CGT minimum tax and the interaction with marginal tax rates

The Treasury Laws Amendment (Tax Reform No. 1) Bill 2026 introduces among other things, a ‘minimum tax capital gain’ on CGT events occurring on or after 1 July 2027 for individuals.

‘Minimum tax capital gain’ is worked out once capital losses, any available CGT discount and small business concessions have been applied to capital gains made by an individual taxpayer in an income year, including trust gains attributed them but reduced by any capital gains arising from specific deductible gifts under Division 30 and conservation covenant deductions under Division 31 of Income Tax Assessment Act 1997. The minimum tax capital gain excludes gains that qualify for the special concessions for new residential dwellings or affordable housing.

The proposed 30% CGT minimum tax is then applied on the taxpayer’s minimum tax capital gain if the taxpayer is a resident individual at any time during the income year and has a minimum tax gap amount for that year.

Minimum tax gap amount

A ‘net capital gain’ is a statutory income which forms part of the assessable income of an individual taxpayer and as such taxed at their individual marginal rates. The new CGT minimum tax system provides a mechanism where the taxpayer adjusts for the 30% minimum tax applicable to the minimum tax capital gain part of their assessable income as part of their individual marginal tax rate.

Under the new CGT minimum tax system, a taxpayer will need to determine whether a top-up tax, or minimum tax gap amount, arises by applying the following process and pay the extra income tax if it does:

Step 1: Multiply the minimum tax capital gain by 30%;

Step 2: Calculate the tax payable by calculating the taxable income (broadly, assessable income less – deductions) and multiplying the amount with relevant marginal tax rate;

Step 3: Recalculate the tax payable by reducing the taxable income by the amount of the minimum tax capital gain;

Step 4: Subtract the amount at step 3 from the amount at step 2, which will provide the tax applicable to the minimum tax capital gain;

Step 5: Subtract the amount at step 4 from the amount at step 1, and if the amount is more than nil (ie a positive amount), then the taxpayer will have a ‘minimum tax gap amount’ for the income year equal to that amount.

By way of an example, assume below for a resident individual in income year 2026-2027:

• Minimum tax capital gain – $100,000
• Salary – $20,000
• Taxable income – $120,000

Step 1: $100,000 x 30% = $30,000

Step 2: Assume tax payable on the taxable income = $28,920

Step 3: Assume tax payable on taxable income less minimum tax capital gain = $270

Step 4: $28,920 – $270 = $28,650 (this is the tax attributable to the minimum tax capital gain)

Step 5: $30,000 – $28,650 = $1,350 (this is the minimum tax gap amount).

Implications and considerations

The proposed regime creates a 30% minimum effective tax rate on most capital gains for Australian resident individuals, regardless of whether their ordinary marginal tax rate would produce a lower amount of tax.

Taxpayers and their advisors should review their personal and trust CGT asset holdings, with particular attention to the following matters, so they are best prepared to manage the implications of the new regime if and when it becomes law:

Timing of CGT events

Taxpayers expecting to realise significant capital gains should consider the timing of any CGT event, particularly where disposal is being considered before or after 1 July 2027. The timing should be assessed commercially and in light of the taxpayer’s broader tax position, noting that different CGT events may have different timing implications.

Interaction with marginal tax rates

The proposed measure does not replace marginal tax rates for net capital gains. Net capital gains will continue to be included in assessable income and taxed under the ordinary rules. The minimum tax operates as a top-up where the tax attributable to the minimum tax capital gain is less than 30%.

Trust distributions

Where capital gains are made through a trust, taxpayers should consider how those gains are attributed to beneficiaries. Trust distributions may form part of an individual beneficiary’s minimum tax capital gain and may therefore affect whether a minimum tax gap amount arises.

Cash flow and record keeping

The minimum tax calculation may increase the final tax payable on a capital gain. Taxpayers should consider cash flow, PAYG instalments and record keeping, including records that identify capital losses, discounts, concessions and the tax attributable to the relevant gain.

Need for advice before implementation

The rules are proposed to apply to CGT events occurring on or after 1 July 2027. Taxpayers should obtain advice before entering into significant transactions, particularly where timing, trust distributions, concessions or different marginal rates may affect the tax outcome.

Contact us today to discuss your matter on 03 5273 5273 or email info@coulterlegal.com.au.