The tax move to make before Labor kills it (and the mistake that hands the ATO free money)

Editor’s note: This article has been updated to clarify the treatment of capital gains accrued before 1 July 2027. We apologise for the earlier error and thank our readers for their thoughtful feedback and engagement on this important issue.

Last month, I published a wire explaining how Labor's proposed tax "top-up" rule could leave investors paying more tax from 1 July 2027.

The response was enormous. It quickly became one of our most-read tax stories, with readers asking the questions that really matter:

• Can gains accrued before 1 July 2027 still be caught by the new 30% tax floor?
• What legitimate strategies are available to avoid it?
• And if it can't be avoided, how do you minimise the damage?

Melody Edwards, Senior Financial Adviser and Aged Care Specialist at Evalesco, doesn't sugar-coat it.

“For people on lower incomes who don't qualify for an exemption and who hold investments outside super, the reality is that the new rules may result in significantly higher tax on future capital gains,” she says.

One issue stood out above all others: the proposed reforms are set to fundamentally disrupt a strategy many Livewire readers and taxpayers have relied on for years - realising a capital gain and then making a large tax-deductible super contribution to reduce the resulting tax bill. 

Importantly, this disruption applies to the portion of capital gains accrued from 1 July 2027 onwards, with gains accrued before that date continuing to be assessed under the existing rules.

For investors approaching retirement, particularly those facing a confluence of modest labour income, significant unrealised capital gains and substantial available carry-forward concessional contribution caps, FY27 represents an important planning window before the new rules begin applying to gains accrued from 1 July 2027 onwards.

Read on to understand exactly what changes from 1 July 2027, explore worked examples, and learn how to prepare before the new rules take effect.

  The strategy Labor weakens from 1 July 2027  

One of the biggest casualties of the new rules is a strategy tax-savvy investors have relied on for years: triggering a large capital gain and then offsetting much of the tax by contributing the proceeds back into super using carry-forward concessional contributions.

To see why this matters, let's use a deliberately simple (and extreme) example.

Imagine you:

• Realise a $100,000 discounted capital gain ($200,000 gross capital gain).
• Have no other taxable income for the financial year.
• Have sufficient carry-forward concessional contribution cap available.

Under today's rules:

• Tax payable on the capital gain: ~$20,788 (an effective tax rate of around 10%).
• If you contribute the full $100,000 into super (by 30 June 2027) as a deductible concessional contribution, your taxable income effectively falls to zero.
• You pay only the 15% super contributions tax ($100,000 x 15% = $15,000).
• Tax saving: approximately $6,000 compared with making no contribution.

Keep in mind: This strategy generally requires your total super balance to have been below $500,000 at the previous 30 June, and you must have sufficient unused concessional contribution cap available.

How does it change? Brace for impact

Now let's assume the entire $100,000 discounted capital gain in the following example accrues after 1 July 2027 and is therefore subject to the new rules. The treatment changes as follows:

• Net capital gain accrued after 1 July 2027: $100,000
• Capital gains tax: $30,000 (30% minimum tax floor on the $100,000 discounted capital gain), PLUS
• Super contributions tax: $15,000 (15% of the $100,000)
• Total tax bill: $45,000.

The result: For a gain accrued entirely under the new rules, the exact same strategy that saves tax today could more than double your total tax bill.

As Edwards explains, that's why timing is becoming far more important.

“Investors with large unrealised gains and available carry-forward concessional contribution amounts may want to review their position before 1 July 2027. 

While gains accrued before that date will remain subject to the existing rules, gains accruing from 1 July 2027 onwards will be subject to the new regime, which could affect the value of strategies involving deductible super contributions.”

In a nutshell:

Building on the example - low tax versus high tax investor

To bring the numbers to life, Edwards has prepared the downloadable worksheet showing how the proposed rules affect both low- and high-income self-funded retirees, including the impact of Division 293 tax.

The results are eye-popping.

In the first example, a retiree with modest rental income and most of their wealth inside an account-based pension sells an investment property, crystallising a $100,000 capital gain.

If the sale occurs in FY27 and the proceeds are contributed to super before the rules change, they effectively pay only the 15% super contributions tax.

Under the worksheet's FY28 assumption that the $100,000 taxable gain has accrued after 1 July 2027, the retiree's tax bill jumps to $38,252 under the new 30% tax floor - an additional $23,252.

The high-income example tells a very different story.

Even after factoring in Division 293 tax, the investor suffers virtually no additional tax because their marginal tax rate already exceeds the new 30% minimum. In other words, the reforms barely change their outcome.

