CGT Reform 2026: How Capital Gains Tax Changes Impact Property, Renters & Landlords
A comprehensive analysis of Australia's proposed capital gains tax reforms, their impact on property prices, rental markets, investors, and first home buyers, with interactive charts and expert commentary.
Raj Bhangu
Principal Mortgage Broker
How will CGT reform affect Australian property prices and investors?
The proposed CGT reforms would reduce the capital gains tax discount from 50% to 25% for investment properties and limit negative gearing to new builds only. Existing investments are fully grandfathered. Economists estimate this could reduce property prices by 1-2% short-term and 4-6% medium-term, while redirecting investor activity toward new construction.
- •All existing investment properties are fully grandfathered under Labor's proposal
- •The 50% CGT discount would be halved to 25% for future investment property purchases
- •Negative gearing would be restricted to newly built properties only
- •Grattan Institute estimates the reform could save $5-7 billion annually at maturity
Key Takeaways
- 1The CGT discount for investment properties would reduce from 50% to 25%, roughly doubling the tax on capital gains
- 2Negative gearing would be limited to new builds only, protecting rental supply while redirecting investor capital
- 3All existing investment properties are fully grandfathered, no changes for current investors
- 4Property prices estimated to fall 1-2% short-term, 4-6% medium-term (Grattan Institute)
- 5Most economists say rent impacts will be minimal, citing historical evidence from the 1985-87 abolition
- 6First home buyers could benefit from reduced investor competition at auctions
What Are the Proposed CGT Reforms?
The Australian Labor Party has proposed two major changes to tax settings that affect property investment. Together, these reforms represent the most significant changes to property tax policy since the introduction of the 50% CGT discount in 1999.
CGT Discount Reduction
The current 50% capital gains tax discount for investment properties would be halved to 25%. This means investors would pay tax on 75% of their capital gain rather than 50%.
- •Applies only to future investment property purchases
- •Other asset classes (shares, business assets) remain at 50%
- •Owner-occupied homes remain fully exempt from CGT
Negative Gearing Limits
Negative gearing would be restricted to newly constructed properties only. Investors buying existing properties could no longer offset rental losses against their salary or other income.
- •New builds retain full negative gearing benefits
- •Existing investments are fully grandfathered
- •Rental losses on existing properties can still be carried forward
Grandfathering: All investment properties purchased before the reform's start date (expected 1 July 2026) will continue under the current rules indefinitely. There is no retrospective application of the new rules.
Current CGT Rules Explained
Under current Australian tax law, when you sell an investment property for more than you paid, you make a capital gain. This gain is added to your taxable income in the year of sale. However, if you've held the property for more than 12 months, you receive a 50% discount, meaning only half the gain is taxed.
Worked Example: Current Rules
Consider an investor who purchases a property for $500,000 and sells it 5 years later for $700,000, with a marginal tax rate of 37%.
| Item | Amount |
|---|---|
| Sale price | $700,000 |
| Purchase price (cost base) | $500,000 |
| Gross capital gain | $200,000 |
| 50% CGT discount (held >12 months) | -$100,000 |
| Taxable capital gain | $100,000 |
| Tax payable (@ 37% marginal rate) | $37,000 |
| Effective tax rate on gain | 18.5% |
The 50% discount means the investor's effective tax rate on the capital gain is just 18.5%, roughly half their marginal rate. This preferential treatment has been a major driver of property investment since the discount was introduced by the Howard Government in 1999.
How the New Rules Would Work
Under the proposed reforms, the same investor making a $200,000 capital gain would see a significantly different outcome. With the CGT discount reduced from 50% to 25%, the taxable portion increases from $100,000 to $150,000.
| Item | Current (50%) | Proposed (25%) |
|---|---|---|
| Gross capital gain | $200,000 | $200,000 |
| CGT discount applied | -$100,000 | -$50,000 |
| Taxable gain | $100,000 | $150,000 |
| Tax payable (@ 37%) | $37,000 | $55,500 |
| Effective tax rate | 18.5% | 27.75% |
The chart below illustrates how the tax difference scales across various capital gain amounts, assuming a 37% marginal tax rate.
For a $500,000 capital gain, the additional tax under the proposed rules would be approximately $46,250. This represents a meaningful reduction in after-tax returns for property investors purchasing after the reform date.
Who Benefits from the Current System?
The CGT discount and negative gearing together represent one of Australia's largest tax expenditures, costing the federal budget an estimated $17-20 billion per year. The benefits of these concessions are heavily concentrated among higher-income earners.
According to Treasury data and Grattan Institute analysis, the top 10% of income earners receive approximately 50% of the total CGT discount benefits. This is because higher-income individuals are more likely to hold investment properties and benefit more from the discount due to their higher marginal tax rates.
