The May 2026 Budget has put capital gains tax squarely in the crosshairs. The federal government is preparing to table legislation that would significantly alter how CGT concessions apply to investment properties.
Here’s a clear-eyed look at what’s on the table and what it means for your portfolio:
After months of speculation, the May Budget has confirmed the Albanese government’s intention to move on its long-flagged reform to Australia’s capital gains tax discount. The proposed legislation, expected to be introduced to parliament next week, would reduce the 50% CGT discount available to individual investors on assets held for more than 12 months, bringing it back in line with the rate applied to superannuation funds and, in a scaled model, closer to corporate tax treatment.
The budget frames this change as a fairness measure targeting “speculative” property investment. But for the roughly 2.2 million Australians who own at least one investment property, it represents a material shift in after-tax returns, particularly for those holding assets accumulated over the past decade of strong capital growth
What the May Budget’s Proposed CGT Changes Look Like:
Under the current system, assets held for more than 12 months attract a 50% reduction on any capital gain before it’s added to an investor’s assessable income. A $200,000 gain on a sold investment property would see only $100,000 counted as taxable income in the year of disposal.
The proposed reform as reported ahead of the bill’s introduction is understood to reduce this discount from 50% to 25% for assets acquired after the legislation’s commencement date. Existing holdings at the time of the law change are expected to retain the current 50% discount treatment, though the government has signalled this grandfathering may be subject to conditions around property use and holding structure.
| Scenario | Capital Gain | Current Discount (50%) | Proposed Discount (25%) | Difference |
| $150,000 gain | $150,000 | $75,000 assessed | $112,500 assessed | +$37,500 taxable |
| $300,000 gain | $300,000 | $150,000 assessed | $225,000 assessed | +$75,000 taxable |
| $500,000 gain | $500,000 | $250,000 assessed | $375,000 assessed | +$125,000 taxable |
For a high-income investor on a marginal rate of 47% (including the Medicare levy), that additional $125,000 of assessable income on a $500,000 gain translates to roughly $58,750 in extra tax which is a significant disincentive on the disposal of long-held assets.
Who Is Affected & When:
The critical distinction in the proposed legislation is the commencement date. Assets already held by investors at the date the bill passes are expected to remain under the existing 50% discount regime, provided they are held as investment properties rather than redeveloped or restructured post-legislation.
New acquisitions made after the May Budget commencement date would attract the reduced 25% discount only. This creates a two-tier system that will need careful tracking, particularly for portfolio investors who acquire additional properties over time, or who hold properties within trust or company structures.
The Role of Depreciation Under a Changed CGT Landscape:
With after-tax returns on disposal under pressure, the emphasis on maximising annual tax deductions during the holding period becomes more important than ever. Tax depreciation, which is the deduction available on the decline in value of a property’s plant and equipment, and on the capital works allowance for the building structure.
Depreciation deductions reduce an investor’s taxable income each year the property is held, independently of what happens to the discount rate on any eventual capital gain. For investors who are reassessing hold-versus-sell strategies considering the proposed changes, a current and accurate depreciation schedule is an essential planning tool.
What Investors Should Be Doing Now:
Review your cost base. Ensure your records of acquisition costs and capital improvements are accurate and complete. A higher assessed gain increases the impact of a reduced discount.
Get your depreciation schedule up to date. If your property has had renovations, fit-outs, or appliance replacements in recent years and your schedule hasn’t been updated, you may be leaving legitimate deductions on the table every year.
Understand your structure’s treatment. Trusts, SMSFs, and company-held properties are all treated differently. The changes affect individuals and trust beneficiaries most directly — but the interactions with existing structures can be complex.
Disclaimer: This article is prepared for general information purposes only and does not constitute tax or financial advice. Investors should consult a qualified tax adviser regarding their individual circumstances. The legislation described is proposed and subject to parliamentary process — provisions may change prior to enactment.
