Potential CGT changes in Australia

The Labor Government’s political positioning around “intergenerational equity” has been focussing on changes to the Div 296 Superannuation Tax changes as well as the broader Capital Gains Tax (CGT) and negative gearing reforms. This article discusses the potential CGT changes.

Many political analysts think some form of CGT reform is more likely now than ever. The potential changes being discussed are:

• reduce the 50% CGT discount

• move back toward inflation indexation

• change negative gearing rules

• apply different treatment to existing vs new assets

CGT reform not yet confirmed as law

The Federal Government must move through a formal process before any reforms become law. While recent media commentary has increasingly framed these proposed changes as inevitable, they would still need to progress through a lengthy policy, legislative and parliamentary process before taking effect.  

Step one

The first stage is policy development within the Government and Treasury. This includes economic modelling, Cabinet discussions, consultations with advisers and industry groups, and the development of possible reform options. This phase is underway. 

Step two

The second stage is a formal Government announcement. Media speculation of when this will occur is when the Australian Federal Budget is handed down tomorrow on the 12th of May. At this point, the Government would normally outline what changes are proposed, who may be affected, whether grandfathering provisions apply and the intended commencement date.

Step three

Once policy settings are determined, draft legislation must then be prepared. For tax reform, this is a highly technical process requiring detailed legal drafting around transitional arrangements, trust and company treatment, valuation methodologies, anti-avoidance provisions, and commencement rules. This stage is yet to commence. 

Step four

The next phase is the parliamentary process itself. Any proposed legislation must be introduced into the House of Representatives, debated and passed before moving to the Senate. This is often where significant amendments occur, particularly where the Government requires support from crossbench senators. This stage is yet to commence. 

Step five

Finally, if legislation passes both Houses of Parliament, it receives Royal Assent and becomes law. This stage is yet to commence and the earliest expected commencement of this law would be 1 July 2027.

How can I prepare?

The most prudent response to potential CGT reform is rarely rushed restructuring or panic selling. Instead, the focus should be on scenario planning, maintaining flexibility and preserving optionality until there is greater legislative certainty. Reacting too early can sometimes create more risk than the reform itself, particularly where restructurings may inadvertently trigger capital gains tax, stamp duty, land tax consequences or compromise long-term succession and asset protection strategies. 

Long held assets

With a large portfolio of investment properties or listed equities acquired decades ago there may be substantial unrealised gains embedded. Rather than immediately selling assets in anticipation of a possible reduction in the CGT discount, instead undertake detailed modelling across multiple scenarios, including:

• comparing the outcome of selling under the current rules versus retaining the assets under a revised tax regime

• assessing liquidity needs

• identifying which assets remain strategically important for future generations versus those that may no longer align with the family’s long-term objectives

Ownership structures

Review ownership structures to understand where flexibility exists. For instance, when growth assets are held personally it may be beneficial to model the long-term implications of holding future investments through discretionary trusts, family investment companies or other structures. 

Future plans

Where a family business or major asset is approaching a potential liquidity event over the next three to five years it may be worthwhile revisiting succession plans, reviewing shareholder agreements and assessing whether there may be merit in accelerating or delaying certain transactions depending on the eventual structure of any reform. 

Importantly, these discussions are often broader than tax alone. They incorporate governance, intergenerational fairness, liquidity planning, philanthropic objectives and long-term stewardship considerations. 

Conclusion

I don’t want to keep going on about it but families best positioned to navigate periods of policy uncertainty are usually those with strong governance structures, clear decision-making processes and integrated advice across legal, tax, investment and family domains. During significant legal reforms like this, optionality itself becomes a strategic asset. 

Speak to your family office staff, CFO, external accountants and lawyers to commence this scenario planning process.

Disclaimer: This is general information only and does not constitute financial or professional advice.