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CGT Discount Changes: What a Reduced Discount Could Mean for Property Investors

If you own an investment property, you’ve probably built part of your long-term plan around one key idea: when you eventually sell, the tax on any capital gain may be softened by the 50% CGT discount (provided you’ve held the property for more than 12 months). That’s why investors should pay attention to possible changes to the CGT discount, as a reduction could impact the “after-tax” outcome of selling, especially for those who have owned property for many years.

As of publishing, these changes have not been put into place, however Treasury has reportedly been examining options including reducing the discount (for example, figures such as 33% have been discussed publicly), with the issue also linked to broader housing affordability and “intergenerational equity” conversations.

For Australian investment property owners, the key is to understand how the current rules work, what a reduced discount could change, and what you can do now to stay prepared without making rushed decisions.

How the CGT discount works today

In simple terms, capital gains tax (CGT) is the tax you pay on the profit (capital gain) you make when you sell an asset such as an investment property. For Australian resident individuals and many trusts, if you’ve owned the asset for at least 12 months, you can generally reduce the capital gain you include in your taxable income by 50%. For property sales, the CGT “event” is usually the contract date, not settlement. That means the timing of when you sign can matter, especially if you are close to the 12-month threshold.

Also remember the discount is applied after capital losses are netted off (where relevant), and your final tax outcome depends on your marginal tax rate in the year the gain is assessed. The practical takeaway is that CGT planning is rarely just about the property itself, it also concerns your broader tax position, timing, and structure.

What’s being proposed (and what we know so far)

Public reporting indicates the Government has not ruled out changes to investor tax settings, and that options have been examined in the lead-up to the May Federal Budget. One proposal discussed in the media is a reduction in the CGT discount from 50% to 33% (a reminder this is still commentary at this stage, not legislation). There is also a Senate Select Committee examining the operation of the CGT discount, with a final report due 17 March 2026. This inquiry has attracted submissions from multiple stakeholders and think tanks, including the Grattan Institute, which has argued for a larger reduction (for example, to 25%) and has discussed how additional revenue could be used for broader reform.

Importantly, key design questions matter just as much as the headline number, such as whether changes would be grandfathered, phased in, or apply only from a certain start date. Until legislation is released, investors should treat everything as “watch and prepare”, not “act immediately”.

How a reduced CGT discount might affect you

If the discount is reduced, the main impact is straightforward: a larger portion of your capital gain could be taxable, which may increase the tax payable upon sale. That can change decisions such as when to sell, whether to hold for longer, or how sale proceeds fit into retirement and debt-reduction plans.

However, the effect won’t be identical for everyone. It may be more noticeable if:

• you expect a large capital gain (long holding period, strong price growth)
• you plan to sell in a year where you also have high taxable income
• the property is held in a structure where the discount matters (for example, individuals and trusts can access the discount, while companies generally can’t)
• your strategy involves selling to “crystallise” gains rather than refinancing or holding indefinitely.

It’s also worth considering the broader market debate: some groups argue changes may improve the tax system and budget sustainability, while others warn it may pressure “mum and dad” investors to sell, thus putting further pressure on rental supply. Whatever the policy intent, your focus should be your personal numbers: the property’s likely gain, your cash flow, and your goals.

Practical steps to consider now (without rushing into a sale)

If you’re concerned about potential CGT discount changes, the best first step is to gain clarity. Here are practical actions that can help you stay in control:

1) Model your “sell” scenarios: Work out an estimated capital gain, then compare outcomes under the current discount and a reduced discount. This helps you quantify the possible difference rather than guessing.

2) Review timing and income: Because CGT is assessed in the year of the CGT event (often the contract date for property), timing a sale around other income events can materially change the after-tax result.

3) Check records and cost base now: Many investors lose value simply through poor documentation (purchase costs, eligible improvements, selling costs). Tight records can reduce the taxable gain under any policy setting.

4) Consider structure implications before you act: Structure changes can have tax and legal consequences and may not be simple (or even possible) without triggering tax events. This is an area where tailored advice matters.

5) Keep an eye out for formal announcements: Between the Senate committee reporting date and the Budget process, details can change quickly.

What Now?

Talk of CGT discount changes can feel unsettling, especially if your investment property forms a key part of your long-term wealth plan. The good news is you don’t need to make big decisions based on speculation. What you can do right now is understand how CGT works, quantify what a reduced discount could mean for you, and make sure your plan is flexible enough to adapt if rules change.

At McKinley Plowman, our Tax team works with property investors to model scenarios, review record-keeping and cost base issues, and align decisions with broader goals like retirement, debt reduction, and portfolio reshaping. Because when the rules change, the investors who do best are usually the ones who planned early and did so based on the numbers.

If you own an investment property and want to understand how proposed CGT discount changes could affect your after-tax outcome, speak with McKinley Plowman’s Tax team. Call (08) 9301 2200 or book an appointment via our contact page to model your options and plan with confidence.

Please note the information contained within this article is general in nature and does not constitute tax advice. Always seek advice tailored to your circumstances.

Further reading: CGT discount | Australian Taxation Office

written by:

Dean Birch

With close to two decades of experience in tax consulting across Australia and the United Kingdom, Dean Birch is a highly regarded tax specialist known for his ability to interpret complex legislation and translate it into practical, commercial outcomes for clients. His career spans public practice, large corporate environments and hands-on management roles, giving him a well-rounded understanding of both technical tax issues and real-world business challenges.

Dean specialises in providing tax advisory services to corporate entities, government agencies, not-for-profit organisations, Aboriginal corporations and small to medium enterprises. His areas of expertise include income tax, indirect taxes, employment taxes, Fringe Benefits Tax, GST, capital gains tax, salary packaging, fuel tax credits, PAYG and superannuation guarantee matters. He is particularly valued for his pragmatic approach and his ability to deliver clear, workable solutions in highly regulated and complex environments.

Having spent more than 15 years in senior management roles within a multinational organisation in the UK, Dean brings strong commercial insight to his advisory work. This experience enables him to look beyond compliance and focus on how tax outcomes support broader operational and strategic objectives.

Committed to delivering high-quality advice and supporting the broader advisory team, Dean plays an active role in technical training and mentoring. He is known for his practical mindset, clear communication style and collaborative approach, all of which align strongly with McKinley Plowman’s commitment to delivering thoughtful, client-focused advice.

Outside of work, Dean has a wide range of interests. He’s a classic car enthusiast and proudly owns a Triumph Spitfire back in the UK, though he admits it’s getting far less road time since he moved to Australia! A long-time Nottingham Forest supporter, Dean continues to cheer them on from afar (no matter how nerve-wracking the season gets). When he’s not following the football, you’ll often find him exploring new places, enjoying good coffee, or catching up with friends.