I have had more conversations about CGT discount reform in the past six weeks than in the previous two years combined. Everyone wants a clear answer. I do not have one. But I do have a view, and it is probably not what you are expecting.
The debate has been framed as a simple choice. Reform the CGT discount and fix housing affordability. Or leave it alone and protect investors. Neither position reflects how property markets actually work. And neither accounts for the political reality the government is sitting in right now.
What CGT Discount Reform Actually Proposes
Treasury is examining a reduction of the CGT discount from 50 per cent to 33 per cent on investment properties. Under the current rules, if you hold an investment property for more than 12 months, only half of any capital gain is added to your taxable income when you sell. At 33 per cent, two thirds becomes taxable instead.
Other proposals are more aggressive. The Grattan Institute has called for the discount to drop to 25 per cent. Independent MP Allegra Spender has floated 30 per cent as part of a broader tax overhaul. Ken Henry, who led the most comprehensive review of Australia’s tax system in a generation, has said the 50 per cent discount is simply wrong — that it incentivises investors to take on debt, negatively gear investment properties, and outbid first home buyers at auction.
Nothing is legislated. May is the next real decision point.
The CGT Discount Reform Grandfathering Trap
The government’s reported preference is a non-retrospective change – meaning existing holdings keep the 50 per cent discount and only future purchases fall under the new rules.
On the surface that sounds reasonable. In practice it creates a political problem with no clean exit.
There are approximately 2.2 million Australians holding investment properties. A retrospective change affects every one of them directly. That is an enormous and motivated constituency. Peter Downes, who was at Treasury when the 50 per cent discount was introduced in 1999, has said failing to grandfather existing investments would “really, really upset” those 2.2 million people. That is not an exaggeration.
Two Groups. Two Very Different Reactions.
Grandfathering has its own problem. The renters, first home buyers, and younger Australians who cannot get into the market are not a small group either. They will not be satisfied watching the generation that benefited most from three decades of asset price growth walk away untouched while the new rules apply only to them.
University of NSW economist John Piggott, a member of the Henry tax review, put it plainly. If the change is non-retrospective, the next generation pays higher taxes on assets that older generations already traded under the full discount. His generation, he said, will have done all their property trading and not be affected by a tax that only applies to future transactions. The Grattan Institute chief executive made the same point – grandfathering locks in the very intergenerational problem the reform is supposed to solve.
What Grandfathering Actually Does to the Market
Here is the consequence I think is being underestimated. While grandfathering does not make existing properties worth more – the tax advantage belongs to the current owner and does not transfer to any future buyer. What it does is give existing owners a strong reason not to sell. Why would you? In markets like Sydney, Melbourne, Brisbane, and Canberra, where available stock is already tight, reduced turnover from long-held investment properties is not a trivial outcome.
On the other side, if investors know that assets purchased before a certain date retain a 50 per cent discount forever, that creates a powerful incentive to buy now and lock it in. Demand that would have occurred over the next few years gets compressed into a few months. I am already seeing early signs of that in enquiry patterns. Clients who had no plans to move in 2026 are suddenly asking questions.
Every design option creates a winner and a loser. The numbers on both sides are large enough to matter electorally. That is the trap the government is in, and it explains why the Treasurer has been so carefully non-committal.
What the Numbers Look Like in Practice With the Reform
The real world impact of a discount reduction is not trivial, and it is worth understanding the scale even in general terms.
Consider a long-held investment property carrying a substantial capital gain – the kind of gain that is not unusual after a decade or more of ownership in markets like Sydney, Melbourne, Brisbane, or Canberra. Under the current 50 per cent discount, only half of that gain is added to taxable income. Under a reduced discount, a meaningfully larger portion becomes taxable. At higher marginal tax rates, that difference runs to tens of thousands of dollars on a single transaction.
Across a portfolio of two or three properties, the cumulative shift is significant. It changes the after-tax return on assets that many people have held for years as part of their retirement strategy.
Every investor’s position is different. The actual tax impact depends on the size of the gain, the applicable marginal rate, available offsets, and the final design of any legislation. Your accountant is the right person to model what reform means for your specific situation.
The Equity Argument is Real – But So is the Counter-Argument
The Parliamentary Budget Office estimates the CGT discount will cost the federal budget $247 billion in foregone revenue over the next decade. The top 1 per cent of income earners received 59 per cent of the total benefit in 2025-26, while Australians under 35 received roughly 4 per cent.
Those numbers are hard to argue against on fairness grounds.
But I keep coming back to a counter-argument that does not get enough airtime. Peter Downes has argued that the housing crisis is better addressed through supply-side measures – restraining spending, building more homes, removing planning constraints – and that CGT changes would ultimately reduce housing supply and hurt the people they are supposed to help. Lower-income earners and renters bear the cost through tighter supply and higher rents.
I am not an economist. I cannot model that with any confidence. But my gut, shaped by years of working in these markets, tells me that pulling a tax lever without fixing the underlying supply problem is unlikely to produce the outcome reformers are hoping for. I could be wrong. But I think it is worth saying.
The Supply Side Case
But I keep coming back to a counter-argument that does not get enough airtime. Peter Downes has argued the housing crisis is better addressed through supply-side measures – building more homes, removing planning constraints – and that CGT changes would ultimately reduce housing supply and hurt the people they are supposed to help. Lower-income earners and renters bear the cost through tighter supply and higher rents.
I am not an economist. I cannot model that with confidence. But my gut, shaped by years of working in these markets, tells me that pulling a tax lever without fixing the underlying supply problem is unlikely to produce the outcome reformers are hoping for. I could be wrong. But I think it is worth saying.
There is No Easy Fix for CGT Reform and Property Prices
This is where I part ways with most of the commentary I have been reading.
Property values are the product of everything happening at once. Interest rates, wages, population growth, migration, construction costs, planning constraints, rental supply, consumer confidence, credit availability – all of it feeds into what a buyer is willing to pay and what a seller is willing to accept on any given day. Tax settings are one input among many.
What Comparable Sales Actually Tell Us
As valuers, our job is to look at what comparable properties have actually sold for, weigh all of the evidence, and determine a fair value based on that. The comparable sales data is the reality check. It reflects every force acting on the market simultaneously – tax policy included, but also everything else. You cannot isolate one variable and expect a clean result.
That is why I am sceptical of anyone claiming to know exactly what CGT reform will do to prices. The honest answer is that it depends. On the design, the timing, the grandfathering provisions, what else is happening in the economy, and how buyers and sellers actually respond.
The Middle Ground Is Usually Where the Evidence Lands
In my experience, the middle ground is the most defensible position – not because it makes everyone happy, but because it is where the evidence lands when you look at the whole picture rather than just the part that supports your argument. That is how we approach valuations. It is probably how this reform should be approached too. Not everyone will like the answer. That is fine. The job is to get it right, not to get applause.
Some form of CGT discount reduction is coming. The political momentum is too strong and the budget arithmetic too compelling for this to disappear quietly after May. What form it takes, and who ends up bearing the cost, is still very much an open question.
When a CGT Valuation for Investment Property Becomes Essential
CGT reform brings real trigger points for property owners – converting a primary residence to an investment property, moving overseas, transferring property within a family, settling an estate. These are the moments when an independent, defensible valuation becomes essential.
When those moments arrive, get in touch with the team at Vanguard Valuations. We work across NSW, ACT, VIC, and QLD and we will give you a clear, evidence-based number you can take straight to your accountant.
This article is general commentary only. Always consult a registered tax agent or accountant regarding your individual CGT position.
