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The brief · Paper No. 03

What changes for capital gains on 1 July 2027?

Double taxed by assumption

One day, 1 July 2027, splits every gain in two. Before it, half the gain is taxed, as today. After it, all growth above inflation is taxed in full.

Tax rate
One day, two ratesPer dollar of growth, for a resident individual at the rate on the switch, under the paper's simplified model. The twice-inflation test holds at every rate of 30% and above; at lower rates the multiple falls, to about 1.4 times at 18%. Woolworths, 2005 to 2020, stands in for the shape; the hairline stands in for 30 June 2027. Illustrative.
  • observedValuation dayAssets held by individuals and trusts are treated as sold and bought back at market value.
  • illustrativeThe assumptionAn assumed growth rate can move gain earned before the day to after it, where the rate doubles.
The core 2027 tax changes are law, assented to in June 2026. Market value on 1 July 2027 is the law's default. The elective apportionment formula is a draft instrument, not yet made. Nothing falls due on 1 July 2027.
Nothing on this page is tax, legal or financial advice, and nothing on it is a valuation. Speak to your adviser before acting.
The paper works through the day, the tax and the cap with one real companyFigs. 02, 07, 08

Does an asset need a valuation at 1 July 2027?

One value, two readings

The law's default is a market valuation, because a house or a private company has no quoted price that day. Treasury's draft formula would be an optional second reading.

each step up is the same percentage
The draft method over a real historyWoolworths, 2005 to 2020, observed daily closing prices; the path is drawn by the draft method at one constant growth rate, not observed. The draft is written for property and private companies; listed shares stand in because their price is known every day.
  • formulaThe formulaThe draft assumes one constant growth rate from the price paid to the price received: the line.
  • observedThe real valueReal values move in steps. Where growth came early, the real value sits above the line.
The paper shows how the line is drawn, with two real companiesFigs. 04, 05

What the study found

More often than not, the line read low

Modelled on public market price histories, with a past 30 June standing in for the day, the real value sat above the line in 59% of 1,129 share histories.

The miss · how far the line's value sits from the real value on the day

real value below the line · 40%above the line · 59%near · 2%

a halving and a doubling sit the same distance from zero

The miss across 1,129 share historiesModelled on public market price records: 197 companies listed at 2 September 2026, each read at every 30 June from 2005 to 2021 with five years held either side; 422 cases that ended in a loss set aside. Listed shares stand in because their price is known every day. The median marked on the face is the middle case. The typical miss, either way, is 70%. Where 30 June 2027 will fall in the market cycle is not known.
  • observedWhich wayWhere growth came early, the line put too little gain before the day, taxing it at the later rate.
  • observedThe date decidesAt 30 June 2008, 68% sat above the line; at 30 June 2012, 78% below.
The paper shows four real histories, chance alone, and the whole marketFigs. 06, 11, 12

What to do before 1 July 2027

Bring value forward

Growth that exists on the day is taxed at half the rate of later growth; for an asset growing faster than twice inflation, it is worth more after tax.

Tax rate
A dollar of growth, either side of the dayPer dollar of growth for a resident individual at the rate on the switch, under the paper's simplified model: the tax on a dollar that exists on the day against the same dollar earned after it. The twice-inflation test holds at every rate of 30% and above; at lower rates the multiple falls, to about 1.4 times at 18%. Illustrative.
  • illustrativeBefore the dayWhat is finished, signed or settled before the day is value on the day: a margin lifted, a process fixed.
  • illustrativeThe arithmeticAt the top rate a dollar on the day carries 23.5c of tax; the same dollar earned later carries 47c.
The paper works one holding both ways and shows what a dollar of growth costs either side of the dayFigs. 02, 07

Market value or the draft formula

The owner keeps the cheaper reading

An owner who can show a market value keeps the lower bill. Treasury's draft formula would be optional, and only a valuation shows value the line cannot see.

Two readings, one choiceWoolworths, 2005 to 2020, read at 30 June 2011, per $100,000 at 47% under the simplified model. The owner keeps the lower bill. Illustrative.
  • illustrativeWhich readingThe formula costs less where growth came late, and a valuation where it came early.
  • illustrativeWhat the choice is worthAcross the 1,129 cases the choice is worth $5,870 per $100,000 on average, with a valuation in hand.
The paper works the choice for two companies and prices it across the marketFig. 13

What it means

A valuation on the day, and the choice of reading

The formula cannot see a step up in value; a market valuation on the day is its only record, and whoever can show one keeps the cheaper reading.

For an owner

For an adviser

A place to ask

The July Conversation

An adviser's three questions for an owner.

Where R² fits

R²’s research on AI and productivity
The paper ends with four questions worth asking, and what a fuller study would need

Sources

The paper

The full paper follows

The paper holds the method, the data and the reasoning behind every number above. It follows here, and the switch at the top moves between the two.

What the paper measuresWoolworths, 2005 to 2020; the bracket is the miss at the day. Fig. 01 draws the same picture over Commonwealth Bank, 2010 to 2025.
Read the paper