Property investors could face higher tax bills on future sales, specifically for long-held properties with substantial capital growth and low original purchase costs.
The 2026 federal budget has brought this issue into sharper focus. It changed how gains are calculated, how losses are used, and how much tax you’ll pay when you sell any tax property.
At Australian Business Magazine, we follow this news closely, so we’ve broken down the main changes in this article. We’ll cover:
- When capital gains tax applies to your property
- How CGT calculations work under both systems
- What your cost base includes and how losses help
- The steps worth taking before July 2027
Let’s find out what this shift could mean for investors and business owners.
What Changed With CGT for Property Investors in 2026?
The government announced five major changes on 28 May 2026, which affect property investors and assets. Most of these changes don’t kick in until 1 July 2027, but the planning window is already closing.
Here are the Australian property tax changes:
- 50% CGT Discount Removed: Individual investors, trusts, and partnerships will no longer receive the flat 50% CGT discount on assets held over 12 months. The removal applies to all capital gains arising from 1 July 2027.
- Cost Base Indexation Takes Over: Your original purchase price gets adjusted upward using the Consumer Price Index, so you only pay tax on the real gain above inflation. For high-growth investment property held for at least 12 months, investors may face a higher capital gains tax bill than they would have under the former 50% discount.
- 30% Minimum Tax Floor Introduced: A floor rate of 30% now applies to net capital gains accruing from 1 July 2027, regardless of where an investor’s income sits for the year. However, income support recipients, including Age Pension and JobSeeker, are exempt from this floor. They’ll continue to pay at their marginal tax rate instead.
- Negative Gearing Restricted: Rental losses on established residential properties purchased after 7:30 pm AEST on 12 May 2026 can no longer reduce salary or other income. Unused losses aren’t lost, though. New arrangements allow them to carry forward and offset future residential rental income or capital gains.
- Pre-CGT Assets Now Captured: Land, property, and other assets held continuously since before 20 September 1985 are now brought into the CGT net for gains arising. This applies to individuals, trusts, and partnerships only, so companies aren’t touched by this reform.
In most cases, these changes hit at the same time (from 1 July 2027). If you hold an investment property or any appreciating asset, reviewing how these changes will affect your tax bill is a good place to start before making any major decisions.
When Does CGT Apply to Your Investment Property?
You need to pay capital gains tax on the profit added to your taxable income for that financial year, rather than as a separate tax. That said, not every property sale requires it. The rules also vary depending on how you use the property and your residency status.
Take a look at the situations where CGT exemptions most commonly apply to property.
The Main Residence Exemption Explained
Your main residence is generally exempt from capital gains tax when you sell it, and that rule remains fully intact after the 2026 budget. Plus, no limit exists on the size of the gain it can shelter, which makes the family home one of the most tax-advantaged assets in Australia.
For property investors who also own a principal place of residence, this distinction can determine whether a sale attracts capital gains tax and how much tax is ultimately payable.
The 6-Year Rule and How It Protects Investors
If you move out of your home and start renting it out, you may still qualify for the main residence CGT exemption. In many cases, the exemption can continue for up to six years from the date the property is first rented.
During that absence period, you can’t nominate another property as your main residence, or the residence exemption won’t apply. Say a Melbourne investor moves to Sydney for work, rents out their Richmond home, and sells four years later without buying elsewhere. The full exemption will apply to them, and no capital gains tax will be owed on the sale.
Bottom Line: Moving back in and re-establishing the property as your main residence resets that six-year clock entirely.
Inherited Property and Partial CGT Exemptions
No CGT event occurs at the moment you inherit a property in Australia, and the tax obligation is deferred until the executor or beneficiary eventually sells. For assets acquired after 20 September 1985, the beneficiary usually inherits the deceased’s original cost base. This means the existing capital gain is carried forward until the asset is sold.
Pre-1985 assets, on the other hand, receive a step-up to market value at the date of death. This reduces the taxable capital gain when the beneficiary later sells the property.
Once the cost base is established, the next step is understanding how gains will be calculated under the new framework.
How Are CGT Calculations Done Under the New Rules?