It's a surprising result. While many assume the changes are aimed at wealthy Australians, Edwards' modelling shows that, in some circumstances, lower-income investors with assets outside super could end up wearing the biggest tax increase.

➡️ DOWNLOAD MELODY'S WORKED EXAMPLES

Important clarification: All FY28 capital gains in the worksheet are assumed to have accrued after 1 July 2027 and are therefore subject to the new rules.

“It is terrifying”

One reader comment on my previous article captured the anxiety surrounding these changes better than anything I could have written:

"I am unable to work in a normal job due to health reasons. I invest in shares from working hard and saving prior to my health issues. It is terrifying. I earn under $50k and my tax will go from around $4,000 to $13,500."

Edwards says this is exactly the type of investor the new rules are likely to affect most: those on lower incomes who have spent years building wealth outside the superannuation system.

However, she says there is an important caveat. Investors who qualify for the Disability Support Pension would not be subject to the new 30% minimum capital gains tax rate, making it important to understand whether they are eligible for government income support.

She also recommends reviewing whether a condition of release has been met within super, as permanent incapacity benefits may provide a more tax-effective environment to hold investments and generate income.

For those who don't qualify for an exemption, planning still matters. Edwards recommends reviewing the timing of asset sales, making use of available capital losses and, where appropriate, spreading capital gains over multiple financial years rather than triggering one large tax event.

What about grandfathering?

For assets held before 1 July 2027, only the portion of the capital gain accrued from 1 July 2027 onwards will be subject to the new 30% minimum tax. The portion accrued before that date continues to be assessed under the existing rules.

As Edwards explains:

“For assets held before 1 July 2027, only the capital gain accrued from 1 July 2027 onwards will be subject to the new 30% minimum tax.

For example, if an asset had accrued a $100,000 capital gain before 1 July 2027 and a further $50,000 gain after that date, only the $50,000 post-1 July 2027 gain would be subject to the 30% minimum tax. The $100,000 grandfathered portion would continue to be assessed under the existing tax rules.

Importantly, this means there may still be scope to use deductible super contributions to reduce taxable income associated with the grandfathered portion of the capital gain, even where the asset is sold after 1 July 2027. Deductible super contributions would not, however, reduce the post-1 July 2027 gain that is subject to the 30% minimum tax.”

That's a crucial distinction. You don't necessarily need to sell an existing asset before 30 June 2027 to preserve today's tax treatment on gains already accrued. Even if the asset is sold later, the pre-1 July 2027 portion remains under the existing rules.

However, this makes good record-keeping critical, as investors may need to establish the value of their assets at 1 July 2027 to distinguish grandfathered gains from those accruing under the new rules.

One offset that still works: charitable giving

One Livewire reader asked whether charitable donations could still reduce tax under the new rules. The answer is yes.

“The legislation specifically preserves the benefit of deductible charitable gifts when calculating the new 30% minimum tax. This means a charitable donation can reduce both a taxpayer's taxable income and the capital gain subject to the minimum tax,” she says.

Illustrative example

Assume you have:

• $20,000 of other taxable income.
• A $50,000 taxable capital gain accrued after 1 July 2027 and subject to the new minimum tax.

Without making a charitable donation, your total tax bill would be approximately $15,252.

Now assume you make a $30,000 deductible charitable donation.

• Your taxable income falls to $40,000.
• The capital gain subject to the minimum tax falls from $50,000 to $20,000.
• Your total tax bill falls to approximately $6,252.

That's a tax saving of around $9,000.

As always, charitable giving should be driven by philanthropy rather than tax alone. But for investors who already support charities, understanding how deductible gifts interact with the new rules could meaningfully improve their after-tax outcome.

Final thoughts

The tax changes don't mean investors need to rush out and crystallise every existing gain before 30 June 2027. Gains accrued before 1 July 2027 retain their existing treatment even if the asset is sold later.

But they do make FY27 an important planning year - whether that's deciding when to sell assets, considering whether to put any major capital gains realised in the coming months back into super, weighing the higher tax on future gains, or getting your records and asset valuations in order.

It’s also worth remembering that to access unused concessional contributions under the carry-forward provisions, your total super balance must be below $500,000 at 30 June of the previous financial year.

One action you can take today is to find out how much carry-forward room you have left, which you can check through your ATO account by following the arrows in the screenshot above.

In the next instalment, we'll tackle the obvious question: Should you actually crystallise capital gains before 1 July 2027 - and who would benefit from doing so?

We'll speak with Vincent Stranges, Head of Product at Generation Life, about when bringing forward gains might make sense, when it doesn't, and which ownership and investment structures could become more attractive as the tax landscape changes.