Panicking about capital gains tax changes? Read this first.
If the Government floating changes to capital gains tax has made your stomach drop in recent weeks, this is for you.
(And yes, do share this with anyone else who’s been doomscrolling property headlines in the past month or so.)
Let’s start at the end and work backwards:
Even if the capital gains tax discount is reduced, it’s unlikely to materially hurt long-term property investors.
In fact, it may end up helping them.
If you’re reading this, chances are you already invest in property; or you plan to. Either way, it’s worth zooming out from the headlines and drilling down on the actual data.
First: don’t confuse rumour with capital gains tax policy
To quote American writer and humourist, Mark Twain:
“I’ve had a lot of worries in my life, most of which never happened.”
For those who don’t realise, governments leak trial balloons to the media continually to test public reaction. Most never become legalised.
Even if something does pass, it’s often softened, delayed, or later unwound by the next incoming government.
The base case here is simple:
The probability of meaningful, permanent capital gains tax changes is lower than the headlines suggest.
But let’s assume the worst-case scenario and look at the numbers.
How would capital gains tax actually change based on the numbers?
Currently, if you hold an investment property for more than 12 months, you receive a 50% capital gains tax discount.
On a $1,000,000 capital gain, that means:
Discount | Tax Payable |
0% | $416,138 |
50% | $208,069 |
33% | $278,812 |
25% | $312,104 |
In the worst case rumoured scenario (discount cut to 25%), you’d still pocket $687,896 instead of $791,931 today.
Yes, that’s a difference.
But it’s not disastrous…
And that’s before factoring in:
Joint ownership
Structuring
Long holding periods
Asset selection
Timing of sales
Tax matters but it’s not the main driver of long-term wealth in property. Price growth is.
The part most people miss: second-order effects
To borrow from Isaac Newton:
“For every action, there is an equal and opposite reaction.”
If Capital gains tax becomes less attractive, fewer investors participate.
But this is what happens consequently:
Investors fund somewhere between one-third and one-half of new housing supply.
So, if investors pull back while population growth and housing demand continue:
Fewer new homes get built
Rental supply tightens
Rents rise first
Prices follow
Property is a commodity – its value is therefore subject to the laws of supply and demand.
Ironically, policies aimed at ‘cooling’ investors often end up increasing scarcity, which benefits the investors who remain in the market.
If you already own property, changes like this can actually strengthen your long-term position.
What history tells us about impacts of capital gains tax
History doesn’t repeat, but it rhymes.
1985: Capital gains tax introduced
House prices grew 12–15% per year over the next five years in Sydney, Melbourne, Brisbane and Perth.
1999: 50% capital gains tax discount introduced
House prices grew 10–16% per year over the next five years across all the country’s major capitals.
Different policy settings. Same outcome: strong long-term price growth.
The lesson isn’t that capital gains tax changes ‘cause’ price booms; it’s that the property market adapts. Structural demand, supply constraints, and credit conditions matter far more than tax tweaks.
What it all means?
Don’t let headlines shake you out of a long-term strategy, particularly one that works perfectly fine.
Even in a worst-case capital gains tax scenario:
The impact on realised profits is manageable
The market reaction may support higher rents and prices
Structural undersupply remains the dominant force
If anything, these debates reinforce a simple truth:
The biggest risk to investors isn’t tax changes. It’s sitting on the sidelines doing nothing because you’re getting sucked in by the noise.
If you want to explore if now is the right time for building or expanding your investment property portfolio book a free 15-minute strategy session with Custodian now. We’re giving away 15 free strategy sessions this month.