Under the new rules, taxable capital gains are calculated using cost base indexation rather than the 50% CGT discount. It changes how much of the gain is subject to tax, and for most investors, both systems will apply at the same time on the one sale.
The table below lays out how each feature shifts between the current and the new CGT calculations:
| Feature | Current System (Pre-1 July 2027) | New System (From 1 July 2027) |
| Discount method | 50% flat CGT discount for assets held 12+ months | Replaced by CPI cost base indexation |
| Minimum tax rate | None; gains taxed at marginal tax rate only | 30% minimum tax floor on net capital gains (income support recipients exempt) |
| Negative gearing | Deductible against all income including salary | Restricted to residential rental income and capital gains only (applies to new purchases after 12 May 2026) |
| New builds | Same treatment as all other assets | Investor may choose 50% discount or indexation at sale, whichever is better |
| Pre-1985 assets | Fully CGT-exempt on all gains | Brought into CGT net for gains accruing from 1 July 2027; pre-2027 gains remain exempt |
| Foreign residents | No 50% discount on gains accruing after 8 May 2012; 15% withholding tax on all property sales from 1 January 2025 | Further restrictions on taxable Australian property under April 2026 draft legislation |
| Companies | Not eligible for 50% discount; pay corporate tax on gains | Unchanged; reform does not apply to companies |
| Small business concessions | Four Division 152 concessions available | Unchanged; fully preserved |
| Superannuation funds | One-third CGT discount | Unchanged; reform does not apply to super funds |
It’s worth noting that investors selling before 1 July 2027 still calculate their full gain under the current 50% CGT discount method.
However, for assets held across the transition date, a split applies. The pre-2027 portion can keep the old discount based on the original cost base, while gains accruing after that date fall under indexation and the 30% minimum tax.
The Australian Taxation Office (ATO) will provide tools to help investors establish the asset’s value, which becomes the dividing line between both systems. Once the asset is sold, any capital gains tax CGT liability will be reported in the tax return for that income year.
Disclaimer: The “New System (From 1 July 2027)” column is based on proposed capital gains tax reforms announced in the 2026 Federal Budget and related draft legislation available at the time of writing. These measures have not yet been fully enacted and may change before implementation.
What Goes Into Your Cost Base as an Investor?
Your cost base generally includes the purchase price of the asset, acquisition costs, ownership expenses, and eligible costs incurred to improve or dispose of it. The base directly reduces the capital gain you pay tax on when you sell.
Both categories cover the common parts of the cost base calculation.
The Five Cost Base Categories Under the ATO
The ATO calculates your cost base by adding five separate elements together, instead of just what you originally paid for the property. Most investors only track the purchase price, which means they’re leaving legitimate deductions on the table.
Here are all five elements, as defined by the Australian Taxation Office‘s Cost Base of Assets.
- Money Paid to Acquire the Asset: This is the actual purchase price you paid, plus the market value of any property you exchanged to acquire the asset. It’s the starting point for every cost base calculation.
- Incidental Costs: Stamp duty, brokerage fees, and agent commissions all fall under this second element. It covers costs you incurred when buying or selling the asset. Conveyancing and legal fees sit here too.
- Ownership Costs Not Previously Deducted: These expenses only form part of the cost base if you don’t already have deductions claimed for them in a previous income year. It includes costs such as rates, land tax, repairs, insurance premiums, and non-deductible interest on money borrowed to acquire or improve the asset.
- Capital Expenditure to Increase or Preserve Value: Renovation work, structural improvements, and similar capital works all belong here. This only applies if you have not already claimed tax deductions for those expenses.
- Title Preservation and Defence Costs: Capital costs of preserving or defending your title or rights to your CGT asset form the fifth element. Think legal costs incurred to establish ownership or defend against a claim on the property.
Add the amounts across all five elements together to reach your total cost base for the asset (the higher your cost base, the lower your capital gain). We suggest keeping thorough records of every qualifying expense across each element, since that directly reduces what you’ll pay at sale.
Capital Losses and How They Reduce Your Bill
A capital loss occurs when your capital proceeds fall below the cost base on a sale. These losses can only offset capital gains, so they don’t reduce your income tax bill directly.
