How proposed CGT reforms could affect property investors

As the May 2026 Federal Budget approaches, property investors are wary of proposed changes to Capital Gains Tax (CGT).

Particularly in relation to the general CGT discount for individuals and trusts who hold investment properties for longer than 12 months.

Having been on the government’s radar for some time, the proposed reforms are being described as a means of tackling housing affordability, while improving equity between generations.

A range of tax reform ideas have been floated by various parties, with a recent proposal from Independent MP Allegra Spender drawing significant media attention. We have also recently seen the release of the final report from the Senate Select Committee on the Operation of the Capital Gains Tax Discount, which details a range of reform options while highlighting a sharp divide between the majority's call for reform and the Coalition's focus on supply-side solutions.

Proposed CGT changes ahead of the May budget

Among other findings, the committee’s report noted that the current design of the general CGT discount can distort investment decisions, disproportionately benefit higher income taxpayers, and (when combined with negative gearing) contribute to housing affordability pressures.

With the Parliamentary Budget Office also estimating the CGT discount will cost the federal budget around $247 billion in forgone revenue over the next decade, it’s unsurprising that reform ideas are gaining traction.

In terms of what we could see unfold, the following has been proposed by Allegra Spender in relation to property investment:

• Reduced CGT discount – cutting the general CGT discount from 50% to 30% for both investment properties and shares.
• "Ring-fencing" negative gearing – preventing investors from offsetting losses against their wages, so they can only offset losses against other investment income.
• Minimum investment tax – introducing a minimum 27.5% tax rate on non-labour (e.g., investment income, including family trusts) to reduce artificial income splitting.

This is now on the table alongside other reform possibilities detailed in the committee’s report, such as halving the general CGT discount, or returning to the "Keating-era" indexation method used between 1985 and 1999. Under this method, CGT would only apply to an adjusted cost base which accounts for inflation (so you only get taxed on the ‘real’ gain above inflation).

Views on reform remain divided across parliament. Most committee members supported the case for reform in principle, whereas Coalition senators issued a dissenting report arguing that housing affordability challenges are primarily driven by supply constraints rather than tax settings and the current CGT framework should remain unchanged.

As a result, the precise direction and timing of any changes remain uncertain.

Considerations for property investors 

One of the biggest unknowns around changes to CGT policy is whether a grandfathering provision will be included. Grandfathering means assets acquired before a specific date are treated under the old tax rules rather than the new ones.

Under Allegra Spender’s proposal, capital gains accrued up to the commencement date would be grandfathered at the current 50% discount rate, while future gains on existing assets would face a reduced 30% discount. This approach would presumably require valuations at the announcement date, so pre-announcement gains could be quarantined. In the committee’s report, several inquiry participants warned against grandfathering entirely, noting increased complexity on the taxation system and potential worsening of “intergenerational outcomes by discouraging existing investors from selling assets and realising capital gains”.

Ahead of the May Federal Budget, property investors could benefit from replacing a set-and-forget mindset with a more active approach to risk management. This includes any timelines for the sale of investment properties (i.e., before the May budget if you’re already planning to sell, or before the confirmed end of any grandfathering periods), as well as other options for structuring property investments.

For example, if the general CGT discount available to individuals and trusts were abolished, purchasing through a company may become relatively more attractive in some circumstances, noting that companies do not qualify for the general CGT discount and instead tax capital gains within the company at company tax rates – 25% for base rate entities and 30% for other companies – rather than relying on a discount.

If we instead see a return to indexation, investors will need to remember that receipts and record keeping for acquisition and capital improvement costs (such as renovations and extensions) will be especially valuable. Under indexation, these costs are also adjusted for inflation and directly reduce your taxable gain.

A further consideration would be to watch for a “listing cliff” post budget. If housing supply drops because investors are clinging to grandfathered assets, this could create a temporary price floor that will benefit those who do decide to sell.

Ideally, engage openly with your accountant or financial adviser about how the changes could affect you. Advice around entity structure and ownership may become more nuanced under any new rules, and the right approach will likely depend heavily on your specific circumstances as an investor. You might also consider asking your adviser to conduct scenario modelling, so you can be well prepared regardless of what unfolds in the coming months.  
 

FOR MORE INFORMATION

To speak with a skilled tax adviser or accountant from RSM about how potential CGT changes could affect your investment portfolio, contact your local RSM office.