What could Capital Gains Tax changes mean for investors?

Written by realestateview.com.au in Investment on February 28, 2017

Never have Australia’s property tax laws been so chaotic.

Last year, there was the very real threat that negative gearing rules may change. In 2017, the conversation has turned to capital gains tax (CGT) – a topic that has property investors quaking in their boots.

Investors are nervous, and for very good reason. For investors, the possibility that the government may tinker with CGT rules and regulations could see them lose a huge proportion of their wealth, should the investor decide to sell their property assets.

How does CGT work?

In a nutshell, CGT allows the tax office to swipe a fair chunk of value from an investor’s profits.

Let’s say you buy a property for $250,000. Five years later you sell it for $500,000, making a tidy profit of $250,000 along the way.

The government is very happy for you and your property riches, but they want a slice of the action, too, so they’ll tax you on your profit with CGT. The tax you pay is in line with your income tax rates, as the profit is added to your taxable income.

However, as a gesture of goodwill and under current laws, investors are entitled to keep 50 per cent of their investment profits tax-free, provided they hold onto the asset for at least 12 months. Under our example, this means you would only add $125,000 profit to your taxable income for that year instead of the full $250k.

What are the proposed CGT changes?

There is growing talk that the government may cut CGT concessions for property investors in a move to address housing affordability.

The Australian Financial Review reports that the government has been working on policy options to reduce the CGT concession as part of the May budget. The 50 per cent discount may be cut to 25 per cent, in line with Labor’s policy, or by another amount.

If such a policy goes ahead, what are some of the advantages and disadvantages?


  • Balance the government budget. A lower CGT discount for investors means more tax paid. This equals more income for the government, to be redeployed towards welfare, education and housing initiatives.
  • Greater housing affordability. By reducing the profitability of property investing, it will encourage fewer investors into the market. The hope is that this would translate to less demand and therefore lower price growth, which may help drive affordability.
  • No income tax hike. The government has warned that if the Senate blocks $6bn worth of current budget savings before the Budget in May, they may be forced to raise income taxes.


  • Economic downturn. Real estate is one of the primary industries driving the Australian economy. Any perceived threat to profitability could see investors flee the market, which may have serious economic consequences.
  • Rental market impacts. If fewer landlords are entering the market, it could lead to less rental housing supply and lower vacancy rates in some markets.

At the moment, Prime Minister Turnbull has said the government “has no intention or plan to change capital gains tax or negative gearing. That has been our position, is our position,” he told Parliament.

He did concede that the government has asked Treasury to examine options on CGT, but claims it was only so they could gauge the supposed impact Labor’s policy would cause.

“The government has been paying very close attention to the damage that would be caused by the capital gains tax proposals of the Labor Party, and the impact that would have on investment, on incentives.”

Will CGT changes be fair game in the May Budget? Only time will tell…

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