Treasurer Jim Chalmers has indicated the Federal Government might consider changing a discount on the capital gains tax (CGT).
It follows the Reserve Bank increasing the cash rate this week, which affects mortgage costs.
A Senate inquiry into the CGT discount is set to hand down its report next month.
What is the CGT discount, and how could it change?
Capital gains tax
When you sell an asset (e.g. a house), the sale price might be more than what you bought it for. That’s called making a capital gain, which is another term for “personal profit”.
For example: Margot buys an apartment in Brisbane for $1.3 million. She later sells it for $1.7 million.
Margot must include the $400,000 profit in her income tax statement for the year — unless…
If you’ve owned an asset for more than a year and pay tax in Australia, then you can get a discount of 50% on the “capital gain” when you sell it.
Back to our example: Assuming Margot has owned her apartment for more than a year, and pays tax in Australia, she is eligible for this discount.
This means she must now pay tax on her income and half of the profits from the apartment sale, in this case $200,000.
Unless…
There is also a main residence exemption, where someone does not need to pay any CGT on their main residence (or home).
Requirements for the exemption include:
- the home must be occupied by the claimant,
- take up less than 2 hectares,
- and must not have been used to produce income (such as being rented out or used as a business HQ) in the last year.
Assuming Margot’s apartment fits all of these criteria, she won’t pay any tax on her $400k profit.
Historically, the recipients of CGT discounts are the wealthiest Australians.
In 2021/22, around 90% of the benefit was received by people withabove-median (middle) income. About 80% of the benefit was received by people with the top 10% of income.
Share of benefit and recipients of CGT discount by taxable income decile, 2021-22
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Source: Treasury
Inquiry
In November, the Senate established a committee to investigate the CGT discount.
It is inquiring into areas including “the contribution of the CGT discount to inequality in Australia, particularly in relation to housing,” and “whether the CGT has a role in Australia’s future tax mix”.
The committee has received 68 submissions from lobbyists, academics, charities, and unions.
It is due to hand down a report next month.
Changes
On Tuesday, the RBA increased the cash rate from 3.60% to 3.85%, in response to increases in inflation. The higher the interest rate, the more expensive it is to borrow money.
In response, some lobby groups renewed calls for the Government to reduce the CGT discount.
The Australian Council of Trade Unions is calling for the discount to be halved to 25%, saying the current rate “is favouring professional landlords with large numbers of investment properties”.
ACTU President Michele O’Neil said: “The way the capital gains tax operates has become a tax avoidance scheme with most of the benefit going to the richest 1% of Australians.”
“Phasing [the 25% change] in is important, giving people who’ve followed the rules to date time to adjust,” O’Neil said.
During its unsuccessful 2019 election campaign, Labor proposed decreasing the CGT discount from 50% to 25%.
This policy was not included in the Labor campaign platform in 2022 or 2025.
Comments
Speaking to ABC radio this week, Treasurer Jim Chalmers did not rule out lowering the CGT discount.
“The best way to deal with the intergenerational issues in housing [is] supply, and the best way to deal with issues in the tax system [is] to continue to cut income taxes, to make superannuation fairer and to deal with multinational taxes,” he added.
Chalmers will hand down the 2026/27 Federal Budget in May. The Government typically makes a series of economic policy announcements in the leadup to the Budget.
Criticism
Shadow Treasurer Ted O’Brien told Sky News the Opposition would not support the Treasurer in “trying to ping Australians for more money because he can’t stop his spending spree.”
Property Council of Australia Policy and Advocacy Group Executive Matthew Kandelaars told TDA: “Taxes and charges are roughly 30% of the cost of a new home across the country.”
Kandelaars believes the Government should “start by reducing those taxes and reforming planning systems to boost supply” to balance the housing market.
