Key Takeaways
- From 1 July 2027, eligible capital gains accruing after that date will be assessed using cost base indexation and a minimum 30% tax rate instead of the existing 50% CGT discount.
- Eligible gains accruing before 1 July 2027 may remain subject to the existing rules, even when an investment property is sold after the reforms commence.
- Investors in qualifying new residential dwellings may be able to choose between the existing 50% discount and the revised CGT arrangements when the property is sold.
- Property records, valuation evidence, loan structure, cash flow and borrowing capacity can all be relevant when reviewing the investment property changes.
Capital Gains Tax (CGT) has long influenced how Australian property investors assess holding periods, ownership structures and the potential proceeds from selling an asset. Following the 2026–27 Federal Budget reforms, the treatment of eligible capital gains will change from 1 July 2027 under legislation that is now law, creating a different planning environment for existing owners and future investors.
The capital gains tax changes do not mean every investor is likely to pay more tax, nor do they create a universal reason to sell before the commencement date. The outcome depends on factors such as when the property was acquired, how much of its gain accrued before and after 1 July 2027, inflation, ownership structure, eligible expenses, available exemptions and the investor’s taxable income when the gain is realised.
Property owners may also need to consider how potential tax outcomes interact with lending commitments, available equity and portfolio cash flow. Working with experienced mortgage brokers in Sydney may help borrowers understand the finance implications of retaining, refinancing or selling an investment property, although CGT calculations and tax recommendations should be obtained from an appropriately qualified tax adviser.
The sections below explain how the revised CGT framework operates, how transitional arrangements may affect existing properties, what can be different for qualifying new residential dwellings and which finance considerations investors may wish to review before making a property decision.
What Is Capital Gains Tax?
Understanding the existing CGT framework provides useful context for the reforms. Capital Gains Tax is not usually a separate tax charged at a standalone rate. Instead, a net capital gain is ordinarily included in a taxpayer’s assessable income for the relevant financial year and taxed under the rules applying to that taxpayer.
A capital gain may arise when a CGT event occurs. For property investors, a common event is entering into a contract to sell a property for more than its relevant cost base. CGT can also need to be considered when ownership is transferred, a property is gifted or certain changes are made to how an asset is held or used.
A property’s cost base can include more than its original purchase price. Depending on the circumstances and applicable tax rules, it can include certain acquisition expenses, stamp duty, conveyancing fees, selling costs, ownership expenses and capital improvements.
Capital losses are ordinarily applied against eligible capital gains before a CGT discount or other concession is calculated. Unused net capital losses can potentially be carried forward, subject to the rules applying to the taxpayer and ownership structure.
How the Existing CGT Discount Works Before 1 July 2027
Before the revised arrangements commence, eligible Australian resident individuals and trusts can usually reduce a capital gain by 50% when they have owned the relevant CGT asset for at least 12 months. Complying superannuation funds may be entitled to a different discount, while companies cannot ordinarily use the individual 50% CGT discount.
The 50% discount does not mean an investor pays tax at a 50% rate or that half of the sale proceeds are exempt. Eligible capital losses are applied first, after which the remaining eligible capital gain may be reduced by 50%. The discounted amount is then included in the taxpayer’s assessable income.
For example, consider an Australian resident individual who makes an eligible $200,000 capital gain after accounting for the property’s cost base. If there are no capital losses and the property has been held for more than 12 months, the existing discount method could reduce the amount included in assessable income to $100,000.
Eligibility is not universal. Foreign and temporary residents, properties held for less than 12 months, companies and particular CGT events may be treated differently. Investors should not assume that the headline 50% discount applies to every property sale.
What CGT Changes From 1 July 2027?
The CGT changes introduce a different method for calculating many eligible gains accruing from 1 July 2027. The reforms replace the existing 50% discount for individuals, trusts and partnerships with cost base indexation and introduce a minimum 30% tax rate on real capital gains.
The revised arrangements apply to CGT assets more broadly, including investment property and shares. Their effect depends on factors such as asset growth, inflation, ownership period, taxpayer circumstances and available exemptions.
Cost base indexation
Cost base indexation adjusts the relevant cost base for inflation using the Consumer Price Index (CPI). Broadly, it is designed to distinguish the portion of an asset’s nominal growth that reflects inflation from the real capital gain.
A property can increase in dollar value even though part of that increase reflects changes in the purchasing power of money. Under indexation, the cost base used to calculate an eligible post-1 July 2027 gain can be increased to account for inflation over the relevant period.
