How the New 30% Minimum CGT Changes the Maths on Home Energy Upgrades

The May budget had a lot in it but the line that matters for the calculator is short. From 1 July 2027 the 50% capital-gains-tax discount is being replaced with an inflation-based discount, and a 30% minimum tax floor is being applied to capital gains. The change is investor-focused on the surface. Underneath, it quietly shifts every “should I buy a heat pump or put this in an ETF” decision that an Australian household has been making for years.

What changed

Two things, both effective 1 July 2027:

1. The current 50% CGT discount on assets held more than 12 months is being replaced with an inflation-based discount. The taxable gain becomes the difference between sale proceeds and an inflation-indexed cost base, rather than half of the nominal gain. Treasury has not yet published the indexing formula but it will be based on CPI.
2. A 30% minimum tax floor is being applied to the taxable gain. Anyone whose marginal rate would have produced a lower number gets topped up to 30%. Anyone above the floor continues paying at their marginal rate.

The change does not touch the principal residence exemption. Your home, if it is the home you live in, remains entirely outside the CGT system, both for the property itself and for any improvement you make to it. That includes insulation, solar, batteries, heat pumps, induction cooktops, EV chargers, and double-glazing. The energy bill savings those upgrades produce are also untaxed, because they are not income but avoided expenses.

The legislation has not yet passed and the exact formula for the inflation-based discount has not yet been published. The direction of the change is unlikely to shift; the magnitudes below may move a few percentage points either way once Treasury finalises the detail.

Why this matters for the energy-upgrade question

Every time the calculator works out the net present value of a heat pump or a solar install, it is implicitly comparing the money you would spend on the upgrade against putting that money somewhere else and letting it earn a return. The calculator uses an 8% nominal discount rate, a notch below the long-run equity return because energy savings are more certain than share returns. This is a rough proxy for the risk-adjusted return you could earn in a diversified investment over the lifespan of the upgrade.

That 8% has always been a pre-tax number. The comparison was already mildly unfair to the upgrade, because energy savings arrive tax-free while investment returns get taxed. After 1 July 2027 that unfairness gets larger. Energy savings still arrive tax-free. Investment returns get taxed more.

The PPOR exemption is the load-bearing point

The principal residence exemption is one of three places in Australian tax law where capital gains are not taxed at all. The other two are superannuation (in pension phase) and personal use assets under $10,000. The PPOR exemption is the only one of the three that scales with the value of what you put into it.

That means a dollar invested into your house and a dollar invested into your share portfolio have always been treated differently by the tax system. What the budget changed is the size of the gap. The PPOR side of the comparison did not move. The share-portfolio side became less attractive. The shift is entirely a relative one, but the calculator’s arithmetic responds to relative shifts.

Worked example 1: retiree on a low marginal rate

Consider a household where both members are retired, drawing their primary income from superannuation in pension phase (taxed at 0%). They also hold $20,000 in an Australian share ETF outside super, returning 8% nominally with 3% inflation (so 5% real). Their personal marginal rate on the small amount of taxable income they receive is the lowest bracket, around 16% including Medicare.

Under current rules, holding the ETF for 10 years would produce a $23,200 nominal gain. The 50% CGT discount means $11,600 is taxable. At a 16% marginal rate, tax owed is about $1,855. Effective tax on the nominal gain: 8%. The household’s after-tax annualised return: about 7.5%.

Under the new rules from 1 July 2027, the same $23,200 nominal gain becomes a real gain of about $16,300 after inflation indexing. The 16% marginal rate would produce $2,610 of tax, but the 30% minimum floor pushes this to $4,890. Effective tax on the nominal gain: 21%. After-tax annualised return: about 6.7%.

That is a 0.8 percentage point drop in the after-tax return on the alternative investment, and the household pays $3,000 more in tax over the same 10 years. The calculator’s heat-pump recommendations for this household routinely show 8–12% avoided-cost returns. The new rules make that comparison less close than it used to be.

Worked example 2: middle-PAYG household

Now a household where the primary earner is on a salary of around $90,000, marginal rate 32.5% including Medicare. Same $20,000 ETF, 8% nominal, 3% inflation, 10-year hold.

