CGT Discount Cut from 50% to 25%: What It Means for Property Investors in 2026
Australia's 50% capital gains tax discount is the single most valuable concession for long-term property investors. Cut it and the after-tax economics of every investment property held for more than 12 months change overnight. In 2026, a CGT discount reduction is one of the most active policy reform discussions in Canberra. A Senate Select Committee on the Operation of the Capital Gains Tax Discount was established on 4 November 2025 and reported in March 2026, and Treasury is reportedly modelling a cut from 50% to 33% for residential investment properties ahead of the May 2026 federal budget.
This guide covers the reform scenarios being modelled, a dollar-for-dollar worked example at current and reduced rates, the grandfathering outlook, and the strategic decisions to make before any legislation passes.
What Is the 50% CGT Discount?
The CGT discount was introduced in 1999 under the Howard government to replace indexation of the cost base. It allows individual investors (and trusts, but not companies) who hold an asset for more than 12 months to pay tax on only 50% of the capital gain when they sell.
For a full primer on how CGT works, including inclusions, exclusions and the 6-year rule, see our guide on capital gains tax on investment property in Australia.
Why the CGT Discount Is Under Review
Three drivers are pushing reform up the agenda:
- Revenue. The Parliamentary Budget Office estimates the CGT discount will cost the federal budget approximately $247 billion over the decade to 2034-35, making it one of the largest tax expenditures outside superannuation concessions. Grattan Institute analysis suggests cutting the discount to 33% would raise about $5 billion per year.
- Distributional impact. Treasury analysis shows the bulk of the benefit flows to high-income earners, who hold the majority of investment assets. The Senate Select Committee's March 2026 report focused heavily on this equity dimension.
- Housing affordability. The combined effect of negative gearing and the CGT discount is widely cited as inflating investor demand for residential property, displacing owner-occupiers.
The Reform Scenarios
Scenario 1 (Currently Modelled by Treasury): Discount Reduced to 33.3% for Residential Property Only
According to reporting on Treasury's modelling ahead of the May 2026 budget, the leading option is a targeted reduction from 50% to 33.3% that applies only to residential investment properties. The 50% discount would be retained for shares, managed funds, and other non-housing assets, to avoid chilling broader investment. The Henry Tax Review (2010) also recommended a 33.3% rate for methodological reasons (time value of money).
Scenario 2: Discount Reduced to 25% (Labor's 2019 Policy)
Labor's 2019 election policy proposed halving the discount to 25% for all assets acquired after the start date. That policy was widely cited as contributing to the 2019 election loss, which is why senior Labor figures favour a more moderate 33.3% rate in the current round.
Scenario 3: Abolition of the Discount
A return to indexation-only treatment or a move to taxing capital gains at marginal rates with no discount. This is the most aggressive option and least politically viable, but remains on the table in Greens and crossbench proposals.
Worked Example: Selling a $1M Gain at Each Discount Rate
Consider an investor earning $180,000 per year who sells an investment property with a $300,000 capital gain after holding for 10 years.
| Discount Rate | Taxable Gain | Tax Payable (47%) | Change vs 50% | |---|---|---|---| | 50% (current) | $150,000 | $70,500 | Baseline | | 33.3% | $200,100 | $94,047 | +$23,547 | | 25% | $225,000 | $105,750 | +$35,250 | | 0% (abolition) | $300,000 | $141,000 | +$70,500 |
On a $300,000 gain, the difference between the current 50% discount and a reduced 25% discount is $35,250 in additional tax. On a $1 million gain (not uncommon after 20+ years of Sydney house price growth), the difference approaches $120,000.
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Try PropBuyAI Free →The Compounding Impact With Negative Gearing Reform
Negative gearing reform and CGT discount reduction are political twins. If both are modified together (for example, negative gearing restricted to new builds and the CGT discount cut to 25%), the combined impact roughly doubles.
For our modelling of negative gearing changes see negative gearing changes 2026. Investors who are currently relying on both concessions to justify a purchase should treat the combined reform as the realistic downside scenario.
Grandfathering: Will Existing Assets Be Protected?
