Why the 2027 CGT Changes Could Make Tax Loss Optimisation More Valuable Than Ever
As Australia transitions from the 50% CGT discount to cost-base indexation, the ability to monitor, optimise and realise tax losses will become an increasingly important driver of after-tax investment outcomes.
The question advisers are asking
Direct Indexing in the United States has become a US$864 billion market, with assets almost doubling over the past three years as advisers increasingly focus on tax-aware and personalised portfolio management. According to The Cerulli Edge, direct indexing assets ended 2025 at $1.2 trillion USD [1], and the firm projects that direct indexing will grow faster than ETFs, mutual funds and traditional separate accounts over the next five years. In that short time, direct indexing has been associated with many benefits, the greatest one being the ability to realise capital losses at the individual security level and use those losses to offset capital gains elsewhere in a client portfolio.
With the proposed 2027 capital gains tax changes in Australia replacing the 50% CGT discount with cost base indexation for post-reform investments, many advisers and their clients are asking the most practical question “does direct-indexing and tax-loss optimisation become more or less valuable”?
The answer from our scenario analysis is straightforward, the benefit does not disappear. In certain scenarios, the value of a realised loss actually increases. Most importantly, the timing of that value becomes more dependent on each client’s cost bases, holding periods and available gains.
The current system - why a $2,000 loss is worth less than it looks
Under the current CGT regime, assets held for more than 12 months generally receive a 50% capital gains discount. That discount reduces the tax payable on gains, but it also reduces the value of any capital loss that is used to offset those gains.
For an investor on a 46.5% marginal tax rate, including Medicare levy, a $2,000 loss used against a short-term gain can save $930 in tax. The same $2,000 loss used against a discounted long-term gain saves $465.
Put simply - under the current rules, once the 50% discount applies, a capital loss offsets a gain that is effectively only half taxable. The tax value of the loss is therefore reduced.
What changes under the proposed 2027 regime?
Under the proposed rules in our analysis, the 50% CGT discount is replaced by cost base indexation for post-reform gains. The cost base is increased by inflation and any remaining gain is taxed without the 50% discount.
That changes not only the economics of tax-loss optimisation but makes portfolio management much more complex. Where a gain remains after indexation, a realised loss offsets a fully taxable gain rather than a discounted gain. In those cases, a $2,000 realised loss can be worth up to $930, broadly double the $465 benefit available against a discounted gain under the current regime.
What our analysis shows
Our analysis references an investor portfolio, assuming a $10,000 nominal capital gain, a $2,000 realised capital loss available to offset, a 46.5% marginal tax rate including Medicare levy, and 3.0% annual inflation.
| Scenario | 2026 Regime (Current) Value of $2,000 Loss |
2027 Regime (New) Value of $2,000 Loss |
Key Takeaway |
|---|---|---|---|
| Held under 1 year | $930 | $930 | No change. No discount or indexation applies. |
| $100k cost base, 1 year | $465 | $930 | Loss offsets a fully taxable post-indexation gain. |
| $250k cost base, 1 year | $465 | $930 | The larger cost base creates a larger inflation uplift, but the loss is still fully utilised. |
| $100k cost base, 3 years | $465 | $338 | Indexation reduces the gain, with part of the loss carried forward. |
| $250k cost base, 3 years | $465 | $0 immediate benefit | Indexation removes the gain entirely, with the full loss carried forward. |
Important: Illustrative examples only. Assumptions apply. Actual tax outcomes will depend on individual circumstances and applicable tax laws. This information is general in nature and should not be considered tax or financial advice.
Three adviser takeaways
1. Losses can become more valuable where gains still exist
Under the current regime, a $2,000 loss used against a discounted long-term gain saves $465 for an investor on the top marginal tax rate.
Under the proposed 2027 framework, where a gain remains after indexation, the same $2,000 loss can save $930 because it offsets a fully taxable gain.
2. Cost base and holding period start to matter much more
Under the current rules, the four examples in our analysis held for 12 months or more all produce the same outcome. Once the 50% discount applies, the original cost base and additional holding period do not change the value of the loss in these examples.