The result depends largely on the relationship between inflation and capital growth. Where an asset records relatively modest growth, indexation could produce a similar or potentially smaller taxable gain than a flat 50% discount. Where growth materially exceeds inflation, indexation could produce a larger taxable gain.
The minimum 30% tax rate
A minimum tax rate of 30% will apply to affected real capital gains accruing from 1 July 2027, subject to the legislation’s eligibility rules and exemptions. The minimum rate can be particularly relevant where a taxpayer’s ordinary tax calculation would otherwise tax the gain at a rate below 30%.
This should not be confused with a flat 30% tax on the property’s full profit or sale proceeds. Indexation is first used to identify the real gain, after which the minimum tax applies where required under the revised rules.
The 12-month ownership requirement
The indexation arrangements broadly apply to eligible CGT assets held for at least 12 months. A short-term sale can therefore be treated differently from an asset that satisfies the minimum ownership period.
For property, the timing of the CGT event is important. Where a sale is made under a contract, the event commonly occurs on the contract date rather than the settlement date. This distinction can affect the relevant financial year, ownership period and applicable CGT framework.
How Transitional CGT Rules May Apply to Existing Property
One of the most important features of the reforms is their prospective operation. The revised CGT framework applies to eligible gains accruing from 1 July 2027 rather than replacing the treatment of gains that arose before that date.
An investment property purchased before 1 July 2027 and sold after that date may therefore have its gain divided into two components:
- The eligible gain accruing before 1 July 2027 may remain subject to the existing CGT discount arrangements.
- The eligible gain accruing from 1 July 2027 may be calculated using cost base indexation and the minimum tax rules.
The property’s value at 1 July 2027 will be determined when the asset is eventually realised. Investors may wish to ask their tax adviser what records or valuation evidence could be required to support that value.
Current government guidance does not state that every property owner must obtain a formal valuation on 1 July 2027. However, retaining reliable evidence of the property’s condition, improvements and market context around that date may assist with a later calculation.
Obtaining reliable historical evidence many years later can be difficult, particularly for properties with unusual features, substantial renovations or limited comparable sales. Contemporaneous records could therefore be useful even where a formal valuation is not immediately required.
A transitional property example
Consider an investor who purchased a property in 2022 and sells it in 2032. Part of the property’s growth occurred before 1 July 2027 and part occurred after that date.
The pre-commencement component may receive the existing 50% discount if the relevant requirements are met. The later component may instead be calculated by indexing the property’s value at the transition date and applying the revised framework to the real gain.
The investor would not ordinarily pay CGT in 2027 simply because the new rules commence. CGT is usually considered when a CGT event occurs, such as entering into a sale contract. The transitional value can then be used to allocate the gain when it is eventually realised.
CGT on Qualifying New Residential Dwellings
New build CGT treatment is one of the more distinctive parts of the reforms. Investors in qualifying new residential dwellings may be able to choose between the existing 50% CGT discount and the indexation and minimum-tax arrangements when the property is eventually sold.
This choice may allow the investor to use the method producing the more favourable result for the relevant property, subject to eligibility and the legislation applying at the time of sale. One method should not be assumed to produce a smaller taxable gain in every situation.
Whether a property qualifies for the new build treatment depends on whether it meets the legislative definition of a new residential dwelling. An off-the-plan or recently completed property should not be assumed to qualify without checking its circumstances.
Eligibility matters because both new build CGT treatment and the revised negative gearing rules depend on whether the property satisfies the relevant legislative requirements. Investors may wish to obtain appropriate tax and legal advice rather than relying on marketing descriptions such as “newly renovated”, “as new” or “recently completed”.
The underlying property fundamentals also remain relevant. A potential CGT choice does not remove construction risk, developer risk, oversupply, valuation shortfalls, strata expenses, defects, rental uncertainty or the possibility that the completed property could be valued below the contract price.
House and Land CGT Considerations
House and land CGT outcomes can involve additional detail because the land acquisition and construction may occur under separate contracts and at different times. The land contract, building contract, construction period and date the property becomes available for rent can each be relevant to the investor’s records and tax position.
A house and land package may involve separate acquisition and construction expenses. These amounts, together with eligible professional fees, holding costs and capital expenses, could influence the eventual cost base.
Investors should also confirm whether the completed dwelling satisfies the definition of a new residential dwelling. Purchasing vacant land and constructing a dwelling can be treated differently from purchasing an existing home and completing a substantial renovation.
