Labor's proposed capital gains tax discount cut from 50% to 25% could cost the average investor $40,000+ extra tax. Use our free calculator to see exactly where you stand — and how selling privately can offset the hit.
If you own an investment property in Australia, the next federal budget could cost you tens of thousands of dollars. As of February 2026, the Labor government is actively considering reducing the capital gains tax (CGT) discount from 50% to 25% for investment properties. This would represent the most significant shift to Australia's tax treatment of property in over two decades.
This article explains exactly what is being proposed, how the current CGT system works, how much extra tax you could face, and what you can do right now to protect your position.
Use our free CGT + Savings Calculator to see your personalised numbers in seconds.[Open the Free Calculator](/cgt-calculator)
Capital gains tax (CGT) is not a separate tax in Australia. It is a component of your income tax. When you sell an asset (including an investment property) for more than you paid for it, the profit (the "capital gain") is added to your taxable income and taxed at your marginal rate.
The key rule that has defined Australian property investment since 1999 is the 50% CGT discount: if you hold an asset for more than 12 months before selling, you only include half the capital gain in your taxable income. The other half is tax-free.
Here is how it works under current law:
| Taxable Income | Marginal Rate |
|---|---|
| $0 - $18,200 | Nil |
| $18,201 - $45,000 | 16% |
| $45,001 - $135,000 | 30% |
| $135,001 - $190,000 | 37% |
| $190,001+ | 45% |
If the property is your primary place of residence (your "main residence"), the full CGT exemption applies. You pay zero capital gains tax, regardless of how much profit you make. The proposed changes do not affect owner-occupiers.
The current debate centres on a proposal to reduce the CGT discount from 50% to 25% for investment properties. This would mean investors pay tax on 75% of their capital gain (instead of 50%) when they sell.
The proposal is not new. Labor took a version of this policy to the 2019 federal election, proposing to reduce the discount to 25% while fully grandfathering existing holdings. What has changed in 2026 is the political context. Generational inequality driven by soaring property prices has become a central policy concern. Treasury analysis leaked in early February 2026 showed that the top income earners capture over 83% of CGT discount benefits. The Grattan Institute estimates that ending the discount entirely could raise $6.5 billion per year.
As of late February 2026, Treasurer Jim Chalmers has not ruled out changes, with government sources indicating that CGT reform "related to housing" is being considered for the May 2026 budget.
Consider a typical Sydney investor scenario:
| Scenario | Taxable Gain | CGT Payable |
|---|---|---|
| Current law (50% discount) | $210,000 | $77,700 |
| Proposed law (25% discount) | $315,000 | $116,550 |
| Extra tax under proposed changes | $38,850 |
That is nearly $39,000 in additional tax on a single property sale.
Based on Labor's 2019 policy and current political signals, any change is expected to be grandfathered meaning properties already owned would retain the 50% discount, and only new acquisitions after a legislated start date would face the reduced discount.
However, this is not yet law. Until legislation passes parliament with explicit grandfathering provisions, existing investors cannot assume protection. If you are considering selling an investment property you already own, the window to sell under current law may be limited. The May 2026 budget is the critical date to watch.
Here is something many investors overlook: the costs of selling your property reduce your capital gain. Agent commissions, legal fees, and marketing costs are all deductible from your capital gain calculation.
Consider the numbers on a $1.2M sale:
With a 37% marginal rate, the agent commission reduces your taxable gain by $30,000, saving you $11,100 in tax. But you still pay $30,000 to the agent, a net cost of $18,900.
With DealSetter, you pay $3,999, saving $26,001 in cash. The slightly higher taxable gain costs you an extra $9,620 in tax. Your net saving is still $16,381 compared to using a traditional agent. Selling privately puts more money in your pocket regardless of what Canberra does.
We have built a free, interactive calculator that shows you:
[Open the Free CGT + Savings Calculator](/cgt-calculator)
Enter your purchase price, sale price, years held, and income and get your personalised numbers in seconds.
No. The main residence exemption is not being targeted. Owner-occupiers who sell their primary home will continue to pay zero CGT, regardless of any changes to the investment property discount.
Nothing has been legislated. The May 2026 federal budget is the earliest any announcement could be made. If changes are announced, they would typically apply to assets acquired after a specified start date, with existing holdings grandfathered.
If you sell within 12 months of purchase, no CGT discount applies under either current or proposed law. Your full capital gain is added to your taxable income.
Yes. If you move out of your main residence and rent it out, you can treat it as your main residence for up to six years under the CGT 6-year rule, potentially avoiding CGT entirely on the sale. This rule is not affected by the proposed changes.
No. DealSetter is a marketing and technology platform that empowers homeowners to sell privately. You retain control of your sale; DealSetter provides the tools, data, and support to do it professionally.
The proposed CGT changes represent a genuine financial risk for Australian property investors. Whether or not they pass in the May 2026 budget, the direction of travel is clear: the generous tax treatment that has underpinned property investment for 26 years is under serious political pressure.
The investors who will be best positioned are those who understand their numbers, time their decisions carefully, and minimise avoidable costs like agent commissions. Selling privately with DealSetter is one of the most direct ways to protect your net proceeds, regardless of what happens in Canberra.
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