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Capital
Gains
| Spotlight |
CGT
2026
the $18 Billion Question
Are Negative Gearing and Capital Gains Tax Discounts in Australia at Risk?
Yes – and serious property investors need to be paying attention.
According to Commonwealth Bank of Australia (CBA), up to $18 billion in property investor tax concessions could be targeted in future federal budget reforms. The two biggest areas under scrutiny:
Capital Gains Tax (CGT) discount
Negative gearing
If you’re building or scaling a property portfolio, this isn’t political gossip. This is margin math.
What Is the Capital Gains Tax (CGT) Discount?
In Australia, the CGT discount allows property investors to reduce the tax payable on profits when selling an investment property held longer than 12 months.
Currently:
Investors receive a 50% discount on capital gains.
That means only half the profit is taxed at your marginal rate.
Treasury estimates this concession costs the federal budget around $13 billion per year — the largest share of total property-related tax concessions.
With property prices rising significantly since the pandemic, the real cost to government revenue is likely even higher.
Why it matters:
If the CGT discount is reduced or removed, your exit strategy math changes. Net returns shrink. Holding periods may extend. Portfolio strategy may shift toward yield instead of capital growth.
What Is Negative Gearing?
Negative gearing allows investors to deduct rental property losses (such as interest expenses exceeding rental income) against other taxable income.
This can reduce your overall tax bill each year while holding the property.
Treasury estimates that negative gearing and CGT concessions together cost the government $15–18 billion annually.
Why it matters:
If negative gearing is limited, high-leverage strategies become riskier. Cash flow management becomes more critical. Investors may need stronger buffers and better asset selection.
Why Are These Reforms Being Considered Now?
Luke Yeaman, Chief Economist at CBA and former senior Treasury official, has indicated housing is a likely area for reform as policymakers respond to:
Elevated public spending
Higher interest rates
Weak productivity growth
Ongoing inflation pressures
Housing tax concessions are politically sensitive — but economically significant. When governments look for meaningful budget repair, large, concentrated tax benefits become obvious targets.
What Would Reform Mean for Property Investors?
If reforms occur, potential impacts could include:
Lower after-tax capital gains
Reduced appeal of high-debt strategies
Increased focus on cash-flow positive assets
More disciplined portfolio structuring
Possible short-term market volatility
But listen to Aunti for a second:
Policy shifts don’t kill smart investors. They kill lazy ones.
When incentives change, strategy evolves.
Should You Be Worried About Investing in Australian Property?
No but you should:
Stress-test your numbers without full CGT discount assumptions.
Run scenarios where negative gearing is capped.
Prioritize assets that make sense on fundamentals — not just tax advantages.
Build buffers for rate and policy risk.
The investors who win long term don’t rely on concessions. They build resilient portfolios that survive reform cycles.
Bottom Line
Australia’s property tax settings – particularly CGT discounts and negative gearing – are increasingly viewed as likely candidates for reform.
If your returns only work because of tax breaks, that’s not a strategy. That’s a subsidy dependency.
Potential Impacts
What Is CBA Forecasting for Australian House Prices in 2026?
Commonwealth Bank of Australia (CBA) now forecasts:
8% home price growth in 2025
5% growth in 2026
The downgrade reflects expectations of:
Higher interest rates
Ongoing inflation pressure
Possible tax reform targeting property investors
For investment property buyers, this signals a moderating growth environment, not a crash.
Will Interest Rates Rise Again in 2026?
CBA expects at least one more 25 basis-point rate hike in May 2026 from the Reserve Bank of Australia (RBA).
If delivered, that would mean:
Two rate increases in 2026
Higher mortgage repayments for variable-rate borrowers
Reduced borrowing capacity for new investors
CBA Chief Economist Luke Yeaman said the expected rate hike is aimed at cooling demand and pushing inflation back toward target.
Why Is Inflation Rising Again?
Several factors are driving renewed inflation pressure:
Rising household disposable income
Strong public spending
Increased private business investment
Consumer confidence improving
Demand beginning to exceed supply
When demand runs hotter than supply, inflation follows – and that typically leads to tighter monetary policy.
The RBA already lifted rates in February in response to inflation reaccelerating.
How Do Higher Interest Rates Affect Investment Property?
For property investors, rate increases impact:
Borrowing capacity – Lower maximum loan amounts.
Cash flow – Higher mortgage repayments.
Investor demand – Some buyers pause or exit.
Price growth – Growth tends to slow, not necessarily reverse.
In simple terms:
Higher rates usually soften growth, but they don’t automatically cause price declines — especially when income growth and supply shortages remain strong.
Could Capital Gains Tax (CGT) Be Reduced?
A submission by the Grattan Institute recommended reducing the Capital Gains Tax (CGT) discount from 50% to 25% for individuals and trusts.
The proposal would:
Be phased in over five years
Not grandfather existing investments
Raise an estimated $6.5 billion per year
The recommendation was authored by Brendan Coates, Joey Moloney and Aruna Sathanapally in a submission to a Senate committee.
While this is not government policy, it shows serious reform discussions are underway.
What Would a Lower CGT Discount Mean for Investors?
If the CGT discount falls from 50% to 25%:
After-tax profits on sale would decrease.
Long-term capital growth strategies become less attractive.
Investors may prioritise:
Cash flow strength
Yield-focused assets
Strategic portfolio timing
It would not eliminate property investing – but it would shift the numbers.
Is 2026 Still a Good Time to Invest in Property?
The key takeaway? The market isn’t collapsing. It’s normalising:
House prices are still forecast to rise — just more slowly.
Interest rates may increase again in 2026.
Inflation remains a risk.
Tax reform discussions are active.
If you’re investing, your strategy needs to work with higher rates and potentially lower tax concessions – not just in the sweet-spot years.