Capital gains tax (CGT) has become a hot topic in Australian property discussions. For first home buyers, it may not feel relevant yet. But anyone planning to invest in property needs to understand what is being proposed and why it matters.
The Federal Government – Anthony Albanese – has signalled it may reduce the current capital gains tax discount. Right now, if an investor holds a property for more than 12 months and then sells it at a profit, only 50% of the gain is taxed.
For example, if a property is purchased for $500,000 and later sold for $600,000, the $100,000 gain is reduced to $50,000 for tax purposes. The investor pays tax only on that $50,000.
The proposal under discussion would significantly reduce this discount, potentially linking it to CPI instead of maintaining the 50% concession. In simple terms, that means higher tax bills for investors when they sell.
Why the Discount Exists in the First Place
There is an important piece of context that often gets overlooked.
Around 30% of Australians rent. Those renters need housing. The government no longer carries the main responsibility for building and maintaining large-scale public housing estates. Instead, private investors — everyday mums and dads — provide rental housing.
Investors take on debt, risk and ongoing costs to supply homes to renters. The capital gains discount was designed to encourage long-term investment in housing. It supports stability in the rental market and reduces the burden on taxpayers to fund large public housing programs.
If the government were to replace private landlords entirely, it would require trillions of dollars to purchase or build housing stock. That is simply not realistic.
Will Higher Tax Increase Housing Supply?
This is the key question.
Raising capital gains tax does not build a single new home. It does not increase supply, fast-track approvals or solve construction delays.
Australia’s housing challenge is largely a supply issue. Demand remains strong, and supply is behind government targets. Increasing tax on investors does not fix that imbalance.
When investor incentives reduce, two outcomes are likely:
- Some investors hold properties longer and avoid selling.
- Some investors exit the market, reducing rental supply.
In both cases, rental availability tightens. Overseas examples have shown that when investor participation drops without supply increasing, rents often rise.
What About First Home Buyers?
There is a perception that reducing investor incentives makes it easier for first home buyers to enter the market. In reality, entry today is already supported through schemes such as the 5% deposit guarantee.
Those with stable income, good credit and savings are entering the market now. Demand from owner-occupiers has remained strong.
If investor participation declines significantly, the bigger impact may be felt by renters, not buyers.
The Broader Economic Picture
Tax increases also affect government revenue and spending. Higher revenue can lead to increased public spending, which may place upward pressure on inflation if not carefully managed.
Inflation then influences interest rate decisions, which affect mortgage holders directly.
The relationship between tax, spending, inflation and interest rates is complex. But one thing is clear: housing policy must balance supply, affordability and stability.
What This Means for Investors
For current and future investors, awareness is key.
- Understand how CGT works.
- Factor potential tax changes into long-term strategy.
- Focus on holding quality assets in strong areas.
- Plan for policy shifts, rather than reacting emotionally to headlines.
Property investing has always operated within changing rules. Incentives shift. Policies adjust. Markets respond.
Long-term investors focus on fundamentals: supply, demand, population growth, infrastructure and disciplined strategy.
Regardless of policy changes, housing remains essential. People will always need somewhere to live.
And those who plan ahead — rather than panic — position themselves best for whatever comes next.
