50% CGT discount for trusts: Eligibility, exclusions and 2027 changes
If you are managing a trust and thinking about selling an asset, the question on your mind might be: "Can we access the 50% CGT discount?" After all, this tax break can make a big difference in reducing the capital gains tax on your sale.
But like most things tax-related, it is not as simple as it seems, and that complexity has now changed for good. On 12 May 2026, as part of the 2026 to 27 Federal Budget, the Government announced a major overhaul to this system, and it is now law. The flat 50 percent discount is available for gains realised now, but from 1 July 2027, it will be replaced by an inflation-based indexation model with a 30 percent minimum tax rate.
In this blog post, we will explore how the current system works for trusts, who is eligible, and what changes from 1 July 2027 for your long-term asset planning.
What is the 50% CGT discount, and how does it benefit trusts?
The 50% CGT discount is a current tax incentive designed to reduce the taxable capital gain when you dispose of an asset that you have owned for over 12 months.
If you are an Australian resident and the asset meets specific criteria, you can reduce your capital gain by half before paying tax on it. For example, under these current rules, if your trust sells an asset before 1 July 2027 and makes a profit of $100,000, only $50,000 will be subject to CGT.
From 1 July 2027, this changes. The reform is not a simple cutover based on your sale date. Properties and assets held at 7.30 PM AEST on 12 May 2026, the time of the Budget announcement, receive some protection, and the new rules only apply to gains that accrue after 1 July 2027.
In practical terms, the cost base of assets you already hold will be indexed from 1 July 2027 onward rather than from your original purchase date, and only the portion of the gain that builds up after that date is taxed under the new system.
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Do Australian trusts benefit from the 50% CGT discount?
Yes, Australian trusts, including discretionary trusts (family trusts), unit trusts, and other types of trusts, can indeed benefit from the 50% CGT discount, provided they meet certain requirements.
Let's take a deeper look at the conditions under which a trust can qualify for the CGT discount under the current rules, which remain in force until 1 July 2027.
Eligibility requirements for trusts to qualify for the CGT discount
These eligibility rules apply to the current 50 percent discount, which is being phased out for gains accruing after 1 July 2027. For your trust to qualify before that date, it must meet the following key conditions.
1. The 12-month ownership requirement
To apply the CGT discount, the trust must have owned the asset for at least 12 months before the CGT event happens. The CGT event is the sale, transfer, or disposal of the asset. This rule applies to all types of assets, from property to shares.
When does the CGT event occur?
- Sale or transfer: The CGT event is triggered at the point of sale or when the contract is signed, not at settlement.
- Loss or destruction: If the asset is lost or destroyed, the CGT event occurs when compensation or insurance is received.
- Inheritance: If the trust acquired the asset through a deceased estate or a relationship breakdown, the previous owner's holding period may count toward the 12-month requirement.
2. Trust must be an Australian resident trust
The second condition for eligibility is that the beneficiary must be an Australian resident for tax purposes during the ownership period of the asset. This requirement ensures that the CGT discount is available only to individuals who are subject to Australian tax laws.
The ATO defines Australian tax residency based on a series of factors, including:
- Where the person lives
- Their employment
- Their personal and economic ties to Australia
If the beneficiary was a foreign resident for tax purposes at any point during the ownership of the asset, they would not be eligible for the full 50% CGT discount. In such cases, the discount may be apportioned based on the period of time the beneficiary was an Australian resident during the ownership.
For example, if a beneficiary was an Australian resident for only 6 months during the 12-month ownership of an asset, they would receive a pro rata CGT discount, which may be less than the full 50%.
Good record keeping supports this process because reconciliations, transaction coding, and compliance entries need to be accurate when determining eligibility and calculating the discount. If you prefer ongoing help with this work, our professional online bookkeepers help you maintain your trust reporting requirements.
3. Entitlement to the capital gain
A beneficiary must be entitled to the capital gain for the 50% discount to apply. This means the trustee has passed the gain on to that beneficiary, so it gets taxed in their own name rather than the trust's.
