Capital Gains Tax is not a separate tax on its own. In Australia it’s part of the income tax system that applies when you make a profit from selling an asset. The “capital gain” is the difference between what you paid for the asset and what you sold it for in the year you sell it. That gain gets added to your regular income and taxed at your marginal tax rate. Capital Gains Tax doesn’t apply automatically. A CGT event must occur, usually the sale or disposal of an asset. Holding an asset that goes up in value does not trigger Capital Gains Tax until it’s sold or otherwise disposed of.
Capital Gains Tax was brough in by the Hawke/Keating government as part of a broader tax reform to ensure that wealth gains were taxed more fairly alongside income. Since its inception in 1985, the Howard government reviewed the system in 1999 replacing it with a 50% CGT discount for individuals and trusts on assets held for more than 12 months. This current system means that only half of the capital gain counts as taxable income for most individual taxpayers. This discount is a key feature of the current system.
Recent Discussions and Proposals for Change
Since the beginning of the year, there has been an active debate at the federal level about potential changes to the Capital Gains Tax discount. The government is considering reducing the 50% discount to help raise revenue and support affordability measures, but no formal change has yet been enacted.
How Capital Gains Tax Changes Could Impact You
Capital Gains Tax plays a major role in determining how profitable your investments really are. While the current system allows many investors to benefit from the 50% discount and other concessions, future changes could significantly alter the outcome when you sell an asset. Any reduction to discounts, tightening of exemptions, or increased reporting requirements would likely mean higher tax bills for investors across property, shares, businesses, and cryptocurrencies.
Because Capital Gains Tax is added to your personal income and assessed by the Australian Taxation Office, even small policy changes can affect your overall tax position, cash flow, and long-term strategy. Investors who rely on selling assets to fund new purchases, retirement, or business growth may find that higher Capital Gains Tax reduces their ability to reinvest.
For Victorian investors, this means future tax changes could influence when you sell, how long you hold assets, and how you structure your investments. Staying informed, keeping good records, and seeking professional advice from your trusted investment advisors at MPPG before making major decisions is essential. With ongoing political debate around tax reform, capital gains tax is an area that deserves close attention, as changes could directly impact your returns and long-term financial plans.
How Reducing the Capital Gains Tax Discount Could Affect the Rental Market
Many economists and industry groups are speculating that cutting the Capital Gains Tax discount for property investors would change the incentives for holding rental properties. The impacts on the rental market and renters are still debated, but there are some key themes emerging.
Higher Costs for Investors
If the Capital Gains Tax discount were reduced (for example from 50 per cent to 25 per cent), the after-tax return for investors would fall because they would pay more tax on profits when they sold a property.
Lower after-tax returns make rental property a less attractive investment for some owners, especially those who rely on capital gain rather than rental income to make the numbers work.
Potential Reduction in Rental Stock
If returns drop, some investors may exit the market or hold onto properties rather than reinvest in new ones. This could reduce the supply of rental properties over time. We are already seeing an increased number of rental properties go onto the market for sale due to the financial impacts investors are facing and with new legislative measures coming into effect in November 2025 and additional legislation requiring all rental properties to have energy efficient cooling by March 2027, the number of rental properties on the market to sell is only going up.
Reduced supply in a market where vacancy rates are already low could mean more competition among renters for fewer homes.
Possible Impact on Rents
The effect on rents is uncertain and depends on how many investors pull back at once and how long changes take to flow through the market. Current projections from our portfolio and prices in the local area suggest that rents are increasing modestly across the board as landlords face higher costs. A further reduction in the number of rentals in the area and a reduction in investor incentives may see average rents continue to increase.
House Prices and Home Ownership
Reducing investor tax incentives may reduce demand from property buyers, which in turn could lead to slower house price growth or a small downturn. Some experts argue this makes it easier for first-home buyers to enter the market over the long term. Easier entry for owner-occupiers could reduce competition for rentals in the long run, which could help stabilise rents.
No government decision has been finalised yet, and the exact design of any Capital Gains Tax change (whether it’s targeted to new investments only, phased in, or combined with other housing measures) will influence how the rental market responds. Recent political debate confirms that changes are being discussed but not confirmed ahead of upcoming budgets.
With this level of uncertainty, it is more important than ever for investors to understand how potential tax reforms could affect their portfolio and long-term plans. Speaking with experienced professionals, such as the team at MP Property Group, can help you navigate these changes, assess your position, and make informed decisions based on your personal circumstances and investment goals.
What Does MPPG Advise?
From our perspective, changes to the capital gains tax discount are likely to shift how many investors assess property performance. With less reliance on capital growth alone, rental income and rental yield are expected to become far more important in determining whether an investment stacks up.
As a result, we believe more investors will focus on maximising returns through rent rather than long-term capital gains. Over time, this increased emphasis on cash flow is likely to place upward pressure on rents, particularly in high-demand areas where supply is already limited. For renters, this may mean higher weekly rents and stronger competition for well-maintained properties.
This shift is also likely to influence the types of properties investors target. Homes with strong rental appeal, modern features, low maintenance costs, and access to transport, schools, and employment hubs are expected to become even more desirable. Investors will likely become more selective, prioritising locations and property types that can support consistent rental growth rather than relying on future price increases alone. In turn, this could further concentrate demand in already popular suburbs, putting additional pressure on rental supply and reinforcing upward movement in rents over time.
Our Director, Stephen Back will be hosting an online webinar. Register now for Capital Gains Tax & Your Property Portfolio on March 26th 2026 at 7:30pm.