Under current rules, the $23,200 nominal gain gets the 50% discount, leaving $11,600 taxable. At 32.5%, tax owed is $3,770. Effective tax on the nominal gain: 16.3%. After-tax annualised return: about 7.0%.

Under the new rules, the real gain of $16,300 is taxed at the household’s 32.5% marginal rate (the 30% floor does not bite, since they are already above it). Tax owed: $5,300. Effective tax on the nominal gain: 23%. After-tax annualised return: about 6.6%.

A smaller swing than the retiree, around 0.4 of a percentage point. Same direction.

A footnote for landlords

For investment property owners the calculation is messier. The new CGT rules apply to the eventual sale of the property itself, making future capital gains worse. Energy upgrades installed on the property reduce a tax-deductible expense (the tenant’s power bill, when bundled, or future depreciation deductions), so part of the energy saving gets clawed back at the owner’s marginal rate. The net direction is still favourable for upgrades but the magnitude is smaller and the bookkeeping more complex. This is a separate post for a separate audience.

What 1 July 2027 changes about how an upgrade is funded

The upgrade itself is not affected by the change, so the installation date has no tax consequence on either side of 1 July 2027. What does shift is the relative cost of different funding sources. Three observations follow from the mechanics:

1. Cash, mortgage offset and redraw remain tax-neutral. None of these funding sources generates a CGT event in either regime. The after-tax return on cash that stays parked rather than spent falls under the new rules, so the gap between leaving the money in an account and spending it on a CGT-exempt home upgrade widens automatically on 1 July 2027.
2. Selling shares to fund an upgrade has different consequences either side of 30 June 2027. A sale on or before that date falls under the current 50% CGT discount. A sale on or after 1 July 2027 falls under the new inflation-based discount and the 30% minimum floor. For the same nominal gain, after-tax proceeds are lower under the new regime, with the largest drop affecting lower marginal rates because the floor binds where it previously did not.
3. Unrealised losses interact in the opposite direction. A loss crystallised before 1 July 2027 offsets gains still inside the 50% discount regime. The same loss crystallised after the change offsets gains inside the new regime. Which timing produces the larger offset depends on the gains being offset and the marginal rate involved. This is a question for an accountant rather than a calculator.

A couple of caveats

The legislation has not yet passed both houses of Parliament. Budget announcements often shift in committee, and the inflation indexing formula has not been published. The numbers above assume a CPI-based real-gain calculation and the 30% floor as announced. If those details change materially in legislation, the magnitudes will move; the direction is unlikely to.

Super has its own regime and is unaffected by these changes. If your share portfolio is inside a self-managed super fund in pension phase, gains continue to be taxed at 0%. If your SMSF is in accumulation phase, gains are taxed at 15% (10% with the current 1/3 discount on long-held assets) and stay there. The comparison above is for assets held personally outside super.

The discretionary trust 30% minimum announced in the same budget takes effect 1 July 2028, applies only to trust distributions, and does not change the comparison for direct personal investments. It is a separate topic and out of scope for this post.

This is general information based on the budget announcement and is not financial or tax advice. Your specific circumstances matter. Talk to your accountant before making a decision that depends on tax outcomes.

What this means for the calculator’s numbers

The calculator currently uses an 8% pre-tax discount rate as its opportunity-cost assumption. After 1 July 2027 a more honest assumption for most households is somewhere between 6% and 8% after-tax, with the exact figure depending on bracket and time horizon. The published payback figures will look conservative for any household whose alternative investment sits in personal taxable holdings. A future Assumptions-drawer setting will let you dial in a post-tax discount rate for your situation; until then, the rule of thumb is that the calculator’s NPV estimates understate the true after-tax case by 5–15% in your favour, more if you are on a low marginal rate.

Run your own numbers

The calculator works out the exact payback, NPV, and avoided-cost return for your postcode, household, and existing setup. For specific tax outcomes, especially around selling existing holdings to fund an upgrade, talk to an accountant.

Where these numbers come from

Budget announcement details from Treasury Budget Paper 2 (2026-27) and analysis by KPMG, Clayton Utz, Baker McKenzie, and H&R Block. Marginal income tax brackets for 2026-27 from the ATO. CGT discount and PPOR exemption mechanics from the Income Tax Assessment Act 1997. Full data source list on the data sources page.