If no beneficiary is entitled, the trustee can choose to pay the tax on the gain themselves.
But this comes with a trade-off: once the trustee makes that choice, the 50% discount is no longer available on that gain.
There is one exception.
If the gain hasn't been allocated to any beneficiary yet, either during the income year or within two months after it ends, the trustee can still pay the tax on the beneficiary's behalf and keep the discount available. This gives trustees a short grace period to finalise entitlements without losing the benefit.
Example: Suppose a trust sells an asset and makes a $100,000 capital gain in the 2026-27 income year.
- If the trustee decides to pass the full $100,000 gain to Beneficiary A, then A is entitled to it and reports it on their own tax return. A can apply the 50% discount, so only $50,000 is taxable, assuming A meets the other conditions.
- If the trustee does not allocate the gain to anyone and instead decides the trust itself will pay the tax, the trust loses access to the 50% discount, so the full $100,000 is taxable at the trust level.
- If the trustee simply hasn't decided who gets the gain yet, but sorts it out within two months after 30 June 2027, the trustee can pay the tax on the eventual beneficiary's behalf and the 50% discount still applies.
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How the 50% CGT discount for trusts works from 1 July 2027
From 1 July 2027, the flat 50 percent discount is replaced by cost base indexation and a 30 percent minimum tax, and this is how the new system works for trusts.
Say your trust bought an asset on 1 July 2022 for $800,000, and sells it on 1 July 2032 for $1,600,000, an annual return of 7.2 percent. The trust determines the asset was worth $1,131,371 on 1 July 2027, the date the new rules start.
Step 1: Split the gain at the transition date. The trust works out two separate gains: the gain made before 1 July 2027, and the gain made from 1 July 2027 to the sale date.
Step 2: Apply the old 50 percent discount to the pre-2027 gain. The gain made before the transition is $331,371 ($1,131,371 minus $800,000). Applying the 50 percent discount gives a taxable capital gain of $165,685 for this portion.
Step 3: Index the cost base for the post-2027 gain. The gain made from 1 July 2027 onward is $468,629 ($1,600,000 minus $1,131,371). This cost base is indexed for inflation, which reduces the taxable amount to $319,958.
Step 4: Add both portions together and apply tax. The trust's total taxable capital gain is $485,643 ($165,685 plus $319,958). At a 47 percent tax rate, the tax on this gain is $228,252. By comparison, if the old 50 percent discount had applied to the whole gain, the taxable amount would have been $400,000, and the tax would have been $188,000, so the trust pays $40,252 more under the new rules in this example.
This shows why the transition is not a simple before or after calculation. A trust selling an asset after 1 July 2027 needs to work out the value of that asset as at 1 July 2027, either through a formal valuation or an ATO apportionment formula, before it can calculate the final tax outcome.
Given how much this can affect your final tax bill, it is worth getting expert advice from our professional tax accountants before your trust sells an asset under these new rules.
Pro Tip
The split-gain calculation above assumes you already know your asset's value at 1 July 2027, but getting that figure wrong can throw off your entire tax outcome. Speak to a professional before lodging to make sure your valuation method and apportionment are ATO-compliant.
Exclusions that prevent trusts from claiming the 50% CGT discount
While many Australian resident trusts can access the 50% CGT discount, certain situations exclude a trust from using it, even if the other eligibility conditions are met. These exclusions apply to the discount as it currently stands, and they matter until 1 July 2027, after which the flat discount is phased out, and these scenarios stop being relevant. Here are the key situations where the discount does not apply.
1. Home first used for rental or business
If your trust’s home was first used for rental or business purposes less than 12 months before selling, the CGT discount cannot be applied. In this case, the trust must use the indexation method to calculate the capital gain.
2. Trust splitting
If the trust undergoes a trust split, where separate trustees are appointed over different assets, the CGT discount may not apply. This is because a trust split is treated as a CGT event, triggering tax liabilities on the assets.
