Maria Milillo, Head of Property Management, Raine & Horne 

Along with the widely reported changes to negative gearing, the Federal Budget has introduced new capital gains tax (CGT) reforms for investment properties. While they are yet to pass through parliament, it’s worth knowing how you are likely to be affected. 

The impact of the reforms will depend on when you purchased your rental property. 

Property owned prior to 12 May 2026 (Budget night) 

The 2.2 million Australians who owned a rental property prior to Budget night¹ (12 May) can continue to claim a 50% discount on capital gains earned up to 1 July 2027. 

Gains made after 1 July 2027 will need to be indexed from 1 July 2027 in line with inflation and have tax paid at the minimum 30% tax rate². Yes, this could be complicated if you sell a property. That’s because the property’s value at 1 July 2027 acts as the cost base³, potentially calling for the support of a professional valuer.  

Property purchased between 12 May 2026 and 1 July 2027 

If you exchange on a property after 7:30pm on 12 May 2026 and before 1 July 2027, and the property is sold prior to 1 July 2027, the 50% CGT tax discount may apply if you have owned the asset for at least 12 months⁴. If that’s not the case, the total capital gain is added to your taxable income and taxed at your marginal tax rate⁵. Note, for tax purposes, the date you acquire the property is the date on the contract, not when you settle⁶. 

For properties sold after 1 July 2027, capital gains earned up to 1 July 2027 can be reduced by 50%, though gains made after 1 July 2027 will need to be indexed for inflation and taxed at a minimum of 30%⁷. 

Property purchased after 1 July 2027 

For properties purchased after 1 July 2027, the 50% CGT discount will no longer be available. Instead, the cost base will be indexed for inflation, and a 30% minimum tax will apply.  

It's a highly complex issue, and many accounting professionals appear reluctant to provide simple examples illustrating the potential impact of the proposed indexation method. 

However, tax depreciation specialist duotax offers an online calculator (https://duotax.com.au/cgt-calculator/) that provides investors with an indication of how the changes could affect their capital gains tax liability if the proposed legislation passes Parliament. 

Using duotax’s calculator, we’ve assumed the property was purchased for $1 million on 2 July 2027 and was sold for $1.5 million on 2 July 2030. Based on an average annual inflation rate of 2.78%, calculated by Duo Tax using the average CPI over the past 20 years, the results were significant. 

Under the current 50% capital gains tax discount, a $500,000 capital gain would result in a taxable gain of $250,000. 

However, under the proposed indexation method, the property's cost base would be adjusted for inflation over the three-year holding period. Using duotax's assumptions, this would result in a taxable capital gain of approximately $414,260 – or an extra taxable gain of $164,260. 

While the outcome will first depend on whether the proposed changes pass Parliament, the impact on individual investors will then vary according to factors such as the property's purchase price, sale price, holding period (and market conditions during this holding period) and the rate of inflation during ownership. Nevertheless, this example highlights why the proposed changes have attracted significant attention from property investors and their advisers. 

Exceptions to these changes 

There are two key exceptions to the proposed CGT reforms⁸: 

1. Investors who buy eligible new properties (those that add to housing supply) can choose either the 50% CGT discount or the new indexation method and minimum 30% tax option. 

1. The CGT changes only apply to assets held by individuals, trusts and partnerships. Self-managed super funds are excluded.  

To know how the CGT reforms could impact you, speak with your tax professional.