The construction timeline can affect finance as well as tax. A construction loan is commonly released through progressive drawdowns rather than advanced as one lump sum. Interest may be charged on the amount already drawn, while the investor may need to cover rent, land loan repayments, variations and other expenses before the property begins producing income.
CGT Changes and Investment Property Finance
CGT is a tax consideration, while a mortgage broker’s role is focused on lending strategy and implementation. The two areas can interact when an investor is deciding whether to retain, refinance, develop, purchase or sell a property.
Reviewing available investment loans may help an investor understand whether their existing facilities continue to suit the property’s cash flow, ownership structure and expected holding period. Any loan change should still be assessed independently of an assumed tax benefit.
Serviceability assessments
Under current Australian Prudential Regulation Authority (APRA) settings, authorised deposit-taking institutions are required to assess new housing borrowers using a serviceability buffer of at least three percentage points above the applicable loan rate. Individual lenders may also use minimum assessment rates, expense assumptions and other policy settings.
Rental income is commonly shaded rather than accepted in full. Depending on the lender, property type and tenancy evidence, only a percentage of expected rent may be used in the serviceability calculation to account for vacancies, management fees and other ownership expenses.
Bonuses, overtime, allowances, commissions and self-employed income can be treated differently between lenders. Some lenders may use an average, apply an income haircut or require evidence that the income is ongoing. Non-bank lenders may also use different assessment methods from APRA-regulated banks.
Loan-to-value ratio and usable equity
A property’s loan-to-value ratio (LVR) compares the loan balance with the lender’s accepted value of the security. Investors considering an equity release need sufficient usable equity while remaining within the lender’s maximum LVR and policy settings.
Releasing equity does not ordinarily create a capital gain because the investor has borrowed against the property rather than disposed of it. However, the deductibility of interest can depend on how the borrowed funds are used, not simply which property secures the loan.
Refinancing an investment property
Refinancing an investment property close to a planned sale may not be suitable where discharge fees, application costs and a short remaining loan period outweigh the potential interest benefit.
Fixed-rate break costs, lender fees and future borrowing plans should also be considered. Investors may wish to avoid mixing private and investment borrowing within the same loan account without obtaining tax advice, as tracing the use of borrowed funds can become more complicated.
How the CGT and Negative Gearing Reforms Interact
The 2026 reforms changed both CGT and negative gearing, but their commencement and transitional rules are not identical. Investors should therefore avoid treating the two measures as one combined calculation.
The CGT reforms apply to eligible gains accruing from 1 July 2027. By contrast, the negative gearing rules include protection for residential properties held before the Budget announcement at 7:30 pm Australian Eastern Standard Time on 12 May 2026.
For affected established residential properties, net rental losses may be deducted against rent or capital gains from residential properties. Unused amounts may be carried forward, subject to the legislation.
Qualifying new residential dwellings receive different treatment. They can remain eligible for negative gearing against other income and may also qualify for the choice between the existing CGT discount and the revised CGT method.
The revised CGT framework forms part of the broader 2026 Federal Budget changes, although its practical effect differs between property investors depending on ownership history, taxable income and future plans.
Practical CGT Planning Before 1 July 2027
The commencement date may prompt investors to review their portfolios, but it does not create a universal reason to sell, buy or restructure. A practical review can compare potential tax implications with the financial and personal reasons for holding the property.
Organise property records
Useful records can include purchase contracts, settlement statements, stamp duty records, conveyancing invoices, quantity surveyor reports, improvement costs, selling expenses and evidence of previous property use.
Accurate records can help an adviser determine the cost base and identify which expenses have already been claimed. Missing documentation can make it more difficult to support a calculation when a property is sold many years after purchase.
Discuss the transitional valuation
Owners intending to hold property beyond 1 July 2027 could ask their tax adviser what valuation evidence or contemporaneous market records may be appropriate for their circumstances.
A valuation used for tax purposes should be objective and supportable. An informal estimate from an online property tool may not provide the same evidentiary value as a valuation prepared using an accepted methodology.
Model more than one sale date
Scenario modelling could compare a sale before 1 July 2027, shortly after commencement and several years later. The analysis can allow for expected sale proceeds, selling costs, loan repayment, potential tax, accumulated rental cash flow and alternative uses for the funds.
Review ownership and loan structures
Moving a property between an individual, company, trust or superannuation fund can trigger CGT, transfer duty, refinancing requirements and legal costs. It should not be assumed that restructuring before 1 July 2027 would be tax neutral.