3. Foreign or temporary residents
Foreign and temporary residents are not entitled to the full CGT discount. However, if the trust was a resident for part of the ownership period, it may qualify for a pro-rata discount.
4. Conversion of income assets
If an income-producing asset, such as shares or bonds, is converted into a capital asset for the sole purpose of applying the CGT discount, the discount will be denied.
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Additional benefits of the CGT discount for trusts
Trusts can also benefit from an extra tax break when the asset is used for affordable rental housing. In addition to the standard 50% CGT discount, trusts may be eligible for up to an additional 10% discount, bringing the total CGT discount to 60%.
This extra benefit encourages investment in affordable housing, helping reduce tax liabilities while supporting the community. To qualify for this additional discount, the following conditions must currently be met:
- The property must be rented to low or moderate-income tenants under an approved affordable housing scheme.
- The trust must meet all requirements set by the ATO for affordable rental housing.
- The beneficiary claiming the discount must be an Australian resident for tax purposes.
- The trust must have held the asset for at least 12 months before the CGT event occurs.
Unlike the standard 50% discount, this one is not being phased out. The Government has confirmed that the existing 60% CGT discount for qualifying affordable housing will be fully retained after 1 July 2027, specifically to preserve the incentive for trusts and other investors to keep putting money into affordable housing.
50% CGT discount for trust FAQs
1. Can a trust choose to be taxed on capital gains, and does it lose the discount?
Yes, if no beneficiary is entitled to the gain, the trustee can choose to pay the tax at the trust level instead. Doing so generally means the 50% discount is lost. The one exception is if the gain has not yet been allocated to a beneficiary, either during the income year or within two months after it ends. In that case, the trustee can still pay tax on the beneficiary's behalf without losing the discount.
2. How do beneficiaries determine their share of a capital gain?
A beneficiary's share depends on their entitlement to the trust's income or capital. For example, if a trust makes a $500 capital gain, the trustee might allocate $200 to one beneficiary and $300 to another. Each beneficiary reports their own share on their personal tax return, and the discount applies to each portion based on that beneficiary's individual circumstances, such as their residency and holding period.
3. How do trusts report CGT to beneficiaries?
Trustees must issue a statement of distribution or tax statement to each beneficiary, showing their share of the capital gain, the method used to calculate it, and any applicable discount. Beneficiaries then report this on their own tax return.
4. What happens if a trust distributes a capital gain to a foreign resident beneficiary?
The foreign resident beneficiary is not entitled to the full 50% discount, though they may get a pro rata discount if they were an Australian resident for part of the time the trust held the asset. They may also owe Australian withholding tax on the amount distributed to them, and may need to claim relief under a tax treaty between Australia and their home country if one applies.
5. Can a trust distribute franked dividends alongside capital gains?
Yes. Franking credits attached to dividends are generally passed on to beneficiaries in the same way capital gains are, allowing beneficiaries to use those credits to offset their own tax. The CGT discount is applied separately, based on whether the underlying capital gain qualifies.
Final thoughts on 50% CGT discount for trust
Understanding the 50% CGT discount and its eligibility criteria is important for trustees looking to minimise tax liabilities on asset sales, but from 1 July 2027, the rules of the game change significantly. If your trust meets the current requirements, the discount can still deliver substantial savings on gains realised before that date. However, the eligibility criteria and the upcoming transition are complex, and mistakes can be costly.
If you don't yet have a trust in place, our team can help with your trust set up, making sure it's structured correctly from the start to make the most of the discount rules while they last, and to prepare for the shift to indexation in 2027. If you already have a trust, we can assist with your trust's tax return preparation and lodgement, and help you work out exactly how the transition rules apply to your specific assets.
If you are unsure about your trust's eligibility for the CGT discount or how the 2027 reforms will affect you, our expert team is here to help. We offer tailored advice to ensure your trust maximises available tax benefits while staying compliant with all regulations. Book a consultation with our team today to get clarity and save on taxes.
