Property, CGT & Negative Gearing
CGT Discount Method
A concession that allowed individuals to reduce their assessable capital gain by 50% for assets held longer than 12 months before sale, reducing the tax payable on long-term investments. As of 1 July 2027, this has been replaced by a cost base indexation approach - see the note on the transition below, since many assets sold after that date will still use the discount method for part of their gain.
A brief history
Australia introduced CGT in 1985 under the Hawke Government - before that, most capital gains weren't taxed at all. From 1985 to 1999, the system worked quite differently to what most people are familiar with today: the cost base of an asset was indexed to inflation (so only the "real" gain, above and beyond CPI, was taxed), and a five-year averaging rule spread a large one-off gain across multiple years for tax-bracket purposes, so it didn't get taxed all at once at a punishing marginal rate.
In 1999, the Howard Government's Ralph Review of Business Taxation recommended scrapping both indexation and averaging in favour of a much simpler mechanism: a flat 50% exclusion of the gain. This took effect for any CGT event happening after 11:45am AEST on 21 September 1999. For assets already held at that point, transitional rules let taxpayers choose whichever method produced less tax - the frozen indexation method or the new discount method.
Why it was brought in
In plain terms: the old system was seen as too complex, and Australia's CGT was considered unusually harsh compared to other countries - one estimate put the effective tax rate on a comparable share sale at around 47% in Australia versus roughly 20% in the UK and US. The government wanted to encourage more buying and selling of Australian shares and property, since the old rules created a "lock-in" effect where people held onto assets longer than they otherwise would, just to avoid a big tax hit. A simpler, flatter concession was intended to get capital moving again and make Australia more competitive for investors.
What it really is
Despite the name, "discount" isn't a discount rate applied to your tax bill - it's simply that half of your capital gain is excluded from your assessable income entirely. You only pay tax on the remaining 50%, at your normal marginal rate. It has nothing to do with actual inflation or how long past the 12-month mark you held the asset - someone who holds a share for 13 months gets exactly the same 50% exclusion as someone who held it for 30 years. "Discount Method" is really just the name given to this approach to distinguish it from the old indexation method it replaced (which is why some pre-1999 assets could still technically choose between the two). The rate also varied by entity type: 50% for individuals and trusts, 33.33% for complying super funds, and companies couldn't access it at all.
When it's calculated
The discount was applied at tax time, in the financial year the CGT event happened - not annually as the asset appreciated, and not when the sale settled. Specifically, it's the date of the sale contract (not settlement) that determines which financial year the gain falls into. You work out your total capital gain for the year, net off any capital losses first, then apply the 50% exclusion to what's left, and report the resulting net capital gain in that year's tax return, where it's taxed at your marginal rate alongside your other income.
What replaced it, and how the transition works
The 50% discount was formally replaced by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, passed by Parliament on 25 June 2026 and given royal assent on 26 June 2026. From 1 July 2027, individuals, trusts and partnerships move to a cost base indexation model (only the inflation-adjusted "real" gain is taxed) plus a new 30% minimum tax on that real gain. Super funds and companies are unaffected - this change applies specifically to the individuals/trusts/partnerships cohort that previously used the discount method.
The important detail for anyone holding an asset across that date: the change isn't retrospective. Gains are split at the boundary. For an asset bought in 2020 and sold in, say, 2029:
- The portion of the gain that accrued from 2020 up to 30 June 2027 is still assessed under the old 50% discount method.
- The portion of the gain accruing from 1 July 2027 onward is assessed under the new indexation + 30% minimum tax method.
In effect, the asset's market value as at 1 July 2027 becomes the effective cost base for the "new regime" portion of the calculation, so the total gain on an eventual sale is really two gains stitched together, each taxed under the rules that applied while it was accruing.
Related terms
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