entities. A trust gain is caught when it flows to a resident individual beneficiary.
• There is an exception for people who received certain listed payments during the year, such as the age pension.
• Companies are outside it. Company tax rates apply as before.

Where a 30 June 2027 valuation fits

No law requires a valuation. A draft apportioning method, limited to some assets, may be an alternative; the choice would be made in the return for the year you sell. A draft method was released for consultation in August 2026 and had not been finalised at the time of writing. The small business CGT concessions also continue where the conditions are met. Whether a valuation suits you is a question for your tax adviser.

Where a market value is used, the 30 June 2027 figure closes off the discounted part and becomes the starting point for indexation. A reasoned, documented valuation from your records to that date gives you and your adviser a figure you can explain if questioned.

Independent Business Valuation values businesses and business interests, including private company shares, trust interests and partnership interests. A valuation as at 30 June 2027 is prepared after that date, once your records to 30 June 2027 are available. You can book your place now. We charge one fixed fee of $999 + GST for a full valuation report on one business or ownership interest with annual turnover under $10 million. The fixed fee applies once we confirm the interest, purpose, structure and records fit the fixed-fee scope. Anything outside it is quoted in writing before we start. Fixed fee, confirmed in writing before we start. No hourly billing and no surprises. We do not give tax advice, and no valuation can make the ATO accept a figure.

What you can do now

1. 01Find your cost base recordsPurchase documents, share registers and the costs of buying and improving the interest. Part 1 of your gain depends on them.
2. 02Map who owns whatList each interest and whether a person, trust or company holds it. The rules differ for each.
3. 03Talk to your tax adviserAsk whether a market value or an apportioning method (once one is made) suits each interest, and how the 30% minimum tax may affect a sale.
4. 04Keep dated records from 1 July 2027Indexation runs from when each amount is spent, so the date matters.