Recent speculation in the media is reporting that the federal government is considering changes to the 50 per cent capital gains tax discount.
The potential for changes to the CGT regime have been touted by the current federal government as a solution to help alleviate the housing affordability crisis in Australia, by way of reducing tax incentives for speculative property investment.
The CGT discount, introduced in 1999, applies to assets held for more than 12 months. It replaced the earlier Keating-era system, that only taxed ‘real gains’ by indexing cost base amounts by inflation.
There is no definitive answer yet in relation to what a potential CGT change (if any) would look like. Based on current concepts being floated in the media, the two prevalent suggestions include bringing back indexation for the cost base of CGT assets, or potentially a reduction in the CGT discount.
It has also been suggested that any changes may be limited to investments in real property, with the potential for the existing rules to apply to assets already owned. However what, if any, changes are to be made are yet to be announced in any detail and we expect this is unlikely to be forthcoming until the federal budget in May 2026.
Indexation
Key features of the index method which was allowed prior to September 1999 included:
- Only used when calculating capital gains (indexation cannot increase/create a capital loss)
- Asset must be held for at least 12 months
- Each element of cost base is indexed (except for element 3 which relates to costs of ownership) from the quarter in which the expenditure is incurred
Below is a high-level summary of an investment, comparing the holding periods and the capital gain under an indexed method, a 33% discount method, and the current 50% discount method.
| Purchased | 1/01/2024 | 1/01/2022 | 1/01/2020 | 1/01/2015 |
| Sold | 1/01/2025 | 1/01/2025 | 1/01/2025 | 1/01/2025 |
| Holding period | 1 Year | 3 Years | 5 Years | 10 Years |
| Investment | 100,000.00 | 100,000.00 | 100,000.00 | 100,000.00 |
| Sale proceeds | 120,059.96 | 172,886.34 | 249,080.71 | 620,102.19 |
| Capital gain | 20,059.96 | 72,886.34 | 149,080.71 | 520,102.19 |
| Indexed capital gain | 17,658.21 | 59,327.02 | 128,411.76 | 488,360.62 |
| Capital gain with 33% discount | 13,440.17 | 48,833.85 | 99,884.08 | 348,468.47 |
| Capital gain with 50% discount | 10,029.98 | 36,443.17 | 74,540.36 | 260,051.10 |
Based on the calculations above, under the indexation method, taxpayers could pay up to 88% more on gains from capital assets than under the current 50% CGT discount rules, and with an effective tax rate of no less than 38%, only 9% below the current top marginal rate of 47%. This raises the question as to whether replacing the CGT discount with the indexation method achieves any significant benefits in relation to capital investments, particularly given costs to implement and comply with the law.
International Comparison
When compared to other jurisdictions, both the UK and US have effective capital gains tax rates of c.24%[1]. This would indicate Australia (currently 23.5% under the 50% discount) is well placed by international standards, so we would suggest any change to this to help achieve housing affordability should be targeted, and with any additional tax revenue raised to also go toward achieving the policy intent of the change.
This could include a reduction to personal income tax rates, or additional CGT discounts for investments in small business, which may assist with savings for housing deposits.
Importantly, noting that Government spending as a percentage of GDP is at a historically high level (around 28.5% compared to the historical average of 23.5%)[2], any use of revenue raised to not further the objective of housing affordability could risk bringing into question the purpose of any tax change.
Policy changes previously considered
In 2010, The Henry Tax Review recommended reducing the capital gains discount to 40% to, amongst other things, improve the shortfall in housing supply and provide a more neutral tax outcome for savings income.
Importantly, The Henry Tax Review recommendation was designed as part of a broader set of reforms aimed at reducing the uneven tax treatment across different types of savings. Under the proposed reforms, a 40% discount would be extended beyond capital gains to other saving income, such as deposit accounts – currently the most heavily taxed form of saving – as well as to net rental income, including interest deductions.
Achievement of policy intent and potential for unintended consequences
Nevertheless, any changes to the CGT regime will need to be carefully implemented/monitored to ensure there are no unintended consequences. For example, by removing or reducing the 50% CGT discount on property investments, investors may be discouraged to sell (as tax only arises when assets are actually sold), or new investors may be discouraged to buy, which may ultimately lead to further reductions in the rental availability and affordability.
Given a lack of supply is clearly a significant influence when it comes to housing affordability, a targeted approach to changing the CGT rules (perhaps by limiting any tax changes to existing housing) would no doubt be welcome.
Further, we would caution against seeing changes to the CGT regime as a ‘silver bullet’ to housing affordability and falling into temptation of excessive change. The residential vacancy rates in Sydney, Brisbane and Melbourne are currently all below 2% as of January 2026[3] – reflecting the strong rental demand. The risk with a significant change to the current CGT discount regime is that while it may have the impact of lowering house prices, this may not directly translate to an uptake of home ownership. For example due to deposit availability or a mobile lifestyle choice (particularly acknowledging renting can appeal to people who wish to stay mobile, given the high cost to transact on house ownership from stamp duty, amongst other costs).
Key takeaways
We will continue to monitor the speculation in the media over the coming months and will await the announcement (if any) in the 2026 Budget.
- Based on current media speculation, the Labour government is considering make changes to the CGT regime, particularly the 50% CGT discount, but possibly focussed solely on residential property assets and with the potential for grandfathering.
- Under the current regime, Australia is on par with the UK and the US in relation to the taxation of capital investments.
Any change to the CGT regime should be budget neutral, such that the revenue raised from a reduced CGT discount are applied against a reduced income tax rate – enabling productivity to increase, and personal savings and wealth to accumulate more easily for younger generations, to assist with the stated housing affordability objective.
[1] Capital gains tax (CGT) rates, PwC, https://taxsummaries.pwc.com/quick-charts/capital-gains-tax-cgt-rates#anchor-U
[2] Kinsella 2026, https://www.afr.com/policy/economy/the-135bn-government-boom-reshaping-the-economy-20260210-p5o0xa
[3] Vacancy Rates, SQM Research, 2026, https://sqmresearch.com.au/property/vacancy-rates