Chart shows how many investors could be better off under CGT changes

Housing has formed a major part of the 2026 federal budget, and property, along with other assets, is set to be taxed differently. But what are the likely impacts?

What has been announced

Starting from 1 July 2027, the 50% capital gains tax (CGT) discount for assets held for more than one year will revert to an indexation method that was in place until 1999. This change means that realised capital gains will be taxed based on the asset's real return.

When someone sells an asset, whether it's property or something else, after holding it for at least one year, the purchase price will be adjusted to reflect sale-year prices using the consumer price index. The taxable capital gains will be calculated by subtracting the inflated purchase price from the sale price. This amount will then be taxed at either the income earner’s marginal rate or 30%, whichever is higher at the time of sale. Newly built residential properties will be exempt from this change. Additionally, pre-1985 assets that were previously exempt will now be included.

Could the new inflation method benefit investors?

Analysis by realestate.com.au compares the capital gains tax outcomes under the traditional 50% discount versus the new inflation model. For some residential property investors, the new tax treatment could be more beneficial, resulting in a lower taxable gain than what they would have achieved under the 50% discount.

The new tax treatment favours investors during periods of lower capital growth. Over the past decade, approximately 27% of properties that received a capital gain would have fared better under the new indexation model compared to the 50% discount.

This trend peaked at 39% in the last quarter of 2023, which was 12 months after the peak of headline inflation in Australia. This inflation level is the minimum threshold for claiming a capital gains discount. Even in pre-pandemic times, when Australia experienced low inflation, around 26% of investor property capital gains would have resulted in a lower taxable gain under the indexation method.

As with all things in the Australian property market, the specific investment property matters, as does the duration of ownership and the real returns of the asset. If an investment property was sold in Sydney between 2016 and 2022, the capital gain discount would have significantly favoured the 50% discount. However, this scenario has become less likely in recent times.

Understanding the Impacts of the New Taxation Method

The shift in taxation methods will have various implications for property owners and investors. It's essential to understand how these changes could affect your financial decisions moving forward.

Navigating the New Landscape

With the new indexation method, property owners need to reassess their investment strategies. Understanding the nuances of capital gains tax will be crucial. This is especially true for those who plan to sell their properties in the coming years.

Long-Term vs. Short-Term Investments

Investors should consider whether they are in it for the long haul or if they plan to make quick profits. The new taxation method may favour long-term investors who can benefit from the indexation adjustments. If you're holding onto a property for several years, the new rules could work in your favour.

Consulting with Experts

Given the complexity of these changes, consulting with real estate professionals and tax advisors is advisable. They can provide tailored advice based on your unique situation. This will ensure that you make informed decisions that align with your financial goals.

In conclusion, the changes to capital gains tax are significant. They will require property owners and investors to adapt their strategies. By understanding the new rules and seeking expert advice, you can navigate this evolving landscape effectively.

First published 12 May 2026.