Government Considers Overhaul of Capital Gains Tax for Property Investors

The Australian government is weighing significant changes to capital gains tax (CGT) concessions for property investors, with a potential announcement slated for the upcoming federal budget on May 12. The proposal, which draws from a 2025 McKell Institute report, seeks to adjust the long-standing 50% CGT discount to incentivize new housing construction.

Treasury officials are currently analyzing the financial implications of the plan, with final details still under discussion.

The stated objective is to redirect investor capital toward new housing construction to increase supply.

Outline of the Proposed Policy

According to multiple government sources, the changes would apply only to future property purchases. Existing investments would be protected under grandfathering provisions, meaning current rules would continue to apply to them.

The proposed adjustments to the CGT discount are as follows:

• New Apartments and Townhouses: The discount would increase from 50% to 70%.
• Existing Dwellings: The discount would decrease from 50% to 35%.
• New Houses: The discount would remain at the current rate of 50%.

The policy template comes from a McKell Institute report authored by UNSW Professor Richard Holden and the institute's CEO, Edward Cavanough. The report specifies that negative gearing rules would remain unchanged under this proposal, though government sources note that changes to negative gearing are being considered separately.

Rationale and Projected Impact

The government aims to frame the policy as a supply-side measure to address the housing shortage. By making investment in new construction more attractive relative to established properties, the policy seeks to stimulate building activity.

The McKell Institute report projects the following outcomes if the policy is implemented:

• A potential increase in housing supply of up to 1.2%.
• The delivery of up to 130,000 additional homes by 2030.
• The changes are projected to be broadly revenue-neutral for the federal budget over the first five years.

Current Status and Key Considerations

Treasurer Jim Chalmers is working to include the changes in the budget and has the support of Prime Minister Anthony Albanese. Ministers and advisers are in the process of finalizing the policy details.

Key factors still under consideration include:

• The extent to which the government will adopt the McKell Institute model or introduce modifications.
• The results of the ongoing Treasury analysis on the financial implications.
• The political and communication strategy for announcing the changes.

This proposed approach is presented as distinct from the broader property tax concession changes the Labor Party took to the 2019 election.