That said, unused capital losses don’t expire. They carry forward to future years indefinitely, ready to offset the next capital gain whenever it arises. You don’t need to report them separately in every tax return until they’re used.
CGT on Sale of Business: What Do Owners Need to Know?
Business sale tax falls under the same CGT reforms as property investment. Most commentary on the changes has focused on rental property and shares, but owners planning an exit face material consequences too.
Here’s what they need to know.
How the New Rules Affect a Business Sale
Business assets held by individuals, trusts, or partnerships lose the 50% CGT discount on gains accruing from the effective start date. It’s now replaced by cost base indexation and the 30% minimum tax on net capital gains.
Companies aren’t affected here at all, given they’ve never been eligible for the discount and already pay CGT at corporate rates on gains.
Small Business CGT Concessions Still Intact
The four Division 152 small business CGT concessions are fully preserved after the 2026 reform. For eligible owners, they remain the most tax-efficient path to exit. Eligibility requires an aggregated turnover under $2 million, measured just before the CGT event occurs.
Of the four concessions, the 15-year exemption is the strongest. It allows the entire capital gain to be disregarded for qualifying owners who’ve held the asset long enough.
Capital Gains Tax Reform: What Should Investors Do Now?
The window before 1 July 2027 is the most important planning period for investors right now. Two years may sound like plenty of time, but valuations, restructures, and tax advice all take a long time.
These practical steps cover what’s worth prioritising before the transition date arrives:
- Review Your Capital Losses: Start by identifying all existing and carried-forward capital losses sitting in your tax records before the transition date. Any gains you realise before that time will still benefit from the current 50% CGT discount, so the timing of asset sales is important here.
- Get a CGT Valuation: A formal market value assessment will become the dividing line between the old and new CGT systems for any asset you hold across the transition. The valuation determines which gains fall under the old rules and which fall under the new ones.
- Talk to a Tax Adviser About Your Structure: Your holding structure determines how the CGT reforms apply to your financial situation. For instance, individuals and trusts are directly in scope, while companies aren’t affected at all, given they were never eligible for the 50% tax discount.
That’s why property tax specialists consistently recommend locking in a defensible valuation well ahead of the deadline. Carefully planned disposals in the lead-up to that date can reduce your overall assessable income.
CGT Reform Is Coming: Here’s How to Stay Ahead
The 2026 budget has influenced how capital gains tax works for property investors, business owners, and anyone holding long-term assets in Australia. None of the changes is optional, but how well you prepare for them is entirely up to you. Before 1 July 2027, it’s best if you:
- Review your capital losses
- Get a market value assessment locked in
- Talk to a registered tax agent about your holding structure
The investors who plan now will have options, and the ones who wait may not.
To keep up with the latest policy developments, head over to Australian Business Magazine. You’ll find more coverage on the 2026 budget and what it means for Australian businesses.
Frequently Asked Questions About CGT and Property
Most investors have questions that don’t fit neatly into a single section of an article. These are the ones that come up most often around capital gains tax CGT.
Does CGT Apply If I Sell in the Same Financial Year I Buy?
Yes. The 50% CGT discount only applies to assets held for more than 12 months. So selling in the same financial year you buy means your full capital gain is added to your taxable income (and no discount applies in certain circumstances).
Can an Australian Tax Resident Claim the Main Residence Exemption Overseas?
Generally yes, provided the property remains your principal place of residence for CGT purposes, and you haven’t nominated another property as your main residence. Residency status alone doesn’t disqualify you, but the exemption’s conditions still need to be met in full for the exemption to apply.
Is Inherited Property Generally Exempt From CGT in Australia?
Not automatically. Inherited property is generally exempt from CGT if the deceased’s home sells within two years of death and certain circumstances are met. Outside those conditions, the beneficiary’s cost base and the eventual selling price determine whether a capital gain arises.
What Does Residency Status Mean for CGT Purposes?
Your residency status determines which CGT rules apply when you sell Australian property. Australian tax residents are taxed on worldwide capital gains, while foreign residents are only taxed on taxable Australian property.
Residency status also affects access to the main residence exemption, and the electoral roll isn’t a reliable indicator of tax residency on its own.
