What the 2026 Budget CGT Changes Mean for ETF Investors

If you have followed the news or online discussion this year, you will have seen the panic: "Should I sell before the deadline?", "Is the ETF strategy dead?", "Is my FIRE date ruined?" The 2026 Budget changed how capital gains are taxed, and for people who hold ETFs for the long haul, that is worth understanding properly.

The good news is that the real change is smaller and slower-moving than the headlines suggest. This guide walks through what happened, who it affects, and a worked example with numbers.

What actually changed

In the May 2026 Budget, the government announced it would replace the 50% capital gains tax (CGT) discount with cost base indexation and add a minimum 30% tax on capital gains. The legislation (the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026) cleared both houses of Parliament on 25 June 2026, so this is no longer a proposal.

Here is the plain-English version.

The old system: the 50% discount

If you sold an asset you had held for more than 12 months, only half the gain was added to your taxable income. A $10,000 gain was taxed as $5,000 of income, at your marginal rate.

The new system: indexation plus a minimum tax

From 1 July 2027, for individuals, trusts and partnerships, the discount is replaced by:

• Cost base indexation. Your purchase price is adjusted up for inflation, so only the "real" gain above inflation is taxed.
• A 30% minimum tax on net capital gains, with certain exemptions (for example, some income support recipients).

Assets still need to be held more than 12 months to qualify for the indexation method.

How cost base indexation works

Your "cost base" is mostly what you paid for the asset (plus brokerage). Normally, your capital gain is the sale price minus that cost base. Indexation changes the cost base before you subtract it: it is increased by the amount of inflation over the time you held the asset.

The idea is simple. If prices across the economy rose 12% while you held your ETF, then $10,000 of purchase price is treated as if it were $11,200 when working out your gain. Only growth beyond that 12% is taxed. In other words, you are taxed on real growth, not growth that just kept pace with the cost of living.

The calculation has three steps:

When this kind of indexation was last used in Australia (for assets bought before 1999), the inflation index was the Consumer Price Index (CPI), measured quarterly. The exact index and rounding rules for the new system should be confirmed in the final legislation and ATO guidance. For planning, you can approximate it using an average annual inflation rate:

For example, at 2.5% inflation over 5 years, the factor is about 1.025 to the power of 5, which is roughly 1.13. A cost base of $80,000 becomes about $90,500.

Two things to remember. First, indexation can only reduce your gain to zero; it cannot create a capital loss. Second, it rewards you more the longer you hold and the higher inflation runs, but it gives nothing for the part of your return that is real growth.

The start date matters most

The changes apply to gains from 1 July 2027 onwards. Gains that built up before that date keep the 50% discount. Reporting on the exact transition mechanics (such as how the 1 July 2027 value is fixed) varies between sources, so watch for ATO guidance on this.

In other words, nothing changes for a sale you make before 1 July 2027, and the part of your gain earned before that date is protected.

Who is affected

The key point for ETF investors: only the money you hold outside super is affected. Inside super, the tax rules for gains are separate. If you are weighing up where to invest, our guide to the ultimate guide to ETFs covers the basics, and FIRE 101 explains why the bucket you invest in matters.

A worked ETF example

Let's use a broad ASX ETF as an example. These numbers are illustrative only. We assume inflation of 2.5% a year and a marginal tax rate of 32% (30% plus the 2% Medicare levy). We also ignore the effect of the gain pushing you into a higher bracket.

The investment:

• You buy $50,000 of an ETF in 2022.
• On 1 July 2027 it is worth $80,000. (Gain so far: $30,000.)
• You sell on 1 July 2032 for $110,000. (Gain after: $30,000.)

Under the old rules

The 50% discount applies to the whole gain.

Under the new rules

The first $30,000 of gain (before 1 July 2027) keeps the 50% discount. The second slice is taxed after indexation. We work out each slice separately, then add them up.

Slice 1: gain before 1 July 2027

Slice 2: gain after 1 July 2027

Total tax under the new rules

The 30% minimum tax would be roughly $5,850 on the real gain, which is below $6,240. So at a 32% marginal rate the minimum does not bite. It matters mostly for people with low taxable income in the year they sell.

What this tells you

In this example the new rules cost about $1,440 more in tax on a $60,000 total gain, or roughly 2.4% of the gain. That is real, but it is not a catastrophe. Your result will differ depending on:

• How long you hold after 1 July 2027 (the longer the hold, the more the post-2027 slice matters)
• Inflation over that time (higher inflation means more indexation and less tax)
• Your income in the year you sell
• How much of your gain was built up before the cutover

A useful rule of thumb: indexation protects you from being taxed on inflation but gives up the "free" 50% cut. When returns are well above inflation, as they usually are for equities over long periods, the discount tends to be the better deal. That is why the change is a modest headwind rather than a killer.

Should you rush to sell before 1 July 2027?

This is the question behind most of the online discussion. Selling early to "lock in" the discount has real costs:

• You trigger tax now. You pay tax years earlier than you otherwise would have, losing the compounding on that money.
• You may bump your tax bracket. Realising a large gain in one year can push you into a higher rate.
• Your protected gain is already protected. Gains earned before 1 July 2027 keep the discount even if you do not sell. You do not need to sell to keep it.
• You risk poor timing. Selling and re-buying means being out of the market, plus brokerage and possible tracking differences.

For most long-term index investors, selling purely because of this change is likely to cost more than it saves. The people who may have something to think about are those with very large unrealised gains, a short time horizon, or unusual income patterns. If that is you, a one-off chat with a tax agent is worth the fee.

Calm, long-term responses that make sense

You cannot control tax law. You can control a few things:

1. Keep investing in the same low-cost, diversified ETFs. Our model portfolios guide is still a sound starting point.
2. Keep good records. Note your purchase dates and amounts. Records of value around 1 July 2027 will be useful.
3. Think about where you invest. Super, a spouse's lower-income tax position, and the timing of your retirement all influence tax more than this change does.
4. Plan sales gradually. In retirement, selling a little each year can keep gains in lower tax brackets and smooth things out.
5. Avoid reacting to headlines. As we cover in Investing vs Trading, long-term results come from staying the course, not from timing the rules.

Conclusion

The 2026 Budget CGT changes are real and legislated, and they start on 1 July 2027. They replace the 50% discount with indexation and a 30% minimum tax, and they apply only to gains from that date onward. For a typical ETF investor holding for decades, the effect is a modest increase in tax on future gains, not a reason to abandon the strategy.

Your next step: check how much of your portfolio sits outside super, keep your records tidy, and keep contributing as planned. If you hold large unrealised gains or you are close to retirement, book a short session with a registered tax agent to run your own numbers. Everything else is noise.