$17-20B
Annual cost to the budget
50%
Benefits going to the top 10%
1.3M
Taxpayers claiming neg. gearing
Proponents of reform argue this concentration of benefits means the current system effectively subsidises wealthier Australians to purchase investment properties, crowding out first home buyers and contributing to housing affordability pressures.
Impact on Property Investors & Landlords
The impact on investors depends entirely on when they purchased (or will purchase) their properties and what type of property they buy.
Existing Investors: No Impact (Grandfathered)
If you already own investment properties, nothing changes. You will continue to receive the full 50% CGT discount when you sell, and your negative gearing deductions remain fully intact. The grandfathering provisions apply indefinitely. There is no sunset clause.
Future Investors Buying Existing Properties
Investors who purchase existing (second-hand) properties after the reform date face significantly reduced returns:
- •CGT discount drops from 50% to 25%, increasing the effective tax rate on gains
- •No negative gearing: rental losses cannot be offset against salary income
- •Estimated 1-2 percentage point reduction in after-tax returns per annum
- •Rental losses can still be carried forward and offset against future rental income or capital gains
Future Investors Buying New Builds
Investors buying newly constructed properties retain the negative gearing benefit, making new builds more attractive:
- •Full negative gearing preserved for new construction
- •Higher depreciation deductions (brand new building & fixtures)
- •CGT discount still reduced to 25% on sale
- •Policy designed to redirect investor capital toward adding to housing supply
Key Insight: The reform is specifically designed to channel investor activity away from bidding up prices on existing homes and toward funding new housing supply. This is why negative gearing is preserved for new builds.
Impact on Renters
The impact on rents is one of the most hotly debated aspects of CGT and negative gearing reform. Industry groups and economists have starkly different views.
Arguments Rents Would Increase
Property industry position (REIA, Property Council)
- •Fewer investors means fewer rental properties available
- •Landlords may pass on higher costs to tenants
- •Reduced new investment could tighten supply over time
- •REIA claims rents could rise 10% in some markets
Arguments Rents Would NOT Increase
Economists' position (Grattan, Eslake, RBA research)
- •Properties don't disappear when investors sell. They change hands
- •If a renter buys, they free up their old rental
- •Rents are set by supply and demand, not landlord costs
- •New-build incentives help maintain or increase supply
Historical Precedent: 1985-87 Negative Gearing Abolition
The Hawke Government abolished negative gearing entirely between July 1985 and September 1987. This provides the closest real-world test of what happens when tax concessions for property investors are removed.
The results were nuanced: rents rose modestly in Sydney and Perth, where pre-existing supply constraints were already driving prices up. However, rents were flat or fell in Melbourne, Brisbane, Adelaide, Hobart, and Canberra. Economist Saul Eslake has noted that the rent increases in Sydney and Perth were already underway before the abolition and were driven by supply constraints unrelated to negative gearing.
“The claim that abolishing negative gearing caused rents to rise is one of the most enduring myths in Australian housing policy. The evidence simply doesn't support it.”
Saul Eslake, Independent Economist
The economic logic is straightforward: when an investor sells a property, it doesn't vanish. The buyer either becomes a new investor (keeping the property in the rental pool) or an owner-occupier (which frees up whatever rental they were previously occupying). The net effect on rental supply is close to zero.
Impact on First Home Buyers
First home buyers are widely expected to be the biggest beneficiaries of CGT and negative gearing reform. Here's why:
Less Competition from Investors
With reduced tax incentives, fewer investors will compete at auction for existing properties. This is particularly significant in the entry-level price brackets (apartments and townhouses) where first home buyers and investors most directly compete.
Estimated Price Reductions
The Grattan Institute estimates that property prices could fall by 1-2% in the short term and 4-6% over the medium term (3-5 years). While these seem modest, on a $800,000 property, a 5% reduction saves the buyer $40,000, a significant sum for someone saving a deposit.
New Build Incentives Align
Since negative gearing is preserved for new builds, there is greater incentive for developers to increase supply. More housing supply benefits first home buyers through lower prices and more choice, particularly in growth corridors and emerging suburbs.
It is worth noting that investor-heavy market segments (such as inner-city apartments, units in capital cities, and properties near universities) are likely to see a larger correction than family homes in established owner-occupier suburbs.
Impact on Property Market Prices
Modelling from the Grattan Institute, Treasury, and independent economists suggests the price impact of the reforms will vary over time. In the long term, the effect is slower price growth rather than outright price declines.
Short-term (1-2 years): -1% to -2%
Initial adjustment as investor demand drops. Markets with high investor share see larger falls.
Medium-term (3-5 years): -4% to -6%
Cumulative effect as investor activity recalibrates. Inner-city apartments and investor-heavy suburbs most affected.
