The low-income year is gone: what the new capital gains tax rules mean for your retirement plan

For as long as most of our clients have been investing, one piece of retirement folk wisdom has held true: don't sell the shares or the investment property while you're still working. Wait until you've retired, your income has dropped, and the tax on the gain shrinks to almost nothing.

It was good advice. From 1 July 2027, for growth that happens after that date, it stops working.

The 2026–27 Federal Budget's capital gains tax changes are no longer a proposal. The legislation received Royal Assent on 26 June 2026. That leaves roughly nine months before the biggest change to the taxation of investments outside super since 1999 — and the most important parts of it are not the parts that made the headlines.

What Actually Changes on 1 July 2027

Three things happen to capital gains on assets held outside super:

1. The 50 per cent discount ends for future growth. This applies to individuals, trusts and partnerships. In its place, your cost base is indexed for inflation (for assets held at least 12 months), so you are taxed on the real gain rather than half of the nominal one.

2. A 30 per cent minimum tax applies to those gains. It applies to Australian-resident individuals, including on gains that flow to them through a trust. If your marginal rate on the gain would have been below 30 per cent, a top-up tax lifts it to 30. This is the part that rewrites retirement planning.

3. Every asset you already own gets a line drawn through it. Growth up to 1 July 2027 keeps the 50 per cent discount — whenever you eventually sell. Growth after that date falls under the new rules.

The Low-Income Year Is Gone

Here is the change that matters most for anyone within a decade of retirement. Under the current rules, a retiree with modest taxable income who sells a long-held parcel of shares can pay tax on the gain at an effective rate in the single digits or low teens. That outcome was the quiet engine behind a lot of sensible planning: accumulate outside super during your working life, realise gains gradually once the salary stops.

Under the new rules, the floor is 30 cents in the dollar on the real gain — whether your other income is $20,000 or $120,000.

Same asset, same sale, same retiree — about 79 per cent more tax. Two things did the damage. Swapping the discount for indexation lifted the taxable gain from $50,000 to about $65,600, adding roughly $4,700 of tax. The 30 per cent floor then added another $4,000 on top — and the floor is the part no amount of income planning can avoid.

There is one exception worth knowing. People who receive certain government income support payments — including the Age Pension — at any time in the income year of the sale are exempt from the 30 per cent minimum. They still move to indexation, but they are taxed at their ordinary marginal rates. For some part-pensioners, that distinction will be worth real money, and it adds a new reason to understand exactly where you sit against the pension thresholds.

For a generation, the answer to “when should I sell?” was “when your income is low.” From July 2027, the better question is “where should I have owned it?”

Try Your Own Numbers

The comparison shifts a great deal depending on how fast the asset grew, how long you held it, and what else you earned that year. Move the numbers below to see how.

The Number Every Investor Will Need

To draw that line through each asset, the law treats everything you own as if it were sold and bought back at market value at the changeover. That value becomes the hinge of every future calculation: everything below it is old-rules gain, everything above it is new-rules gain.

For listed shares and ETFs this is trivial — the closing price is public record. For an investment property, a holding in an unlisted fund, or shares in a private company, it is not. And the direction of the incentive is worth understanding: a higher supportable value at 1 July 2027 puts more of your eventual gain into the discounted bucket.

Two things are still unsettled. Treasury has released a draft alternative to a formal valuation for real property and other assets without a readily ascertainable market value — a formula that works backwards from your eventual sale price, assuming the asset grew at a constant rate over the whole time you owned it. Consultation closed in August and the final version has not been made. And the ATO has not yet said what valuation evidence it will accept for this specific purpose. For a property that did most of its growing before 2027, the formula could be materially less generous than a real valuation; for one that surges afterwards, the reverse. That choice deserves modelling, not a guess.

Super Just Became More Valuable — Without Changing at All

Complying super funds, including SMSFs, sit outside these changes. A fund in accumulation phase still pays an effective 10 per cent on long-held gains. A fund paying a retirement-phase pension still pays nothing.

Set that beside the new personal rules and the gap is stark:

General comparison only. The 30% floor does not apply to recipients of listed income support payments. Balances above $3 million may also attract Division 296 tax.

We have always argued that where you hold an asset matters as much as which asset you hold — it was the subject of our August article on investment structures. These changes raise the stakes. The pre-retirees with the most to think about are those who built substantial wealth in their own names on the assumption that retirement would be their low-tax exit.

The catch is that the door into super is narrow and it closes with age. The concessional cap is $32,500 and the non-concessional cap $130,000 for 2026–27, the bring-forward rule starts to shrink once your total super balance passes $1.84 million, non-concessional contributions stop altogether at $2.1 million, and most contributions must be made before 75. Moving wealth into super usually means selling first — which triggers the very gain we are discussing, albeit with the pre-2027 portion still discounted. That is a sequencing problem measured in years, not something solved in the last week of June.

Not Everything Is Worse

It would be easy to read this as uniformly bad news. It isn't. Indexation is kinder than the old discount for assets whose growth barely outpaces inflation. As a rough guide for an investor already paying 30 per cent or more, that means anything growing at less than about one-and-a-half to two times the inflation rate, depending on how long it is held. A steady, income-producing asset that grows at 4 per cent while inflation runs at 3 will have very little real gain to tax.

The assets that fare worst are the ones that have historically made people wealthy: high-growth shares and well-located property held for a long time. That may gradually tilt the case, outside super, toward income over growth — and toward keeping the strongest long-term growers inside super where the rate hasn't moved. It is a portfolio construction question as much as a tax one.

Nine Months, Five Jobs

None of this calls for dramatic action. It calls for preparation, done calmly, while there is time.

1. Build the list. Every asset you hold outside super, with its purchase date and cost base. Most people cannot produce this from memory, and the people who can are usually missing reinvested distributions and capital improvements.
2. Plan your valuation evidence. Decide now which assets will need a formal valuation as at the changeover — property, unlisted and private holdings above all — and who will prepare it, so it is commissioned promptly at the date rather than reconstructed in 2034. The ATO has yet to say what evidence it will accept, so this is a job to line up, not one to complete early.
3. Map the sales you already intend to make. If a sale within the next few years was always part of the plan, the timing either side of 1 July 2027 now carries a price tag that can be modelled.
4. Check your super headroom. Contribution caps, unused carry-forward amounts, total super balance and age all determine how much can move — and how many financial years it would take.
5. Leave the family trust alone for now. The proposed 30 per cent minimum tax on discretionary trusts from 1 July 2028 is still only draft legislation, with more to come. Decisions about restructuring a trust are largely irreversible; they should wait for final law.

What We Still Don’t Know

We would rather tell you where the edges are than pretend to certainty. As at the date of this article: the apportionment formula is a draft; the ATO's valuation guidance has not been published; some of the rules for assets passing on death are in a second tranche of draft legislation, and others — along with the treatment of listed investment companies and employee share schemes — are in a further tranche not yet released. None of it is before Parliament. The Coalition voted against the changes, so the law itself may yet be contested at an election. Sensible planning works with the law as it stands while avoiding irreversible moves made for tax reasons alone.

That last point is the one we would underline. Tax is a cost to be managed, not the purpose of the portfolio. The clients who come through changes like this best are rarely the ones who moved fastest. They are the ones who knew exactly what they owned, what it cost, where it was held — and had a plan for each piece before the date arrived.

You have nine months. That is enough time to do this properly, and not much more.