Capital Gains Tax Reform: What It Could Mean for Your Property Strategy

If you’ve been following the news lately, you’ve probably noticed capital gains tax (CGT) returning to the spotlight.

With Treasurer Jim Chalmers signaling that tax reform is on the table and housing affordability once again front and centre, there is growing speculation 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 suggesting a deeper cut to 33% or even 25%.

For active property buyers and investors, this isn’t just a policy discussion. It’s a potential shift that could influence acquisition decisions, holding periods, and long-term returns.

That’s why even talk of Capital Gains Tax reform in Australian housing deserves attention. Not panic, but practical, forward-looking planning.

Here, we break down what’s being discussed, how the market is reacting, how Australia compares globally, and what this could mean for your property strategy.

What’s Being Considered

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 remains 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.

From a strategy perspective, the impact is significant. If the discount were cut to 25%, an individual on the top marginal tax rate could see the effective tax rate on capital gains rise from about 23.5% to roughly 35%. That’s a meaningful shift in after-tax returns, particularly for investors planning to realise gains.

Market Sentiment: Opportunity vs Uncertainty

Public sentiment is far more mixed and more nuanced than in previous reform discussions.

On one side, housing advocates, unions and many economists argue that the CGT discount disproportionately benefits higher-income Australians, encourages investment in existing housing and contributes to affordability challenges.

On the other, investors and industry groups are focused on confidence and supply. Changing CGT settings mid-stream can influence investor behaviour, particularly around timing of purchases and sales.

There are also flow-on considerations. Investor demand plays a role in funding new developments, especially apartments. If demand softens, projects may be delayed, which can tighten future housing supply.

For buyers and investors, this creates a more complex landscape: balancing potential policy risk with long-term opportunity.

How Australia Compares Globally

For individual property investors, Australia’s CGT framework is not necessarily more generous than other major markets.

The US and UK apply capital gains tax at lower rates (around 0–20% in the US and 18–24% in the UK), typically below top marginal income tax rates. Canada allows a 50% inclusion rate, while New Zealand generally does not tax long-term capital gains on property unless it is deemed speculative.

This global context is important, particularly for investors comparing asset classes and jurisdictions as part of broader wealth strategies.

Would CGT Changes Improve Affordability?

Expectations here need to be realistic.

Most independent modelling suggests that reducing the CGT discount alone would have only a modest impact on property prices, typically in the range of 1–4%.

The more meaningful effects are behavioural.

Investors may hold properties longer to defer tax, which could reduce transaction volumes. Some may reassess new acquisitions, while others may shift focus towards rental yield over capital growth.

There is also the potential for unintended consequences. In already tight rental markets, reduced investor activity could constrain supply further. Over time, higher tax costs may also be factored into rental pricing.

Most economists agree that CGT reform on its own is not a silver bullet. Without planning reform, construction incentives, and infrastructure investment, the impact on affordability is likely to remain limited.

What Should Property Investors Be Doing Now?

Rather than reacting to headlines, this is a time for measured, strategic action.

A few practical considerations for active buyers and investors:

• Review your acquisition strategy, particularly around growth vs yield

• Consider holding periods and how timing of sale may impact after-tax returns

• Assess ownership structures to ensure they remain tax-effective

• Factor potential policy changes into feasibility for new purchases

• Revisit long-term plans, including retirement and succession strategies

For buyers working with Propertybuyer, this is also an opportunity to be more selective, focusing on assets that perform well under a range of tax scenarios, not just the current settings.

What This Means for Your Property Strategy

At its core, this discussion is not about next year’s tax bill, it’s about long-term positioning.

If CGT rules change, the biggest implications will likely be around when you sell, how assets are structured, and how your portfolio supports your broader financial goals.

For long-term investors, the impact may be manageable, but the key is making informed decisions early, rather than reacting later.

Final Thoughts

The current narrative often paints property investors as high-income earners. In reality, most are everyday Australians building wealth over time.

Around 71.5% of investors own just one investment property, and approximately 20–22% of households hold at least one. Many are working professionals (teachers, nurses, and tradespeople) investing with the goal of funding their own retirement.

For these investors, changes to CGT are not just theoretical. They directly affect long-term outcomes.

From both a tax and property strategy perspective, stability and clarity are critical. If changes do proceed, there is a strong case for grandfathering existing investments to preserve confidence and fairness.

Ultimately, the right response is not alarm. It’s alignment.

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.

Planning Ahead

If you’re considering how potential CGT changes may fit into your broader strategy, it may be worth exploring the right advice early. You can learn more about how we support property investors at www.chan-naylor.com.au

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.

About the author

David Naylor, Co-founder, Chan & Naylor

With more than 35 years of experience, David Naylor is a highly skilled authority in property and business tax strategies. He commenced his working life in the banking industry before starting his own accounting business from an office within his parents’ home. He began with a small portfolio of clients consisting of friends and family and grew it into Australia’s fastest- growing property, business, tax-accounting and wealth advisory group.

Specialising in guiding small business owners and investors, David co-authored “Small to Great”, helping thousands of people to unlock their financial potential. He has founded and grown several successful businesses, gaining hands-on expertise in wealth-building and asset protection. David is widely recognised for his ability to harness property investment to drive business growth and ensure long-term financial security.

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