A Decision-Making Framework for Property Investors
A structured review can help investors avoid making a decision based only on a headline tax change. The following questions could support discussions with tax, legal and lending professionals.
Is the property still commercially suitable?
Consider rental income, vacancy risk, maintenance, insurance, land tax, owners corporation expenses, interest costs and expected capital expenditure. A property should not necessarily be retained solely to preserve a particular tax treatment.
How could a sale affect borrowing capacity?
Selling may remove rental income and the associated loan from a lender’s serviceability calculation. The net effect on borrowing power depends on factors such as the percentage of rent accepted, the debt being repaid, the remaining proceeds and the lender’s assessment method.
Is the decision being driven mainly by tax?
A lower tax liability does not necessarily create a stronger overall financial outcome. Selling into an unsuitable market, incurring significant transaction costs or replacing a suitable property with a weaker asset could outweigh a potential tax difference.
Common CGT Mistakes Property Investors May Wish to Avoid
The revised framework introduces additional dates, calculations and record-keeping considerations. Avoiding unsupported assumptions can be as important as identifying possible planning opportunities.
- Assuming the revised rules apply to the entire historical gain on an existing property.
- Believing CGT automatically becomes payable on 1 July 2027 without a CGT event.
- Treating every renovated or recently completed property as a qualifying new residential dwelling.
- Using the mortgage balance to calculate the capital gain.
- Assuming refinancing changes the property’s CGT cost base.
- Ignoring selling costs, improvements and other potentially eligible cost-base expenses.
- Selling mainly to obtain a lower tax outcome without comparing the wider financial effect.
- Relying on an informal property estimate where supportable valuation evidence may be required.
The Australian Taxation Office provides current information about the CGT and negative gearing reforms. Investors may wish to confirm the rules and available guidance closer to any transaction because administrative requirements and calculation tools could continue to develop before commencement.
Conclusion
The CGT changes create a more detailed framework for Australian property investors from 1 July 2027. Eligible gains accruing before commencement may retain the existing discount treatment, while later gains will be assessed using indexation and a minimum 30% tax rate where the revised rules apply.
The practical takeaway is to maintain accurate records, understand the property’s transitional position and compare potential tax outcomes with cash flow, borrowing capacity and long-term objectives. Selling early, retaining an existing property or purchasing a qualifying new residential dwelling may each be appropriate in different circumstances, but none should be treated as a universal response.
This article contains general information only and does not constitute financial, tax or legal advice. Tax outcomes, lending decisions and investment performance depend on individual circumstances, lender policies, market conditions and the legislation applying at the relevant time. Investors should obtain advice from appropriately qualified professionals before acting.
Frequently Asked Questions (FAQs)
1. When do the new CGT rules start?
The revised CGT arrangements commence on 1 July 2027. They replace the existing 50% discount with cost base indexation and a minimum 30% tax rate for affected gains accruing from that date.
2. Do the CGT changes apply to an investment property I already own?
They may apply to the portion of an eligible gain accruing after 1 July 2027. Gains arising before that date may remain subject to the existing rules, even where the property is sold after the reforms commence.
3. Do I need to sell my investment property before 1 July 2027?
There is no single sale date that is likely to suit every investor. The outcome depends on factors such as the property’s performance, unrealised gain, loan balance, selling costs, expected cash flow and the owner’s personal tax circumstances.
4. Will I pay 30% CGT on the full property profit?
Not necessarily. The minimum rate applies to the relevant real capital gain calculated under the revised arrangements rather than automatically applying to the property’s full nominal profit or total sale proceeds.
5. What happens to the 50% CGT discount?
For affected gains accruing from 1 July 2027, the 50% discount is replaced by cost base indexation. The existing discount may continue to apply to eligible gains accruing before that date and may remain available as a choice for qualifying new residential dwellings.
6. Are new build investment properties treated differently?
Investors in qualifying new residential dwellings may be able to choose between the existing 50% discount and the new indexation and minimum-tax method when the property is sold. Eligibility should be checked because not every renovated, reconstructed, off-the-plan or recently completed property will necessarily qualify.
7. Can a mortgage broker calculate my CGT?
A mortgage broker does not replace an accountant or tax adviser and should not provide a definitive CGT calculation. A broker may help assess the lending and cash flow implications of retaining, refinancing, purchasing or selling property after the tax position has been reviewed by a qualified adviser.