CGT Discount in Australia: Impact on Property Investors & Retirees

Australia’s capital gains tax (CGT) discount has become a cornerstone of property investment policy. While the concession has supported long-term investment, growing concerns about housing affordability and tax fairness have sparked renewed discussion about whether the current arrangements should be changed.

At present, proposals to reduce the CGT discount remain under discussion and have not been implemented as law. That said, the ongoing debate is worth paying attention to, particularly if you own investment property or are planning for retirement.

What Is the CGT Discount?

The capital gains tax (CGT) discount is a tax concession that reduces the amount of tax payable when an individual or trust sells an asset for a profit. If an investment property is held for more than 12 months, only 50% of the capital gain is included in taxable income and taxed at the owner’s marginal rate. The discount generally does not apply to companies, and owner-occupied homes that qualify as a main residence are usually exempt from CGT.

Why the CGT Discount Matters

The availability of the discount has historically made investment property more attractive, particularly in a rising market.

Those in favour of reform argue that reducing the CGT discount on residential property could make holding investment properties less lucrative, potentially increasing housing supply for owner-occupiers and helping to moderate price growth. Longer term, this could ease some pressure on housing affordability.

However, many investors and industry groups caution that reducing the CGT discount could have the opposite effect in the short term: by encouraging investors to hold onto properties longer or exit the rental market, which could reduce rental supply and push up rents.

Fiscal and Social Considerations Behind the Policy Debate

Beyond questions of tax fairness, the CGT reform discussion is also linked to broader fiscal and social considerations. A reduction in the discount could increase government tax revenue, which may support housing initiatives or policies relating to retirement and ageing populations, while also improving perceived equity in the tax system.

At the same time, because investment property ownership is widespread, any reform may face political resistance. As a result, whether such changes will be implemented in the near term remains uncertain.

What It Means for Property Investors

If changes were to be introduced, investors might face higher tax bills when selling residential property in the future. This could influence decisions on whether to keep or sell investment properties as part of a broader wealth strategy.

It’s important to note that no changes have been legislated yet. Any future reform would require parliamentary approval, likely following significant consultation and transitional arrangements.

Implications for Retirees and Homeowners

For most retirees living in their principal place of residence, CGT reform would have no direct impact. Owner occupied homes are generally exempt from CGT.

Where this issue becomes relevant is for retirees who hold investment property as part of their retirement income strategy. If the CGT discount were reduced, the after tax proceeds from selling such properties could be lower, which may affect financial plans that rely on asset sales to fund retirement living or aged care.

How Should You Prepare?

Although there’s no immediate change to the law, it’s a good idea to stay informed about proposed CGT reforms and consider how they might affect your property and retirement plans. This could include:

Reviewing your current investment property strategy
Considering the timing of possible future sales
Discussing tax planning strategies with your adviser

Need Help Planning Ahead?

If you’re unsure how proposed tax changes could affect your property investments or retirement planning, our Australian property lawyers at Brightstone Legal can help. We provide practical, tailored legal advice to assist you in navigating property tax, retirement planning, and wealth strategies with confidence.

Contact our team today to discuss your situation.