Experts say reducing the CGT discounts could affect smaller investors more than richer ones. Picture: Tony Gough
Talk around the Capital Gains Tax (CGT) discount is heating up once more.
With the Greens calling for it to be reformed and a senate review due to deliver its findings in March, industry groups are coming to the table with different views on what reducing the current concessions would achieve.
Housing affordability is a problem, but will changing CGT rules help? Picture: Brendon Thorne/Getty Images)
WHAT IS THE CGT DISCOUNT?
The CGT discount reduces the amount of capital gains an investor has to pay tax on when they sell their asset if they have held it for more than 12 months.
Australian property investors who buy a property as an individual or under a trust are generally eligible to reduce their taxable capital gains by 50 per cent. If buying under a complying super fund, the discount is 33.33 per cent.
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Much of Australia’s investors are mum and dads who rely on the discount when mapping out their long term strategies. Picture: Jake Nowakowski
WHY WAS THE CGT DISCOUNT INTRODUCED?
Before then treasurer Peter Costello introduced the CGT discount in 1999, capital gains were taxed via an indexing method that was based on the cumulative increase in inflation over the life of the asset.
The CGT discount was introduced following recommendations from the Ralph Review of Business Taxation in order to simplify the taxation of CGT and promote investing among individuals.
Former Treasurer Peter Costello. Picture: Jane Dempster/The Australian
WHY DOES IT MATTER?
Since being implemented more than 26 years ago, the CGT discount has become a critical part of many investors’ long term strategies, particularly when it comes to saving for retirement, says Property Investment Professionals of Australia (PIPA) vice chair and Aspire CEO Richard Crabb.
“That CGT discount really does make a huge impact because people making longer term decisions are factoring in that profit,” Crabb says.
Rethink Group CEO Scott O’Neill says the CGT discount makes “a lot of the investments viable” for smaller investors.
PIPA vice chair and managing director of the ASPIRE Property Advisor Network Richard Crabb.
“People don’t make as much as they really think they do in property once you look at the after-tax result,” O’Neill says.
He gives the example of a $1m property that doubles to $2m in 10 years. “Your reality is that the $1m property had $60,000 in stamp duty,” he says. “Then you were negatively geared for six or seven years – you’ve lost another $100,000 in cash flow.
“Then, you’re not selling and collecting $2m – you could be paying $300,000-$400,000 tax on top of that. All of a sudden that $1m difference only looks like a few hundred thousand dollars difference.”
Rethink Group CEO Scott O’Neill
WHY THE CGT DISCOUNT IS BACK IN THE SPOTLIGHT
Housing affordability is a hot topic.
The Greens opened a Senate inquiry in November claiming the concession was “inflating house prices by incentivising speculative investment in property”.
Various submissions have since been made to the government, including from the Grattan Institute and the ACTU, which both argued the discount should be reduced to 25 per cent.
The government is considering a range of options ahead of the budget. Picture: Frank Ling
ARGUMENTS FOR AND AGAINST
Some argue investors shouldn’t be given such an incentive now that housing affordability is a major problem.
The idea is by removing or reducing the discount, property investing will be less attractive and there will be less investors competing against homebuyers.
However, less investors in the market could mean less rental properties and higher rents, given that private investors provide the majority of stock to the rental market that in previous decades was provided by governments as social housing, says Crabb.
A change to CGT laws could mean a worsening rental market. Picture: Liam Kidston
In PIPA’s Annual Investor Sentiment Survey for 2025, 35 per cent of respondents say they would exit the market if the CGT discount was reduced to 25 per cent, while 29 per cent were undecided.
“We have to be careful not to create a setting that pushes rental supply backwards in the market,” he says.
“We already have a tight rental market and even small shifts in investor participation can tighten rental supply even further and put more pressure on rents.”
And while more homes could be available to buy, there’s no guarantee renters will be able to transition to home ownership as a consequence, he says.
Renters won’t necessarily be able to buy a home if more become available. Picture: NCA NewsWire / Gaye Gerard
“Quite often they’re not in the position that they have the deposits or financial ability to actually buy the homes where they’ve been living,” Crabb says.
Treasury’s Tax Expenditure and Insight Statements from 2022-23 show about 83 per cent of the benefit from the concession flowed to the top 10 per cent of income earners.
But ATO data from the same year shows about 71.8 per cent of investors owned just one investment property, while just 5.7 per cent owned three, says Crabb. Just 0.9 per cent owned six or more properties. “Predominantly, it’s mum and dad investors who are buying an asset for the long term, which helps with rental supply.”
The costs of investing can really add up. Picture: iStock
According to O’Neill, a reduction or cancellation of the CGT discount would hurt these smaller investors more than the ones with multiple properties. Whereas mum and dad investors usually rely on selling to realise their gains, larger investors have other strategies at hand.
“The richer you are, the more inclined you are – you can just refinance,” he says. “It will definitely punish the entry level investor. People with 20 or 30 properties – it’s just not going to affect them.”
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