CGT Discount Changes: What Australian Property Investors Need to Know in 2026

If you’ve been anywhere near a property forum, news site, or family BBQ in the last fortnight, you’ve probably heard the rumblings: the federal government is seriously looking at winding back the 50% capital gains tax discount for property investors.

This isn’t idle speculation. Treasury has been running the numbers. The Treasurer hasn’t ruled it out. And the May 2026 budget is shaping up to be the moment it all lands.

So what does this actually mean for everyday property investors? Let’s cut through the noise.

What Is the CGT Discount and Why Does Everyone Care?

Quick refresher for anyone who’s been too busy renovating to follow tax policy.

When you sell an investment property (or any asset, really — shares, crypto, your mate’s startup), you pay capital gains tax on the profit. That profit gets added to your taxable income for the year and taxed at your marginal rate.

But here’s the kicker: if you’ve held the asset for more than 12 months, you only pay tax on half the profit. That’s the 50% CGT discount, introduced by the Howard government back in 1999.

It replaced the old system of inflation indexing, where the ATO would adjust your cost base for CPI before calculating the gain. The new system was simpler, but it’s also been far more generous — particularly for property.

Here’s why: since 1999, inflation has averaged about 2.9% per year. House prices? They’ve grown at 6.4% annually. So the “inflation adjustment” has been massively overcompensating property investors for decades.

The Parliamentary Budget Office recently revealed the CGT discount has cost the federal budget $205 billion since its introduction. And it’s projected to cost another $247 billion over the next decade.

That’s a quarter of a trillion dollars. No wonder the government’s taking a hard look.

What Changes Are Actually Being Discussed?

Nothing’s been formally announced yet, but here’s what’s floating around based on ABC, Guardian, and 9News reporting from the first week of February 2026:

Option 1: Halve the discount to 25% This was Labor’s 2019 election policy. Instead of a 50% discount, you’d get 25%. So if you made a $200,000 capital gain, you’d pay tax on $150,000 instead of $100,000. Simple, blunt, and it would raise billions.

Option 2: Reduce to one-third (33.33%) This would align individual investors with the superannuation CGT discount rate. There’s a fairness argument here — why should individuals get a bigger tax break than super funds?

Option 3: Return to inflation indexing Scrap the flat discount entirely and go back to adjusting the cost base for actual CPI. This is the “purist” approach that economists tend to favour. It means you’d only pay tax on real gains above inflation, but in a booming market, your tax bill would be significantly higher than under the current 50% discount.

Option 4: Property-only changes Target the CGT discount reduction specifically at investment properties, leaving shares and other assets untouched. This would be politically easier to sell as a “housing affordability” measure.

The grandfathering question

This is the big one for existing investors. The Parliamentary Budget Office modelling commissioned by independent senators examined five different options — and every single one included grandfathering provisions. That means if you already own investment properties, the current 50% discount would likely continue to apply to those holdings.

New purchases after a certain date (potentially budget night in May 2026) would fall under the new rules.

Reddit’s r/AusFinance has been absolutely buzzing about timing. One highly upvoted comment noted: “If the laws are part of the budget, then all efforts will be to get the tax passed by 30th June 2026.” So the window between announcement and implementation could be tight.

How This Affects Your Value-Add Strategy

If you’re a value-add investor — someone who buys, renovates, subdivides, or develops to create equity — this matters, but perhaps not as dramatically as the headlines suggest.

Here’s why:

Short-term flips (under 12 months): No change at all. You never qualified for the CGT discount anyway. Your gains are already taxed at your full marginal rate. If anything, this reform levels the playing field between flippers and long-term holders.

Long-term holds: Yes, your tax bill on eventual sale goes up. But if you’re buying well, adding value through renovations or subdivisions, and holding for cash flow, your strategy doesn’t fundamentally break. The discount going from 50% to 25% on a $300,000 gain means roughly $37,500 more tax for someone on the top marginal rate. That’s significant, but it’s not the end of property investment.

