Key Takeaways
- Treasurer Jim Chalmers is set to reveal a capital‑gains‑tax (CGT) reform that would revert to the pre‑1999 system of indexing gains to inflation, replacing the current flat 50 % discount.
- The change would affect a broad range of assets, including shares, property, cryptocurrencies, luxury goods such as Hermès Birkin bags, fine wine and high‑end watches.
- Investors who have held appreciating assets for many years could see a lower tax burden under indexation, while short‑term holders might receive a smaller benefit than the existing discount.
- The startup and venture‑capital community worries that removing the 50 % discount will increase the tax hit on employee share schemes and make launching crypto‑focused start‑ups less attractive.
- Experts note that the $500 CGT threshold has not been updated since the tax’s inception and should be indexed to inflation to avoid unintended impacts on low‑value disposals.
- While the government insists the budget will contain measures to support start‑ups and venture capital, the exact CGT design remains unclear, leaving investors to monitor how the reform will apply across traditional and emerging asset classes.
Overview of the Proposed CGT Reform
Treasurer Jim Chalmers has signaled that the upcoming federal budget will include a revision to Australia’s capital‑gains‑tax regime. Rather than maintaining the flat 50 % discount introduced by the Howard government in 1999, Chalmers intends to return to the method used before that year, whereby capital gains are adjusted for actual inflation before tax is applied. This “indexation” approach taxes only the real increase in an asset’s value, stripping out the portion attributable to general price‑level rises. The move is framed as part of a broader effort to address housing affordability and to ensure the tax system treats long‑term holdings more fairly.
How the Pre‑1999 System Worked
Prior to 1999, taxpayers calculated the cost base of an asset by applying the consumer price index (CPI) to the original purchase price, thereby reflecting inflation over the holding period. The resulting “inflation‑adjusted” cost base was subtracted from the sale proceeds to determine the taxable gain. The reform effectively replaced this calculation with a simple 50 % discount on the nominal gain, a change Treasurer Peter Costello argued would stimulate investment, particularly in the share market, by simplifying compliance and lowering the tax burden on short‑term trades.
Impact on Traditional Assets: Shares and Property
Under the current discount, investors pay tax on only half of their nominal capital gain, regardless of how long they have held the asset. Re‑introducing indexation would likely benefit those who have held shares or property for many years, because a larger share of their gain would be attributed to inflation and thus exempt from tax. Conversely, investors who flip assets quickly would see a smaller advantage, as inflation would have had little time to accrue, potentially making the effective tax rate higher than under the 50 % discount for short‑term trades.
Cryptocurrencies in the Cross‑hairs
The crypto market has exploded since the discount was introduced, with a global valuation of roughly US$2.8 trillion (about AU$3.7 trillion) and up to a quarter of Australian investors holding some form of digital currency. Bitcoin, which comprises more than half of the total crypto value, has experienced significant price swings—falling from a late‑2025 peak of US$124,310 to around US$81,000, yet still delivering an 85 % gain for anyone who bought at the start of 2024 when Bitcoin traded near US$44,000. If the CGT changes apply uniformly, crypto holders will be taxed on the inflation‑adjusted component of their gains, which could either reduce or increase their liability depending on holding period and the prevailing inflation rate during that time.
Luxury Investments: Birkins, Wine, and Watches
Beyond shares and crypto, the luxury market has become a notable arena for capital gains. Hermès’ Birkin handbag, first produced in 1984, recently fetched AU$15.3 million at auction, illustrating how secondary‑market appreciation can far exceed retail prices. The Knight Frank Wealth Report 2025 identified handbags as the top‑performing luxury asset class in 2024, with fine wine and high‑end watches also delivering strong returns. Because these items are treated as capital assets, any resale profit would fall under the CGT regime, making the proposed reform relevant to collectors and investors who have turned luxury goods into investment vehicles.
Concerns from the Start‑up and Venture‑Capital Sector
Tuan Van Le, managing director of Challenger Law, warned that extending the CGT changes beyond property could dampen incentives for entrepreneurs, especially those launching crypto‑focused start‑ups. Many early‑stage companies compensate employees with shares or options; under the current 50 % discount, the tax on those equity awards is relatively modest. Replacing the discount with indexation would likely raise the taxable amount on such awards, reducing the after‑tax value employees receive and making equity‑based compensation less attractive. Van Le also suggested that potential restrictions on negative gearing could push investors toward corporate structures for property investment, as companies cannot negatively gear but may benefit from lower corporate tax rates.
Views from Tax Professionals on Threshold Fairness
Geraldine Magarey, group executive for policy at Chartered Accountants ANZ, highlighted that the $500 threshold for assets that attract CGT has remained unchanged since the tax’s inception. She argues that the figure should be indexed to inflation to prevent low‑value disposals—such as the sale of personal items or small collectibles—from being inadvertently dragged into the tax net. Without adjustment, inflation could cause more trivial transactions to exceed the threshold, creating unnecessary compliance burdens for everyday taxpayers.
Uniform Treatment of Emerging Assets
John Storey, tax counsel at The Tax Institute, emphasized that, from a tax‑law perspective, cryptocurrencies, luxury goods, and more traditional investments share the same fundamental CGT rules. While certain assets may possess unique valuation or market‑liquidity quirks, the underlying principle remains: a gain is calculated as the difference between proceeds and the (inflation‑adjusted) cost base, then taxed at the taxpayer’s marginal rate. Storey cautioned that any broad‑based reform will therefore affect crypto and luxury assets in the same way as shares or property, unless the legislation carves out specific exemptions or concessions.
Government Messaging and Future Outlook
Despite the apprehension expressed by various sectors, Treasurer Chalmers has pushed back on the notion that the forthcoming CGT changes will harm start‑ups or venture capital. He insists the budget will contain “difficult but necessary” reforms aimed at helping young Australians enter the housing market, while simultaneously delivering measures to support entrepreneurial activity. Chalmers told Sky News that the budget will feature a strong focus on start‑ups and venture capital, describing them as a crucial and growing component of the economy. Until the exact legislative details are released on budget night, investors, advisors, and industry groups will continue to analyze how indexation might reshape after‑tax returns across an increasingly diverse investment landscape.