Proposed Changes to Capital Gains Tax in Australia

Understanding Australia’s Current Capital Gains Tax Discount 

Currently:

• Assets held under 12 months: Full capital gain is taxable at your marginal tax rate.
• Assets held over 12 months: 50% of the capital gain is tax-free, remaining 50% is taxed at your marginal tax rate. 
• Primary residence: Exempt from CGT.
• Pre-1985 assets: Completely exempt from CGT.

This discount applies to all capital assets including property, shares, ETFs, and cryptocurrency. The legislation was designed to incentivise long-term investment and reward investors who contribute to economic stability. 

Example: If you purchased an investment property for $500k and sold it for $800k after holding it for more than 12 months, you’d have $300k in capital gain. Under current CGT rules, only $150k would be taxable at your marginal rate. 

‍

The Proposed Capital Gains Tax Changes 

The new proposal suggests reducing the CGT discount from 50% to just 25%. This change is being considered as part of housing affordability discussions.

Key proposal details:

• Reduce CGT discount from 50% to 25% for assets held over 12 months.
• Would apply to property, shares, and other capital assets. 
• First major CGT reform since the tax was introduced in 1985.
• Timing and implementation structure are still unclear. 

‍

The Property Market Impact

If CGT changes proceed with grandfathering provisions (protecting properties purchased before a certain date), three market dynamics emerge:

1. Supply Will Tighten

Existing property investors will hold properties longer rather than sell. Even underperforming properties become worth holding for tax efficiency. When supply contracts further while demand remains strong or increases, there’s only one outcome: prices rise, and so do rents. 

Why this matters: Australia already has a structural supply shortage. Further reducing available stock will intensify competition for the properties that do come to market. 

2. Demand Will Surge Before Implementation 

Rational investors will accelerate purchase timelines to secure properties under the more favourable 50% discount before any deadline. 

What history shows: When major tax changes include cutoff dates, transaction volumes and prices typically surge beforehand as buyers rush to secure grandfathered status. 

3. Transaction Volumes Will Drop

After implementation, many property investors will simply stop buying and selling to preserve their tax advantages, reducing market activity and available stock.

‍

Strategy Matters More Than Policy Changes

While tax efficiency is important, it should enhance your strategy, not drive it. The fundamentals of successful property investment remain constant:

Capital growth is the wealth driver: Investment properties in strong growth locations build wealth regardless of tax settings. A property growing at 6-7% annually still significantly outperforms savings accounts.

Location fundamentals trump timing: Infrastructure investment, employment hubs, population growth, and supply constraints drive long-term value. 

Leverage accelerates outcomes: Using borrowed capital to control appreciating assets remains powerful for wealth creation, regardless of CGT rules.

Long-term holding works: The most successful investors hold through cycles. Markets reward patience and penalise frequent trading.

‍

Why Early Action Builds More Wealth

Many investors wait for "perfect" conditions: lower rates, price corrections, or more savings. Waiting carries hidden costs that compound over time.

Successful investors understand that time in the property market is far more important than trying to perfectly time the market.

Lost Capital Growth

Australian property has grown at an average of 6.4% per year since 1999. While you save an extra $20,000, the property you're targeting might increase by $50,000 or more.

Example: A $750,000 property growing at 6.4% annually increases by $48,000 in one year. 

Missed Compounding

Every year out of the market is a year without equity growth. An investor who purchased five years ago now sits on substantial equity that can be leveraged into additional purchases. The investor who waited has nothing to leverage and faces higher entry prices.

Permanent Tax Disadvantage

If grandfathering proceeds, every property purchased after the implementation date permanently falls under less favourable tax treatment. Over 20-30 years, this could represent hundreds of thousands in additional tax paid.

The Bottom Line: Be Prepared, Not Panicked

Whether CGT changes proceed or not, the Australian property market rewards strategic action over hesitation.

Investment properties in growth locations with strong fundamentals will continue building wealth regardless of tax policy changes. The difference is that investors with clear strategies and willingness to act position themselves for success across different scenarios.

The cost of waiting isn't just financial, it's an opportunity lost. Every month you delay is another month of equity growth missed and another month further from your wealth goals.

‍

Focus on what you can control:

• Your investment strategy and goals
• The markets and properties you choose
• Your financial preparation and borrowing capacity
• The team of professionals supporting your decisions

Tax policy will change over time. Market conditions will fluctuate. But investors with clear strategies built on capital growth fundamentals consistently build wealth through these changes.

‍

Ready to Make Data-Driven Investment Decisions?

At Search Property, we help investors identify markets and property types that align with long-term wealth goals. Our 12.21% average growth rate in 2025 outperformed the national average for the sixth consecutive year, and we did it by focusing on fundamentals, not trends.

Book a FREE investment assessment with Search Property. We'll discuss your budget, goals, and strategy to ensure you're investing in assets that actually build wealth.