Subdivisions and development: Creating two or more lots from one still generates substantial value regardless of CGT settings. A block you bought for $500,000 that becomes two lots worth $400,000 each has created $300,000 in value. Even with a reduced CGT discount, the numbers still work — you just need to factor the higher tax into your feasibility.

Granny flats and dual income: If you’re adding a granny flat to generate rental income, the CGT question is less relevant during the hold period. It only matters when you sell. Meanwhile, the rental yield keeps flowing.

What Smart Investors Are Doing Right Now

The forums are split between panic and pragmatism. Here’s what the pragmatists are doing:

1. Not panic selling. Transaction costs (stamp duty on your next purchase, agent fees, CGT on current gains) almost always outweigh the benefit of selling before a rule change. Especially with grandfathering likely.

2. Reviewing hold periods. If you were planning to sell an investment property in the next 12-18 months anyway, it might be worth bringing that timeline forward — before any new rules take effect. Talk to your accountant.

3. Shifting focus to cash flow. A reduced CGT discount makes “buy and hope for capital growth” less attractive relative to properties that generate strong rental income from day one. Value-add strategies — renovations, granny flats, dual occupancies — become even more important because they boost both equity AND rental returns.

4. Looking at structure. Properties held in trusts, companies, or SMSFs each have different CGT treatments. A company, for example, doesn’t get the 50% discount at all (it pays a flat 25-30% company tax rate on gains). So for some investors, the change might not matter depending on their structure.

5. Focusing on what they can control. Tax policy changes every few years. The investors who do well long-term are the ones who buy in good locations, add genuine value, manage their properties well, and don’t rely on a single tax concession to make the numbers work.

The Bigger Picture: Negative Gearing Is Next

Here’s what nobody’s saying loudly enough: if the CGT discount gets wound back, negative gearing changes are almost certainly on the horizon.

The two policies work hand-in-hand. Negative gearing lets you claim operating losses against your income today, while the CGT discount reduces your tax when you eventually sell at a profit. Remove one without the other and you create weird incentives.

Several Reddit threads on r/AusPropertyChat have flagged this. One poster put it bluntly: “If the CGT discount gets halved, eventually there will be a full repeal of the CGT discount as well as removal of negative gearing.”

That might be overstating it. But limiting negative gearing to new builds only (as some commentators have suggested) would be a logical companion policy. It would still encourage investment in new housing supply while reducing the tax advantages of buying established homes as investments.

For value-add investors, this could actually be good news. If negative gearing is restricted to new builds, and you’re the one creating those new dwellings through subdivisions, duplexes, or granny flat additions — you’re on the right side of the policy.

What to Do Now

1. Don’t make emotional decisions. Nothing has been legislated yet. Wait for the May budget.
2. Talk to your accountant about your specific situation, especially if you’re considering selling in 2026.
3. Model your feasibilities with a reduced discount. If your next project only works because of a 50% CGT discount, it’s probably not a strong enough deal anyway.
4. Focus on value creation. Buying well, renovating smart, and adding genuine utility (extra bedrooms, granny flats, subdivisions) creates wealth regardless of tax settings.
5. Stay informed. The budget drops in May 2026. We’ll break down exactly what’s announced and what it means for property investors.

The CGT discount debate is heated, but here’s the thing most people miss: property investment in Australia has been profitable under many different tax regimes. The 50% discount has been a bonus, not the foundation. If your strategy only works because of a tax break, it was never that solid to begin with.

Build value. Buy smart. And let the politicians argue about the rest.

This post is general information only and does not constitute financial, tax, or investment advice. Property investment involves risk, and tax laws are subject to change. Always consult a qualified tax professional or financial adviser before making investment decisions. The authors are not licensed financial advisers.

Enjoyed this? Check out The Value-Add Property Playbook for the full guide to adding value to Australian property.