Could Capital Gains Tax Be About to Change?

Why CGT is back in the spotlight, what it means, and why this debate matters

Capital gains tax is back in the national conversation, and not for the first time. With a Senate inquiry underway and the federal Budget approaching, there is growing attention on whether Australia’s current CGT settings still make sense, particularly in a housing market already under strain.

At the centre of the debate is the capital gains tax discount. For eligible Australian resident individuals, a capital gain on an asset held for at least 12 months is generally reduced by 50% before being added to taxable income. That rule has been in place since 1999 and is one of the key reasons CGT keeps resurfacing whenever tax reform and housing affordability are discussed in the same breath.

What is capital gains tax?

Capital gains tax applies when you make a profit on the sale or disposal of an asset. Despite the name, it is not a separate, standalone tax. It is part of the income tax system, meaning your net capital gain is generally added to your assessable income and taxed at your marginal rate.

CGT is often discussed in relation to property, but it reaches much further than that. It can also apply to shares, managed funds, trusts, and crypto assets. Some major exemptions still apply, most notably the main residence exemption in many cases, and assets acquired before 20 September 1985 are generally exempt as pre-CGT assets.

Why was CGT introduced in the first place?

Australia introduced CGT in 1985 to broaden the tax base and reduce the incentive for people to repackage income as capital gains. Treasury’s historical review of the tax system makes clear that one of the big concerns at the time was that, without a tax on capital gains, the system encouraged people to channel returns into more lightly taxed forms wherever possible. That was not just a fairness issue. It was also an efficiency issue. The idea was to stop the system from rewarding clever structuring over productive activity. A radical concept, apparently.

How the system changed in 1999

From 1985 to 1999, Australia used indexation and averaging to account for inflation and smooth out large one-off gains. In 1999, that system was largely replaced with the discount model we still use today. Treasury says the change was intended to simplify the system and improve international competitiveness, but it also created a much cleaner and more generous concession for long-term gains.

That is the version now under scrutiny.

Why CGT is being debated again in 2026

There are two main reasons this issue has returned to the front page.

First, the Senate established the Select Committee on the Operation of the Capital Gains Tax Discount on 4 November 2025, with a final report due by 17 March 2026. The inquiry is looking at how the discount affects housing, productivity, investment behaviour and the distribution of tax benefits.

Second, the federal Budget is scheduled for 12 May 2026, and there has been growing speculation that possible CGT changes may be considered as part of the broader tax and housing conversation. That does not mean a change has already happened. It means the issue is live, politically relevant, and being actively examined.

Why the housing market is part of the conversation

The CGT discount matters in housing because it affects the after-tax return investors can make on capital growth. If you reduce the tax paid on long-term gains, you increase the appeal of holding appreciating assets, especially residential property in a market where supply is already constrained. That is one reason critics argue the current system has encouraged capital to flow into existing housing stock rather than into more productive parts of the economy. The Senate committee’s terms of reference reflect exactly that concern.

That said, anyone claiming CGT reform alone will “fix housing” is overselling it. Housing affordability in Australia is shaped by far more than tax settings. Supply constraints, planning bottlenecks, infrastructure, construction costs and population growth are all part of the equation. CGT is one lever. It is not the whole machine.

My view

If the government decides the current CGT discount is too generous, then it should be changed properly.

That means no grandfathering of the former rate. If the law changes, then any future sale after that change should be taxed under the new rules, regardless of when the asset was purchased.

Why? If the policy goal is to change incentives, restore fairness, and reduce distortions, grandfathering blunts the effect almost immediately. It preserves the old tax treatment for existing holders, entrenches the very advantage the reform is trying to address, and delays the practical impact for years. In some cases, decades. Investors would hold onto their property, never selling…. I already have owners telling me that the current CGT will take too much profit away.

Markets can adjust to a clear new rule. What they struggle with is uncertainty, carve-outs and transition arrangements that drag on forever. If a reform is worth doing, it should be done cleanly. Otherwise, it risks becoming symbolic politics rather than meaningful policy.

The bottom line

Capital gains tax itself is not new. The real issue in 2026 is whether Australia’s discount-based model, introduced in 1999, still suits the economy and housing market we have now. The next key dates are 17 March 2026, when the Senate inquiry is due to report, and 12 May 2026, when the federal Budget is scheduled. Until then, the debate is real, but any proposed change remains just that: proposed.

** Please note this article is general information only and does not constitute tax, legal or financial advice. Tax rules are complex and depend on individual circumstances. Anyone making decisions based on CGT should refer to current ATO guidance and obtain advice from a qualified professional.