Under the proposed rules, that changes.
The higher the cost base and the longer the holding period, the larger the indexation uplift. This can reduce the taxable gain, which in turn affects how much of the realised loss can be used immediately.
3. When Holding Periods Increase, So Does Portfolio Complexity
Our modelling also highlights an important reality. Under the proposed 2027 rules, managing after-tax outcomes becomes significantly more complex.
As holdings age, inflation indexation can reduce taxable gains, meaning a realised loss may not always be fully utilised immediately. Some losses may need to be carried forward and deployed against future gains.
For financial advisers, this creates a portfolio management challenge that is difficult to solve manually and continuously. A direct index portfolio can contain hundreds of individual securities, with multiple parcels purchased at different times and prices. Across a growing advice business, this quickly becomes thousands of stocks and tens of thousands of tax lots that need to be monitored continuously.
Why Technology can help in portfolio administration and tracking tax complexity
A technology-enabled direct indexing platform monitors every stock, every parcel and every client portfolio on a daily basis. The objective is not simply to realise losses. It is to track the parent benchmark efficiently while identifying opportunities to improve after-tax investment outcomes.
Monitor unrealised gains and losses across every holding.
Assess parcel-level tax positions as markets move, across differing tax regimes.
Monitor unrealised gains and losses across the portfolio to support ongoing tax-aware portfolio management.
Rebalance portfolios back towards the target benchmark as portfolios.
Manage tracking error, cash, corporate actions and portfolio tracking difference.
Implement trades efficiently across multiple client accounts and across multiple brokers and platforms.
As the number of clients, holdings and tax parcels grows, the complexity increases exponentially. What may be manageable in a handful of portfolios quickly becomes impractical to administer consistently at scale using spreadsheets and manual processes.
The proposed CGT regime places greater importance on cost bases, holding periods and inflation-adjusted gains, making ongoing tax management an increasingly valuable component of portfolio construction.
For advisers, the real opportunity is not simply access to direct indexing. It is access to technology that can systematically monitor, optimise, rebalance and implement tax-aware portfolio decisions at scale, while clients retain direct ownership of every security within their portfolio at the broker or platform of their choice.
Why this matters for investors
For investors, the message is simpler: taxes can have a meaningful impact on the return they actually keep. If the tax rules place more emphasis on cost bases, holding periods and realised gains, then having more control over when gains and losses are realised becomes more valuable.
Direct indexing gives each investor their own portfolio of underlying securities rather than exposure through a pooled vehicle. That individual ownership creates more flexibility to manage tax outcomes around the investor’s own circumstances, existing gains, cash flows and time horizon.
The benefit is not that every loss creates an immediate cash saving. The benefit is that losses can be identified, realised, used where available, or carried forward for future use. That requires ongoing monitoring rather than a once-a-year review.
The growing case for Direct Indexing
The proposed 2027 CGT reforms do not reduce the importance of tax-loss optimisation. In many cases, realised losses may become even more valuable by offsetting gains that are taxed at an investor's full marginal rate. What changes is the complexity of managing those outcomes, with cost bases, holding periods, inflation indexation and parcel-level tax positions playing a much larger role. As a result, tax-aware portfolio management becomes less about identifying a single loss at year-end and more about continuously managing the interaction between benchmark exposure, tax lots, realised gains and carried-forward losses. In this environment, technology-enabled direct indexing can assist advisers to monitor, rebalance and implement tax-aware investment decisions at scale, which may support improved after-tax outcomes depending on investor circumstances and market conditions while clients retain direct ownership of the underlying securities within their portfolios.
Footnotes
1 The Cerulli Edge, U.S. Managed Accounts Edition, Q1 2026.
General information only. This material is current to 14 August 2026 and is issued by Briefcase Pty Limited AFSL 546 257. It does not constitute financial, tax or legal advice and does not take into account any person's objectives, financial situation or needs. Tax outcomes depend on individual circumstances and applicable law, which may change. This material is intended solely for wholesale clients as defined in the Corporations Act 2001 (Cth) and must not be relied upon by retail clients.