Proposed Capital Gains Tax Changes: What Property Investors Need to Know
The proposed changes to Capital Gains Tax (CGT) announced as part of the 2026 Federal Budget have generated significant discussion among property investors across Australia.
While the changes are not yet legislated, many investors are asking the same question:
What could these proposed changes mean for my investment property?
In this article, we'll explain the proposed changes, how they differ from the current system and why accurate record keeping may become more important than ever.
How Does Capital Gains Tax Currently Work?
When you sell an investment asset, such as an investment property, shares or another investment, any profit made on the sale may be subject to Capital Gains Tax.
Under the current rules, investors who have held an asset for more than 12 months receive a 50% Capital Gains Tax discount.
This means only half of the capital gain is included in their taxable income.
For example:
Purchase price: $500,000
Sale price: $1,100,000
Capital gain: $600,000
Under the current rules, the 50% discount reduces the taxable gain to $300,000.
What Is Being Proposed?
The Federal Government has proposed replacing the current 50% Capital Gains Tax discount with an inflation-based indexation system from 1 July 2027.
Under the proposed model:
The capital gain would be adjusted to account for inflation over the ownership period.
Tax would then be applied to the remaining gain.
A minimum effective tax rate of 30% would apply.
The intention is to better align taxable gains with the real increase in value of an asset after inflation is taken into account.
What Could This Look Like In Practice?
Let’s look at a simplified example.
Imagine you purchased an investment property and later sold it, generating a capital gain of $600,000.
Under the current Capital Gains Tax rules, an investor who has held the property for more than 12 months would generally receive a 50% discount. This would reduce the taxable gain to $300,000.
Under the proposed system, the gain would instead be adjusted for inflation before tax is applied. Using an example inflation adjustment of 35% over a 10-year ownership period, the taxable gain would increase to approximately $390,000.
Based on the same assumptions, the tax payable could increase from approximately $141,000 under the current rules to around $183,300 under the proposed rules.
In this example, the proposed changes would result in an additional $42,300 in tax payable.
Will Every Investor Pay More Tax?
Not necessarily. The impact will depend on several factors, including how long the asset is held, inflation rates during the ownership period, the property’s cost base and your personal tax circumstances.
Some investors may see little difference, while others could face a significantly larger tax liability when they eventually sell.
Why Record Keeping Matters More Than Ever
Whether these proposed changes proceed or not, one thing remains clear: maintaining accurate records is critical.
Property-related expenses, improvements and ownership costs can all play an important role in determining your overall tax position when a property is eventually sold.
Investors should ensure they retain records relating to:
Property improvements and renovations
Capital works expenditure
Purchase and acquisition costs
Property management fees
Council and water rates
Insurance expenses
Maintenance and repair costs
The better your records, the easier it will be to accurately calculate your property's cost base and identify any available deductions.
A Practical Tip For Property Investors
One simple strategy is to have your Property Manager pay eligible property expenses directly from rental income wherever possible.
This helps create a clearer financial record and ensures expenses are captured within your end-of-financial-year statements.
For many investors, this can simplify tax preparation and reduce the risk of missing important expenses.
What Happens Next?
At this stage, the proposed Capital Gains Tax changes have not been legislated. As with any proposed tax reform, details may change before implementation and there is no guarantee the proposal will proceed in its current form.
However, given the level of discussion surrounding the changes, it is important for property investors to stay informed and understand how future policy decisions could impact their long-term investment strategy.
If you'd like to discuss your investment property, rental performance or future property goals, our team is here to help. Get in touch with Key and Stone Property today for a confidential discussion.
Readers should seek independent advice tailored to their specific circumstances. Key and Stone Property Pty Ltd do not accept any liability for the accuracy or applicability of the information provided herein. This article is intended as a general guide only. This article is provided for general information purposes only and does not constitute financial, legal or tax advice. You should seek independent professional advice regarding your personal circumstances before making any investment or taxation decisions. RLA 339 033.