The Australian Capital Gains Tax (CGT) discount is back in the headlines, and if you're a property investor, developer, or builder in Perth, you need to understand what's at stake.
With ongoing debate around tax reform, housing affordability, and budget pressures, the 50% CGT discount that's been in place since 1999 is under scrutiny. Whether changes happen this year or down the track, now is the time to understand your position and plan accordingly.
This article breaks down what's happening, what it means for your business and investments, and most importantly, what you can do about it.
What Is the CGT Discount in Australia?
The basics: Capital Gains Tax (CGT) is the tax you pay on the profit when you sell an asset (property, shares, business, etc.) for more than you paid for it.
The 50% CGT discount rule: If you've held an asset for more than 12 months, you only pay tax on 50% of the capital gain.
Example: You bought an investment property for $500,000 and sell it for $800,000 - a capital gain of $300,000. With the 50% discount you only pay tax on $150,000. At a 45% marginal tax rate the tax bill is $67,500 (instead of $135,000 without the discount).
This discount has been Australian tax law since September 1999 and applies to individuals, trusts, and some superannuation funds.
Why Is the CGT Discount Under Review?
1. Housing Affordability Crisis
Critics argue the CGT discount inflates property prices by encouraging investment property purchases, benefits wealthy investors at the expense of first home buyers, disproportionately favours capital gains over wage income, and costs the federal budget billions in foregone revenue.
2. Budget Pressure
With government debt levels high post-pandemic, Treasury is looking at revenue measures. The estimated cost to the budget is $16-20 billion annually; removing or reducing it could help fund other programs, and international comparisons show Australia's discount is generous.
3. Tax Reform Momentum
Various reports and inquiries have recommended reforming or removing the CGT discount: the Henry Tax Review (2010), Grattan Institute reports, parliamentary inquiries into housing affordability, and Treasury reviews of tax expenditures.
4. Political Climate
Different political parties have different positions: some advocate complete removal of the discount, others propose reducing it from 50% to 25%, some suggest exempting the family home but reducing investment property benefits, and others want to leave it unchanged.
The key point: This isn't going away. Even if no changes happen in 2026, the debate will continue.
What Changes Are Being Proposed?
While no legislation has passed yet, here are the main proposals circulating:
- Option 1: Reduce the discount (50% → 25%). Tax on $225,000 instead of $150,000 in the example above - a tax bill increase of ~$33,750 at the 45% rate. Seen as a "middle ground" reform that still incentivises long-term holding.
- Option 2: Remove the discount entirely. Full capital gain taxed at your marginal rate, with investment returns taxed the same as wage income. Supported by housing affordability advocates and budget hawks.
- Option 3: Tiered system based on holding period. 1-2 years: 0% discount; 2-5 years: 25%; 5-10 years: 40%; 10+ years: 50%. Rewards very long-term investment while reducing short-term speculation.
- Option 4: Asset-specific rules. Retain the 50% discount for business assets and shares; reduce or remove it for investment property.
- Option 5: Grandfathering existing assets. Assets purchased before a certain date keep the 50% discount; new purchases are subject to new rules. If any change happens, grandfathering is probable - similar to when the discount was introduced in 1999.
How Would CGT Changes Impact Different Groups?
Property Investors
On a $300K gain at a 45% marginal rate: current 50% discount = $67,500 tax; a 25% discount = $101,250 ($33,750 more - a 50% increase); no discount = $135,000 ($67,500 more - a 100% increase).
Property Developers
- Developments held as investments (not trading stock) affected
- Land banking strategies become less tax-effective
- May shift behaviour toward faster turnover projects
- Review whether properties are held on capital account vs revenue account
Builders & Construction Businesses
Direct impact is lower (most profits are ordinary income), but indirect impact could be significant: property investor demand may cool, the development pipeline could slow, and the owner-occupier market could strengthen.
Self-Managed Super Funds (SMSFs)
SMSFs get a 33.3% discount (one-third off, not 50%), and 0% CGT on assets in pension phase. The SMSF discount could reduce to 16.5% or be removed.
What Should Perth Property Investors Do Now?
1. Review Your Current Position
Which properties have large unrealised gains? When were they purchased (potential grandfathering cutoff)? What's your holding strategy? What would your CGT bill be under different scenarios? Get this analysis done now - before any legislation is announced.
2. Consider Timing of Disposals
Accelerating a sale before changes could save significant tax - but don't let the tax tail wag the investment dog. Consider market conditions, not just tax. If you're years away from selling, there's less urgency: grandfathering rules may protect you.
3. Review Ownership Structures
Are properties held in your personal name or an entity? Would a different structure be more tax-effective? Is your trust deed flexible for changes? Warning: restructuring can trigger CGT events - get advice before making changes.
