The Capital Gains Tax (CGT) discount is back in the spotlight ahead of the Federal Budget in May. No changes have been announced or confirmed, but the debate is active and it’s worth understanding what is being discussed.

What is the CGT Discount?

If you sell an investment asset (eg, shares or an investment property) after holding it for 12 months or more, you generally only include 50% of the capital gain in your taxable income.

What Reforms are Being Floated?

While nothing is settled, the main ideas being talked about publicly include:

• Reducing the discount rate from 50% to a lower percentage
• Changing how gains are calculated, including the discussion of approaches that better account for inflation (often raised as an alternative to a flat discount)
• Whether any change would only apply to future purchases or apply more broadly from a start date

What This Could Mean For Investors?

If the discount is reduced, the practical impact is straightforward: a larger portion of your capital gain becomes taxable in the year you sell.

This can lead to:

• Higher tax on disposal, particularly for large gains realised in a single year
• Greater importance of timing, because a sale date could affect which rules apply (if reforms are introduced with an effective date)
• More sensitivity to marginal tax rates, especially for clients with large portfolios or substantial one-off gains
• Even more value in accurate cost base records, because every legitimate cost base adjustment reduces the taxable gain.

Why is the Government Considering It?

One driver is budget impact, recent commentary has highlighted large “revenue foregone” estimates over time. Another is distribution, analysis suggests a significant share of the benefit flows to higher-income taxpayers, which keeps the policy debate alive.