The Federal Government has announced one of the biggest changes to property investing in decades.
From 1 July 2027, the 50% Capital Gains Tax (CGT) discount for individuals and trusts will be replaced with an indexation system.
On paper, paying tax only on the “real” gain after inflation sounds reasonable. However, the new rules are more complex and, in many cases, less generous than the current system.
Here are the key changes every property investor should understand.
1. Existing investment properties won’t lose their past tax benefits
If you already own an investment property, you won’t lose the tax benefits you’ve already built up.
Your property will effectively receive a new market value on 1 July 2027. Any capital growth up to that date will still qualify for the existing 50% CGT discount when you eventually sell.
Any growth after 1 July 2027 will be taxed under the new indexation rules.
In practical terms, investors who own property before the changes take effect will face two separate capital gains calculations when they sell.
This also means obtaining a professional valuation around 1 July 2027 is likely to become very important.
2. Indexation isn’t as generous as it first appears
The new system adjusts your property’s cost base for inflation, reducing the taxable gain.
However, there is an important catch.
Indexation can reduce your taxable gain to zero, but it cannot create or increase a capital loss.
If your property’s value underperforms inflation, you don’t receive the benefit of a larger tax loss.
This makes the new system one-sided and less favourable than many investors may expect.
3. Australian tax residency becomes even more important
Another significant change affects Australians who move overseas.
To receive the benefit of indexation on Australian property, you’ll generally need to remain an Australian tax resident from 1 July 2027, or from the date you purchase the property if it’s later, until the day you sell.
If you become a non-resident during that period, you lose access to indexation on the post-2027 capital gain.
This rule applies to Australian property, not Australian shares.
4. Pre-1985 properties are no longer fully exempt
Properties purchased before 20 September 1985 have traditionally been exempt from Capital Gains Tax.
That changes from 1 July 2027. Any capital growth before that date remains exempt, but any increase in value after 1 July 2027 will be subject to the new CGT rules.
5. Brand-new homes are not affected.
The 50% CGT discount isn’t disappearing altogether. Investors purchasing eligible new residential dwellings and affordable housing will still be able to access the discount. They will also have the option of using the new indexation method, depending on which delivers the better outcome.
6. A new minimum tax also applies.
Another change that has received less attention is the introduction of a minimum 30% tax rate on post-2027 capital gains for resident individuals. If your taxable income is already above $45,000, you’re already paying at least this rate, so the change is unlikely to affect you.
However, investors with lower taxable incomes may end up paying more tax than they would under the current rules. Certain government income support recipients, including Age Pension recipients, are exempt from this minimum rate.
7. Fewer deductions can reduce your Capital Gains Tax
Under the current rules, deductions such as concessional super contributions can reduce the effective tax payable on a capital gain. From 1 July 2027, charitable donations will generally be the only deduction that can offset a post-2027 capital gain.
Melbourne still offers long-term value, particularly when compared with other capital cities. These changes don’t mean property investing no longer makes sense. However, the numbers have changed.
I believe that more people will invest in their own family home as a store of wealth and a way to make long-term capital gains without paying any tax.
Tax is only one part of an investment decision, but it plays a significant role in long-term wealth creation. Investors considering buying, holding or selling property over the coming years should understand exactly how these changes affect their position and seek advice from their accountant before making any decisions.
I’m Andrew Date, the founder and Senior Advisor at Industry Insider Property, Toorak. Industry Insider Property acts exclusively for buyers & advisors, sellers in Melbourne’s prestige and luxury residential market.
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