Updated 10 October 2026
Indexation adjusts a cost base upward with inflation so you are only taxed on real gains, not on the falling value of money. Australia used it from 1985, froze it in 1999 when the 50 per cent discount arrived, and has now legislated its return: from 1 July 2027, CPI indexation plus a 30 per cent minimum tax replaces the discount for individuals, trusts and partnerships. Owners of long-held assets are about to meet both versions in one calculation.
At a glance
- From 1 July 2027 the 50 per cent discount is replaced by CPI indexation plus a 30 per cent minimum tax for individuals and trusts
- Assets are deemed reacquired at their 1 July 2027 market value; indexation runs from that value
- Section 102-6 sorts gains into four categories that determine how each slice is taxed
- High-inflation periods favour indexation; the old discount was better in low-inflation years
- Your 1 July 2027 valuation sets the base every future indexed calculation grows from
In this guide
What indexation is
Buy an asset for $100,000, hold it while prices generally rise 30 per cent, and sell for $130,000, and you have made no real gain at all; your money simply kept pace with inflation. Indexation recognises that by multiplying the cost base by the movement in the Consumer Price Index between purchase and sale, so tax falls only on growth above inflation. It is the economically purer method. It is also more work than a flat discount, which is largely why it lost the argument in 1999 and why its return in 2027 comes with a minimum tax bolted on.
The old system, frozen in 1999
From the start of CGT in September 1985, cost bases were indexed by CPI. The Ralph reforms replaced that with the 50 per cent discount for assets sold after 21 September 1999 and froze indexation at the September 1999 quarter. The legacy version still exists today: a taxpayer who acquired an asset before 21 September 1999 can choose, at sale, between the discount on the unindexed gain or indexation frozen at 1999 levels with no discount. For assets bought in the late 1990s and held through decades of growth, the discount almost always wins, which is why frozen indexation is now mostly a museum piece that occasionally helps companies, which never had the discount at all.
The new regime from 1 July 2027
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, enacted 26 June 2026, ends the 50 per cent discount for individuals, trusts and partnerships from 1 July 2027 and replaces it with live CPI indexation of the cost base plus a minimum 30 per cent tax on gains accruing after that date, for assets held over 12 months. The transition runs through the deemed disposal in Subdivision 112-E: assets held at 30 June 2027 are deemed sold and reacquired at market value, so gains accrued under the discount era keep the discount, deferred to the actual sale, and only post-2027 growth is indexed under the new rules. Complying super funds keep their one-third discount, the main residence exemption is untouched, and eligible new builds can elect the old regime. Some administrative mechanics, including the ATO's apportionment formula alternative to a valuation, remain to be published, and copy on this site is updated as they land.
How the discount itself is divided at the reset date is covered in CGT discount changes from 1 July 2027.
Worked example: discount era vs indexation era
Note
Worked example (illustrative, simplified rates)Dana holds an investment property worth $900,000 at 1 July 2027, with a $600,000 cost base. She sells in July 2032 for $1,080,000, with CPI rising a cumulative 15 per cent over those five years.
Pre-reform slice: the $300,000 gain accrued to 1 July 2027 is preserved under the old rules by the deemed disposal, so $150,000 is assessable after the 50 per cent discount.
Post-reform slice: the new cost base of $900,000 indexes by 15 per cent to $1,035,000, so the indexed gain is $45,000 of the $180,000 nominal growth, taxed at no less than 30 per cent. Inflation stripped $135,000 of illusory gain out of the calculation; the minimum rate then set the floor on what the real $45,000 pays.
Notice what set the boundary between the two slices: the $900,000 market value at 1 July 2027. Move that number and both calculations move with it.
Indexation is one piece of a larger package. Our guide to the CGT changes from 1 July 2027 covers the rest, including the minimum tax and who is affected.
Indexation starts from your 1 July 2027 value
Set the number both eras of your gain will be measured against. $297 residential, $595 commercial, incl GST, prepared by a Chartered Accountant and Certified Property Valuer, 24 to 48 hours, Australia-wide.
Start your orderHow it worksWho indexation suits, and who it does not
- High-inflation periods favour indexation. The more of your nominal gain that is just CPI, the more the new method shelters. In a low-inflation decade the old discount would have been the better deal, which is exactly why the change raises revenue.
- Fast, real gains wear the minimum tax. An asset that doubles in three years has little inflation to strip out, and the 30 per cent floor prevents low-income years from softening the bill the way the discount system allowed.
- Long holders straddle both worlds. Anyone who owned before 1 July 2027 carries a discount-era slice and an indexation-era slice to their eventual sale, split at the 2027 value.
- Loss positions need fresh thinking. Indexation cannot create or increase a capital loss, so loss planning around the transition is a conversation for your accountant before 30 June 2027, not after.
Note
From our valuation filesA Sydney investor bought a unit in 1988 for $300,000 and sold it in 2025 for $420,000 after a flat run. With indexation frozen at September 1999, the cost base indexed to about $425,000, above the sale price, so there was no capital gain under the indexation method, and no loss, because indexation cannot create one. The discount method would have taxed half of the $120,000 gain. On a long-held, slow-growing asset, indexation can still win.
Details are changed. This is a composite of typical files rather than one client.
Where valuations anchor the new system
Indexation runs off a cost base, and for every asset held across the transition, that cost base is the market value at 1 July 2027. Pre-1985 assets get their first cost base ever at that date, as covered in pre-1985 property and the 2027 reset. Everyone else gets the number that divides their discounted history from their indexed future, and the choice between proving it by valuation or accepting the apportionment formula, now in exposure draft is analysed in formula vs valuation for 1 July 2027. Fresh evidence at the date is a $297 exercise through our 1 July 2027 valuation service; reconstructing it years later is a backdated valuation defending thinner records.
The CGT calculator works both methods side by side for any market and purchase year, with the indexation and the bracket steps shown.
Common questions
What is CGT indexation?
Adjusting an asset's cost base by CPI so tax applies only to gains above inflation. Australia used it from 1985 to 1999, froze it when the 50 per cent discount arrived, and has legislated its return for individuals, trusts and partnerships from 1 July 2027 alongside a 30 per cent minimum tax.
Can I still use the old frozen indexation?
Only for assets acquired before 21 September 1999, where you can choose at sale between the discount and indexation frozen at September 1999 levels. For most long-held assets the discount produces the better result, though companies, which never had the discount, sometimes benefit from the frozen method.
Does the 2027 change apply to gains I already have?
No. The deemed disposal at 1 July 2027 preserves gains accrued to that date under the old discount rules, deferred until you actually sell. Indexation and the 30 per cent minimum apply only to growth after 1 July 2027, measured from the asset's market value at that date.
Is indexation better than the 50 per cent discount?
It depends on inflation and your growth rate. Where inflation makes up a large share of the nominal gain, indexation can shelter more than the discount did; where real growth is strong and fast, the discount was more generous and the 30 per cent minimum now sets a floor. Long holders get a slice of each, split at their 1 July 2027 value.
Sources
- ATO, Indexing the cost base
- ATO, CGT discount
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026, Federal Register of Legislation
- ATO, Tax reform: reforming negative gearing and capital gains tax
- Treasury, Capital gains tax and negative gearing tranche 2 legislation consultation, including the CGT apportioning method exposure draft
