If you’ve been following the news lately, you’ve probably noticed capital gains tax (CGT) creeping back into the headlines again.
With Treasurer Jim Chalmers openly acknowledging that tax reform is on the table, and housing affordability once again front and centre, speculation is growing that the 50% CGT discount for property investors could be reduced. Various options have been floated, including a reduction to around 40%, with some commentators pushing for a deeper cut to 33% or even 25%.
For many of our clients, property isn’t a short term trade. It’s a long term wealth strategy. That’s why even talk of a CGT change deserves attention, not panic, but planning.
So let’s break down what’s being discussed, how Australians are reacting, how Australia stacks up internationally for individual property owners, and whether cutting the CGT discount would actually improve housing affordability.
What’s the Government Considering?
At this stage, nothing has been legislated. However, a few consistent themes are emerging from media commentary and industry discussion.
First, the most commonly discussed idea is a reduction of the CGT discount from 50% to somewhere between 25% and 40%.
Second, the focus appears to be primarily on individual investors and property, rather than business assets, although there has also been some discussion about whether shares could be included.
Third, grandfathering is still unclear. It’s uncertain whether existing properties would retain the 50% discount, with new rules applying only to future purchases, or whether the change would apply more broadly.
Finally, if anything is announced, it would most likely come out of the May Federal Budget.
To put this into perspective, if the discount were cut to 25%, an individual on the top marginal tax rate would see the effective tax rate on capital gains rise from about 23.5% to roughly 35%. That’s a meaningful increase, particularly when gains are realised in one hit.
How Are Australians Feeling About It?
Public sentiment is far more mixed, and more nuanced, than it was back in 2019.
On one side of the debate, housing advocates, unions and many economists argue that the CGT discount disproportionately benefits higher income Australians ( which in my view is a flawed argument see below), encourages speculative investment in existing housing, and worsens intergenerational inequality.
On the other side, property investors and industry groups warn that changing CGT rules mid stream undermines long term investment confidence. There are also concerns that rental supply could shrink if investors hold properties longer or exit the market altogether.
Another key concern is new construction. Apartment development may slow further as builders face tougher pre sale conditions, with fewer investors buying off the plan all while construction, labour and financing costs continue to rise. Over time, higher future tax costs may also be passed on through higher rents.
Polling suggests there is moderate public support for winding back concessions, but that support tends to soften once people understand the possible flow on effects to rents and retirement planning. In short, this is not a clear cut political winner which likely explains why the Government is moving cautiously.
How Does Australia Compare Internationally?
For individual property owners, Australia’s CGT discount is not obviously generous by global standards. The US and UK tax capital gains at lower rates (around 0–20% in the US and 18–24% in the UK), well below top income tax rates. Canada allows 50% discount on capital gains, while New Zealand generally does not tax capital gains on long term investment property unless it was bought for speculative profit from quick resale.
The Big Question: Would Cutting the CGT Discount Fix Housing Affordability — or Is It Just a Money Grab?
This is where expectations need to be realistic.
Most independent economic modelling suggests that reducing the CGT discount alone would only have a modest impact on house prices, typically estimated at around 1–4% lower than they otherwise would be.
The more meaningful effects are likely to come from behavioural changes. Investors may hold properties longer to defer tax, turnover of existing housing could fall, and some investors may rethink new purchases. We may also see a greater focus on rental yield rather than capital growth.
There’s also a real risk of unintended consequences, particularly in already tight rental markets. If investors delay selling, supply may not increase. If investor demand falls without new construction picking up, rents could rise. Over time, landlords may try to recover higher future CGT costs through rent.
Most economists agree that CGT reform on its own is not a silver bullet. Without planning reform, construction incentives and infrastructure investment, tax changes can only do so much.
What This Means for Property Investors
At its core, this debate isn’t about next year’s tax bill, it’s about long term strategy.
If CGT rules do change, the biggest implications are likely to be around when you sell, how assets are structured, how retirement and succession plans are funded, and the balance between growth and income.
For long term investors who aren’t planning to sell anytime soon, the impact may be more manageable than headlines suggest, but early planning matters.
Final Thoughts — My View
The current narrative often paints property investors as wealthy, high income earners. In reality, the vast majority of Australian property investors are everyday “mum and dad” investors with small portfolios, typically one property.
The data backs this up. Around 71.5% of investors own just one investment property, and approximately 20–22% of Australian households own at least one investment property. While property investment was once dominated by high wealth professionals, more recent data shows a broad socio economic mix. More than half of investors sit outside the top 20% of income earners, with common occupations including teachers, nurses and tradespeople. Roughly 18.9% own two properties, while fewer than 1% hold six or more.
Many of these people invested based on the rules at the time, with the goal of funding their own retirement. A reduction in the CGT discount means less cash on exit, which can materially disrupt retirement planning and potentially increase future reliance on the age pension — which, in my view, defeats the purpose.
It’s also difficult to see how it’s fair for long term investors who have borrowed and taken serious risk and made sacrifice over decades only to have the goalposts moved mid stream, particularly when the impact directly affects retirement income. It would be hard to see how once the investor gets a full understanding of the proposal and how that will directly impact them that public sentiment will change. If changes do proceed, fairness would suggest that the Government grandfather existing investments, just as it did when CGT was introduced in 1985.
As always, the right response isn’t alarm, it’s informed, proactive advice.
If you’re holding property for the long term, now is the time to review your strategy, understand your exposure, and make future decisions with clarity, not hindsight.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