Long-term (10+ years): Slower growth, not decline
Prices resume growing but at a more sustainable pace. Increased new supply helps moderate long-term growth.
Investor Market Share Over Time
The chart below tracks the share of housing finance commitments going to investors over the past three decades. The surge in investor activity following the 1999 introduction of the 50% CGT discount is clearly visible.
Key observations from the data:
- •Pre-1999: Investor share hovered around 20% of housing finance
- •Post-CGT discount (2000-2015): Investor share surged to 40-45%, peaking in 2015
- •APRA restrictions (2015-2017): Regulatory limits on interest-only lending pulled investor share back to ~33%
- •Current level (~36%): Still well above the pre-1999 baseline, suggesting the CGT discount remains a major driver
This data supports the view that the 50% CGT discount has been a significant driver of investor demand in the housing market. Reducing the discount is expected to bring investor participation closer to its pre-1999 level over time.
Political Landscape
The three major political groupings have very different positions on CGT and negative gearing reform. Here is a comparison of their stated policies.
| Policy Area | Labor | Greens | Coalition |
|---|---|---|---|
| CGT Discount | Reduce to 25% for investment properties | Abolish entirely for investment properties | No changes (maintain 50%) |
| Negative Gearing | Limit to new builds only | Abolish entirely | No changes (maintain current rules) |
| Grandfathering | Full grandfathering of existing investments | Limited transition period | N/A |
| Estimated Budget Impact | Save $5-7B/year at maturity | Save $10B+/year at maturity | No change |
| Start Date | 1 July 2026 (proposed) | Immediate | N/A |
The outcome of these reforms depends heavily on the composition of the Senate following the next federal election. Labor would need crossbench or Greens support to pass the legislation, meaning the final policy may involve compromises between these positions.
Expert Opinions
Leading economists and institutions have weighed in extensively on the proposed reforms.
“The 50% CGT discount was a poorly designed policy that has fuelled speculative investment in housing without adding a single dwelling to the housing stock. Reducing it is long overdue.”
Saul Eslake, Independent Economist, former Chief Economist at ANZ
“Limiting negative gearing to new housing would redirect investor capital from bidding up prices on existing homes towards actually increasing the supply of housing where it's most needed.”
Brendan Coates, Economic Policy Program Director, Grattan Institute
“RBA research has found that the CGT discount and negative gearing together increase housing prices by 1-2% in the short run and up to 4% in the long run. Reforming both would improve housing affordability, particularly for first home buyers.”
Reserve Bank of Australia, Housing Market Research Discussion Papers
It is notable that the vast majority of economists (including the RBA, Treasury, the Productivity Commission, the Grattan Institute, and the Henry Tax Review) have recommended some form of CGT and negative gearing reform. Opposition tends to come primarily from the property industry (REIA, Property Council of Australia, HIA).
Timeline & What to Expect
Here is the expected timeline for the reform process, subject to the outcome of the next federal election and Senate negotiations.
Federal Election
Reform is a key election issue. Both Labor and the Greens campaign on changes.
Legislation Introduced
If Labor wins, legislation expected to be introduced to Parliament in the first half of 2026.
Senate Negotiations
The bill must pass the Senate. Negotiations with Greens and crossbench may result in amendments.
Expected Start Date
New rules expected to apply to properties purchased on or after 1 July 2026. All existing investments grandfathered.
Grandfathering Details: Properties exchanged (contracts signed) before the start date will be treated as “existing” investments regardless of settlement date. This means investors have until the reform date to lock in purchases under current rules.
What Property Investors Should Do Now
Regardless of your view on the reforms, there are practical steps investors should take to prepare for potential changes.
Review Your Portfolio
Assess your current holdings. Existing investments are grandfathered, so there is no urgency to sell. Consider whether you were planning any new purchases and how the reforms would affect their returns.
Consider New Builds
If you are looking to invest after July 2026, newly constructed properties will retain negative gearing benefits and offer higher depreciation deductions. This makes new builds relatively more attractive under the proposed rules.
Run the Numbers on Planned Purchases
If you are considering buying an existing investment property, model the returns under both current and proposed rules. Factor in the reduced CGT discount and loss of negative gearing to see if the investment still makes sense.
Speak to a Mortgage Broker
A qualified broker can help you understand how the reforms affect your borrowing capacity, structure your loans for maximum flexibility, and identify the best products for your situation, whether you are buying before or after the reform date.
Don't Panic
Property investment decisions should be based on long-term fundamentals, not short-term tax policy changes. Australia's housing market remains underpinned by strong population growth, limited supply, and a cultural preference for property ownership.
Frequently Asked Questions
Sources & References
This article references information from the following authoritative sources:
Raj Bhangu
Principal Mortgage Broker
With over 10 years of experience in the mortgage industry, Raj helps Australians navigate interest rate changes with personalised strategies.