4. Explore Small Business CGT Concessions
If you're a developer or builder, small business CGT concessions might apply: the 15-year exemption (0% CGT if held 15+ years), the 50% active asset reduction (an additional 50% off), the retirement exemption ($500K lifetime cap), and rollover relief (defer CGT when replacing assets). Combined with the 50% discount, you could reduce CGT by up to 75%. Eligibility: active asset, net asset test (<$6M), turnover <$2M. These concessions become even more valuable if the general CGT discount is reduced.
5. Optimise Your Property Portfolio
Harvest losses to offset gains, consider a phased disposal strategy over multiple years, and maximise deductions before selling.
6. Plan for Development Projects
Review whether projects should be capital account vs trading stock, consider joint venture structures for different tax treatment, and model different disposal timing scenarios.
7. Document Your Position
Get property valuations for assets held, document intention (investment vs trading), establish cost base clearly, and review all capital improvements. Why: if grandfathering applies, you'll need to prove purchase date and cost base.
What About the Family Home?
Good news: The main residence exemption is not under threat. Your family home remains fully exempt from CGT in virtually all proposals - no 12-month holding requirement, no limit on the gain exempt, and a partial exemption if used for income (e.g., home office, rental). Exception to watch: if you own multiple properties and claim main residence on more than one, ATO scrutiny is increasing.
The Broader Property Tax Debate
Negative gearing proposals include limiting it to new builds only, phasing it out entirely, or grandfathering existing investments. If both the CGT discount AND negative gearing are reduced, investment property returns would be significantly impacted.
Land tax & stamp duty reform: WA has relatively low land tax compared to eastern states, and some states are considering a shift from stamp duty to broad-based land tax. Bottom line: the property tax environment is in flux, and the CGT discount is one piece of a bigger puzzle.
What Happens If Changes Are Announced?
- Announcement - Government announces policy intent with a proposed start date.
- Legislation introduced - Bill tabled in Parliament. Details become clear. Market reacts.
- Legislation passes - Law enacted, start date confirmed, compliance requirements clarified.
- Implementation - New rules take effect. ATO guidance issued.
Historical precedent (1999): announced May, started September, grandfathering for pre-September assets. When changes happen, they move quickly.
Should You Sell Now to Avoid Changes?
Reasons NOT to panic sell: no legislation yet (speculation, not policy); grandfathering likely; market timing risk; transaction costs; and the replacement problem - what do you do with the proceeds?
Reasons TO consider selling: you were planning to sell anyway; large unrealised gains; short remaining hold period; poor performing asset. The right answer depends on your specific situation.
Tax Planning Strategies If Changes Happen
- Maximise cost base. Include purchase price, stamp duty, legal fees, capital improvements, renovation costs, title costs, selling costs. Don't include interest on the loan, repairs and maintenance, insurance, rates and taxes.
- Use capital losses. Crystallise losses before selling gainers. Losses carry forward indefinitely but can't offset ordinary income.
- Spread disposals across tax years. Instead of selling 3 properties in one year, sell one per year to stay in lower marginal brackets.
- Consider partial disposals. Sell portions of land/subdivide, strata title portions of a building, or use instalment/deferred payment arrangements.
- Utilise family trust distributions. Distribute capital gains to lower-income beneficiaries - only works if the trust deed allows capital distributions.
- Defer recognition through rollovers. CGT rollover relief is available for marriage/relationship breakdown, deceased estates, small business restructures, and certain compulsory acquisitions.
Perth Property Market Implications
- Reduced investor appetite (lower after-tax returns)
- Possible cooling of price growth in the investor segment
- Fewer investment properties = less rental supply = upward rent pressure
- Reduced investment property development
- Perth already has lower prices than Sydney/Melbourne; development margins could tighten
What Reacco Recommends
For Property Investors
- Get a CGT position analysis - understand your current exposure
- Model different scenarios - 50%, 25%, 0% discount
- Review your strategy - is your portfolio still aligned with goals?
- Don't panic - no legislation yet, and grandfathering likely
- Stay informed - monitor developments closely
For Property Developers
- Capital vs trading account - review your classification
- Development hold periods - does faster turnover make more sense?
- Entity structure - companies vs trusts vs individuals
- Land banking strategy - review long-term hold positions
For Builders & Trades
- If you own your business premises, understand the CGT position
- Small business CGT concessions could be very valuable at exit
- Succession planning becomes more tax-sensitive
- Consider how changes affect your customer base (investors)
The Bottom Line
1. Change is possible, not certain. No legislation is currently before Parliament. Don't make irreversible decisions based on speculation.
2. Planning beats panic. Understanding your position = power. Grandfathering likely means existing assets are protected.
3. Professional advice is essential. Every situation is different. Getting it right could save tens of thousands.
Your Next Steps
If you own investment property or development assets in Perth: book a CGT review to analyse your position and model scenarios; understand your options; create a plan so you have a strategy ready if changes are announced; and stay informed.
This isn't about fear. It's about being prepared. The businesses and investors who thrive through tax changes are the ones who see them coming and plan accordingly.