Updated 10 October 2026
For forty years, property acquired before 20 September 1985 sat entirely outside capital gains tax. That ends on 1 July 2027. Under the enacted reform, pre-CGT assets receive a market value cost base at that date and all later growth is taxable. Nothing accrued before 1 July 2027 is touched, but the exemption stops there, and the reset valuation becomes the most important document a pre-1985 owner holds.
At a glance
- Pre-CGT assets (acquired before 20 September 1985) receive a market value cost base at 1 July 2027 under the enacted reform
- Growth to 1 July 2027 stays tax-free; growth after that date becomes taxable
- Division 149 can already strip pre-CGT status where majority underlying ownership changes
- Deceased estates give beneficiaries a date-of-death market value cost base for pre-CGT assets
- The 1 July 2027 valuation becomes the most important number in a pre-CGT property's file
In this guide
What pre-CGT status has meant
CGT arrived on 20 September 1985 and, to avoid taxing gains that accrued before anyone knew the tax existed, assets acquired before that date were carved out entirely. A farm bought in 1972, a shop bought in 1980, a rental terrace bought in 1984: sell any of them in 2026 and the gain, however large, is simply not assessable. No cost base records were ever needed, which is why so few pre-1985 owners have any.
What changes on 1 July 2027
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, enacted 26 June 2026, brings pre-CGT assets into the net for the first time. The mechanism is the same deemed disposal and reacquisition in Subdivision 112-E that applies across the reform: the asset is treated as sold and reacquired at its market value on 1 July 2027.
- Everything accrued to 1 July 2027 stays exempt. The decades of pre-CGT growth are never taxed. The deemed disposal itself produces no tax for a pre-CGT asset.
- The 1 July 2027 market value becomes the cost base. This is the first cost base the asset has ever had, and it is set by valuation, not by any historical record.
- Growth after 1 July 2027 is taxed under the new regime: CPI indexation of that reset cost base, plus the 30 per cent minimum tax, when the asset is eventually sold.
Warning
The incentive to prove a high, defensible 2027 valueEvery dollar of the 1 July 2027 valuation is a dollar of exempt history rather than taxable future gain. A conservative or unsupported figure hands growth to the taxable side; an inflated figure invites ATO challenge. The answer is not a bullish number, it is a properly evidenced one, prepared by a professional valuer from comparable sales at the date, which also carries the penalty safe harbour if the ATO ever disputes it.
Worked example
Note
Worked example (illustrative, before indexation and rates)Frank bought a Norwood cottage in 1981 for $62,000 and has rented it out for decades. A valuation supports $1,150,000 at 1 July 2027. He sells in 2033 for $1,320,000.
The $1,088,000 of growth from 1981 to 2027 is exempt, exactly as it always was. The taxable calculation starts at the $1,150,000 reset cost base, indexed by CPI to the sale date, against $1,320,000 of proceeds. Only the post-reset slice, $170,000 before indexation, ever enters the return. Without a defensible 1 July 2027 valuation, Frank is arguing about the single number that separates a million dollars of exempt history from taxable gain.
Pre-CGT status was already fragile
Even before the reform, pre-CGT status could be lost or diluted, and those rules still matter for the exempt slice:
- Substantial improvements. Major capital improvements to a pre-CGT asset can be treated as separate, taxable CGT assets where their cost exceeds the improvement threshold and more than 5 per cent of the sale proceeds. The 1990s extension on the 1983 farmhouse may already have been taxable on sale.
- Companies and trusts. Under Division 149, an asset held by a company or trust stops being pre-CGT if majority underlying ownership changes hands. Family restructures over forty years quietly convert pre-CGT assets more often than owners realise.
- Death. Under Division 128, a pre-CGT asset resets to market value at the deceased's date of death in the beneficiary's hands, becoming a post-CGT asset from that point.
Owners in any of these categories may already need a retrospective valuation at an earlier trigger date, on top of the 2027 reset value.
The wider CGT changes, including the end of the 50 per cent discount and the 30 per cent minimum tax, are covered on our CGT changes page.
Own property since before 1985?
The 1 July 2027 market value becomes your cost base. Lock it in with a report signed by a Chartered Accountant and Certified Property Valuer. $297 residential, $595 commercial, incl GST, 24 to 48 hours, Australia-wide.
Start your orderHow it worksEstates and the family succession angle
Pre-1985 owners are, by definition, older owners, and many of these properties will pass through estates in the coming decade. The interaction is worth understanding: die before 1 July 2027 and the beneficiary takes a market value cost base at the date of death under the existing rules. Hold across 1 July 2027 and the asset carries its reset cost base into the estate. Either way a professionally dated valuation, at death or at the reset, anchors the family's tax position for a generation. Executors should read our deceased estate valuation guide alongside this one.
What pre-1985 owners should do now
- Book the 1 July 2027 valuation close to the date. The comparable sales evidence around mid-2027 is the whole case. Fresh evidence at $297 beats a reconstructed figure defended years later.
- Document the property's state. Photographs, council records and any improvement history as at 2027 support the valuation and the improvement-threshold analysis.
- Map the structure. If the asset sits in a company or trust, have your accountant test Division 149 before assuming pre-CGT status survived the decades.
- Fold it into estate planning. The reset value, the date-of-death rules and the two-year main residence window for estates all interact; the plan should be set deliberately, not discovered at probate.
Common questions
Are pre-1985 properties exempt from CGT?
Fully exempt only until 1 July 2027. Growth accrued to that date stays exempt forever, but under the enacted 2026 reform, growth after 1 July 2027 is taxable, measured from the property's market value at that date.
The property CGT calculator shows how far the 1 July 2027 value can move the tax, market by market and by year of purchase.
Do I need a valuation for a pre-1985 property?
Yes, if you hold it past 1 July 2027. The market value at that date becomes the asset's first-ever cost base and determines every future taxable dollar. A professionally prepared valuation near the date is the defensible evidence.
Will I pay tax on the growth since 1981?
No. The deemed disposal at 1 July 2027 locks all pre-reform growth into the existing exemption. Tax applies only to the increase in value after 1 July 2027, under the new indexation and 30 per cent minimum tax rules, when you eventually sell.
What if my pre-CGT property is held in a company or family trust?
Test it before relying on the exemption. Under Division 149, a change in majority underlying ownership since 1985 converts the asset to post-CGT status, often decades ago and often unnoticed. Your accountant can trace the ownership history; a retrospective valuation at the conversion date fixes the cost base.
Sources
- 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
- ATO, How CGT applies to inherited assets
- Income Tax Assessment Act 1997, current compilation, Federal Register of Legislation