Every credible reform proposal in the last decade has included grandfathering for existing assets. The standard structure:
- Assets acquired before the announcement date retain the 50% discount for the life of the holding
- Assets acquired after the effective date receive the reduced discount
- Contract date is the trigger, not settlement date, to avoid exchange-date gaming
- SMSFs and trusts typically receive the same grandfathered treatment as individuals
- Transitional rules may apply to off-the-plan contracts signed but not settled before the effective date
Grandfathering protects existing investors from retrospective harm but creates a two-tier market: pre-reform assets become more valuable (locked-in tax treatment) while new acquisitions suffer a permanent penalty.
Who Gets Hit Hardest?
The impact of CGT discount reform varies sharply by investor profile:
High-growth capital city house investors. Properties with large capital gains relative to yield (typical Sydney, Melbourne, Brisbane houses) are disproportionately affected because the exit tax is the primary return driver.
Long-hold investors. Twenty-plus year holds compound the damage. A $200k gain at the 50% discount costs $47k in tax at the top rate; at the 25% discount it costs $70k.
High-income earners. The reform is calibrated to hit the top marginal rate hardest. Investors on $45,000 pay only 32.5% vs 47% at $180,000+.
Investors nearing retirement. Selling to fund retirement triggers the higher tax bill. Strategies like staged sales, SMSF rollovers, or timing disposals in low-income years become essential.
Less affected are positive cash flow property investors who rely on rental income rather than capital growth, and yield-first investors in regional markets.
Strategic Actions Before Any Reform
Crystallise gains on underperforming assets while the 50% discount applies. If you hold an asset you planned to sell in the next three years, pulling the sale forward can lock in the current discount rate. Always model holding costs and replacement opportunities before selling.
Review your ownership structure. Companies do not receive the 50% discount and are taxed at a flat 25% to 30%. If the individual discount is reduced to 25%, the company structure becomes relatively more attractive for some investors.
Consider SMSF property holdings. Super funds in pension phase pay 0% CGT. Complying SMSFs in accumulation phase pay 10% if held over 12 months, with the discount built into the rate rather than subject to reform.
Hold through reform rather than panic-sell. Sell-offs in advance of CGT reform tend to depress prices temporarily; waiting for grandfathering to be confirmed usually protects your position.
Model scenarios at purchase. When evaluating a new acquisition, calculate your after-tax return under both the current 50% discount and a possible 25% discount. If the investment only works at the current rate, it is fragile.
International Benchmarks
Australia's 50% discount is generous by global standards:
- United States: Long-term capital gains taxed at 0%, 15%, or 20% depending on income, plus a 3.8% net investment income tax
- United Kingdom: CGT on residential property at 18% or 28% depending on income (no general discount, but a £6,000 annual allowance)
- New Zealand: No capital gains tax on residential property held for more than 10 years (subject to the bright-line test)
- Canada: 50% inclusion rate on capital gains (equivalent to a 50% discount)
Reform advocates point to the US, UK, and international OECD averages to argue Australia's discount is an outlier. Defenders point to Canada as evidence that the 50% rate is internationally competitive.
The Political Timeline
Unlike negative gearing, CGT reform has a clearer near-term trigger: the May 2026 federal budget (scheduled for 12 May 2026). Treasurer Jim Chalmers has described it as an "ambitious" tax reform budget, and the Senate Select Committee reported its findings in March 2026. Realistic timelines:
- 12 May 2026 budget: Most likely forum for a formal announcement, possibly accompanied by a tax reform white paper
- 1 July 2026 or 1 July 2027: Potential effective dates depending on transitional arrangements
- Grandfathering grace period: Based on expert testimony to the Senate inquiry and historical precedent, existing investment properties are expected to retain the 50% discount for the life of the holding. New purchases from the effective date would fall under the reduced rate.
Investors have time to plan, but not a lot. The moment a proposal is formally announced, asset values and transaction volumes react immediately.
Bottom Line
A CGT discount reduction is one of the highest-probability tax reforms on the 2026 to 2028 horizon. The most likely outcome is a reduction to 33.3% or 25% with full grandfathering for existing assets. The impact on long-term, high-growth investors is material: expect roughly 20% to 40% higher exit tax on new acquisitions.
The strongest defence is the same as with negative gearing reform: buy assets that work without relying on tax concessions. Yield matters. Cash flow matters. Tax is a bonus, not a foundation.
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