How the 2027 Budget hurts your chance to build wealth
From 1 July 2027 the Government proposes to replace the 50% CGT discount with CPI cost-base indexation plus a 30% minimum tax on net gains. It is sold as “only taxing real gains above inflation.” But because growth assets like shares outpace inflation roughly 4.8×, the maths is brutal: there is no realistic scenario where a share investor pays less.
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🇦🇺 Australia · Proposed 2027 CGT reform
A 10-year S&P 500 investment would pay
+68%
more capital gains tax under the proposed rules
S&P 500 · 2015–24
+243%
AU inflation · 2015–24
+31%
Indexing for inflation only helps if inflation ate your gain. It didn’t — shares grew ~4.8× faster than prices.
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The trap: shares grow far faster than inflation
Indexation lifts your purchase price by inflation so you only pay tax on the “real” gain. That would be generous if inflation were eating most of your return. It isn’t. Over the last full decade the S&P 500 compounded at about 13.1% a year while Australian CPI ran at about 2.7% — the market outpaced prices roughly 4.8×.
| Calendar year | AU inflation (CPI) | S&P 500 total return |
|---|---|---|
| 2015 | +1.7% | +1.4% |
| 2016 | +1.5% | +12.0% |
| 2017 | +1.9% | +21.8% |
| 2018 | +1.8% | −4.4% |
| 2019 | +1.8% | +31.5% |
| 2020 | +0.9% | +18.4% |
| 2021 | +3.5% | +28.7% |
| 2022 | +7.8% | −18.1% |
| 2023 | +4.1% | +26.3% |
| 2024 | +2.4% | +25.0% |
| 10-year cumulativeCAGR in brackets | +31%(2.7%) | +243%(13.1%) |
Even 2022 — the worst inflation year (7.8%) — was a year shares fell, so the indexation uplift was largest exactly when there was no gain to shelter.
The “2× inflation” break-even rule
For anyone on a marginal rate of 30% or more, the two regimes simplify to:
- Today: you’re taxed on 50% of the nominal gain.
- Proposed 2027: you’re taxed on 100% of the real (post-inflation) gain.
So you only come out ahead if your total return was less than twice the cumulative inflation over your holding period — i.e. a real return barely above zero.
Over 2015–24 the break-even line sat at +62% (2 × 31% inflation). The S&P 500 returned +243% — about 3.9× past the point where indexation could ever beat the 50% discount. The only assets that “win” are ones that failed to grow.
Worked example: $100,000 of shares, held a decade
$100,000 invested in the S&P 500 in 2015 grew to about $342,621 — a $242,621 nominal gain — and is sold under the proposed 2027 rules. Indexation lifts the cost base to $138,854, leaving a $203,767 “real” gain that is taxed in full.
| Investor | Tax today 50% discount | Tax from 2027 indexation + 30% min | Extra tax |
|---|---|---|---|
| $200k earner (~47%) | $57,016 | $95,770 | +$38,755 |
| $100k earner (~32%) | $47,366 | $86,120 | +$38,755 |
The high earner pays about 68% more tax on the very same gain ($95,770 vs $57,016). Indexation shelters only the inflation slice; losing the 50% discount exposes the rest to 37–47% marginal rates.
The one case where it’s “better”
To be fair: indexation does beat the 50% discount when an asset’s real return is near zero or negative — when inflation ate more than half the gain. But that means the investment barely tracked, or lost to, the cost of living. It is a way to pay less tax on a bad outcome, not a way to keep more of a good one. For wealth-building assets that beat inflation — the whole point of investing — you are always worse off.
Frequently asked questions
Isn’t indexing for inflation fairer than the 50% discount?+
Is there any case where I pay less CGT under the 2027 rules?+
What does the 30% minimum tax do?+
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