- Taxed portion
- Estimated tax
- Effective rate
- Net
For early-stage employees with ESOPs
Will holding your ESOP still pay off?
Today, holding your shares 12+ months gets you the 50% CGT discount. Labor's proposed reform (2026-27 Budget, from 1 July 2027) replaces that with inflation indexation. Because an ESOP strike price is tiny, indexation barely helps — so the reward for holding could largely disappear. See your numbers across all three.
Your ESOP details
Your three outcomes
Capital gain at exit:
- Taxed portion
- Estimated tax
- Effective rate
- Net
- Taxed portion
- Estimated tax
- Effective rate
- Net
What this assumes (read before you rely on it)
- Australian tax resident, 2024-25 resident tax rates (Stage 3).
- Includes the 2% Medicare levy; ignores Medicare levy surcharge, HELP/HECS and tax offsets.
- Treats the whole gain under CGT rules. It does not model Div 83A employee-share-scheme taxing points or the startup concession eligibility tests.
- Today's rules: the 50% CGT discount applies where shares are held more than 12 months.
- Proposed rules (Labor 2026-27 Budget, from 1 July 2027): the 50% discount is replaced by inflation indexation of the cost base, with a 30% minimum tax rate on the gain. These are NOT law yet and the startup/ESOP treatment is still under consultation.
- Indexation here is applied over your whole holding period for illustration; the actual measure is prospective and only affects gains accruing after 1 July 2027.
- Ignores brokerage, fees, prior-year capital losses, and any amount already taxed to you as income.
Always confirm with a registered tax agent — search the TPB register.
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How the 2026-27 Budget CGT reform could affect ESOPs
In the 2026-27 Federal Budget (announced 12 May 2026), the Australian Government proposed replacing the long-standing 50% capital gains tax (CGT) discount with CPI (inflation) indexation of the cost base, together with a 30% minimum tax rate on realised gains, from 1 July 2027. The change is prospective: gains that accrued on assets before 1 July 2027 keep the existing 50% discount. It applies to CGT assets — including shares — held by individuals, partnerships and trusts.
This is a fluid situation — read this first. The measure above is a proposal, not law. The Treasurer has said the treatment of early-stage and startup businesses — specifically capital gains "where indexation is applied to a low or zero cost base", which is the typical employee-share-scheme case — is still under government consultation and may change. This page reflects our understanding as at 31 May 2026; if the government changes the rules, it will need updating. Treat every figure as a directional estimate that may contain mistakes, form your own view, and consult your own registered tax agent, accountant or lawyer.
Why employees with ESOPs are hit hardest
Employees are often granted options with a very low or even zero strike price. CPI indexation only lifts the cost base — so when the cost base is already near zero, indexation lifts it by almost nothing. The indexed ("real") gain therefore stays nearly as large as the nominal gain, and is taxed at no less than 30%. The result: most of the tax benefit that holding shares 12+ months gives today under the 50% discount would disappear under the proposed rules. In short, for early employees the reward for holding largely evaporates.
A worked example
Suppose you hold 10,000 options with a $0.10 strike price (cost base $1,000) and sell at $5.00 a share ($50,000) after holding 4 years, on top of a $120,000 salary, with inflation around 2.5%.
- Exercise now & sell (held under 12 months): the full ~$49,000 gain is taxed at your marginal rate — the same under today's and the proposed rules.
- Hold 12+ months — today's rules: the 50% discount means only ~$24,500 of the gain is taxed, so you keep substantially more.
- Hold 12+ months — proposed rules (from 1 July 2027): indexing the $1,000 cost base by ~2.5% over 4 years lifts it to only about $1,104, so almost the entire ~$49,000 gain is still taxed (at no less than 30%). Holding buys you very little. Enter your own numbers in the calculator above to see your figures.
Frequently asked questions
What is changing with CGT in the 2026-27 Budget?
The Government proposes replacing the 50% CGT discount with CPI indexation of the cost base plus a 30% minimum tax rate on realised gains, from 1 July 2027. It is prospective and not yet law.
When would it start?
It would apply to gains arising after 1 July 2027. Gains accrued before that date keep the current 50% discount.
Is the ESOP treatment final?
No. The treatment of startups and employee share schemes — especially where indexation applies to a low or zero cost base — is still under government consultation and may change.
Is this tool tax advice?
No. It is general information only and may contain mistakes. Form your own view and consult your own registered tax agent, accountant or lawyer before making any decision.
Sources: Prime Minister of Australia — tax reform announcement, Budget 2026-27 tax reform. Built by Haris Habib. Last updated 31 May 2026.