Capital Gains Tax Discount 2026 : Who wins and at what cost?
In 1999, when the capital gains tax (CGT) discount was introduced, the average Australian home cost around three to four times the average household income.
A dual-income household on average wages could realistically save a deposit within a few years.
Today, the national price-to-income ratio is around 8.9 times income. In Sydney and parts of Melbourne, it’s higher again.
That shift changes everything.
A $1 million home now requires a $200,000 deposit to avoid lenders mortgage insurance.
At a 6% interest rate, repayments on an $800,000 loan are roughly $4,800 per month.
That’s close to – or more than – the after-tax monthly income of many households.
In 1999:
- Household debt was roughly 100% of income.
- Mortgage debt was about 40% of GDP.
- Investor lending was a smaller portion of new loans.
Today:
- Household debt exceeds 180% of income.
- Mortgage debt is close to 90% of GDP.
- Investor lending regularly accounts for 30–40% of new housing loans.
- Rental vacancy rates in several capital cities have hovered around 1%.
For many younger Australians, home ownership is no longer a short-term goal.
It’s a long-term uncertainty.
Parents are helping with deposits.
First-home buyers are stretching borrowing limits.
Renters are competing for limited supply.
Housing has changed.
Debt has changed.
The financial risk households carry has changed.
But one thing hasn’t.
The 50% capital gains tax discount.
And it now costs the country $21.9 billion every year.
So the question is simple:
Is this still the right policy for the Australia we live in today?
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What Is the CGT Discount?
If you sell an investment asset – property, shares or a business – and you’ve held it for more than 12 months, you only pay tax on half of the capital gain.
Example:
| Capital Gain | Taxable Portion |
| $200,000 | $100,000 |
| $500,000 | $250,000 |
The larger the gain, the larger the benefit.
And because higher-income earners are more likely to hold appreciating assets, they receive most of the benefit.
According to official data:
- The top 20% of income earners receive around 90% of the total CGT discount benefit.
- The top 1% receive close to 60%.
It is one of the most concentrated tax concessions in the system.
What Does $21.9 Billion Actually Mean?
On its own, $21.9 billion is abstract.
Here’s what it looks like compared to programs most Australians recognise:
| Government Program | Annual Cost | Comparison |
| Commonwealth Rent Assistance | ~$6 billion | CGT is almost 4 times larger |
| JobSeeker payments | ~$14–15 billion | CGT is about 1.5 times larger |
| Child Care Subsidy | ~$13 billion | CGT is nearly double |
| Federal funding for public schools | ~$11–12 billion | CGT is almost double |
| Major federal road programs | ~$10–12 billion | CGT is about double |
In simple terms:
We spend more on the CGT discount than on JobSeeker.
More than on rent assistance.
Almost double what we spend federally on public schools.
Per household, that’s roughly $3,000 per year in forgone revenue.
This isn’t a small niche tax setting.
It’s a policy choice with real fiscal weight.
Has the Housing Market Fundamentally Changed?
Yes.
Here’s the long-term shift:
| Year | National Price-to-Income Ratio |
| 1999 | ~3–4x |
| 2010 | ~6x |
| 2020 | ~6.6x |
| 2026 | ~8.9x |
At the same time:
- Construction costs have risen more than 30% since 2020.
- Net overseas migration has, in some recent years, exceeded 400,000 people.
- Approvals have not consistently matched population growth.
- Household leverage has more than doubled relative to the late 1990s.
The system today is more debt-intensive and more price-sensitive than when the discount was created.
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Would Cutting the Discount Fix Housing?
No single tax change will fix affordability.
House prices are primarily influenced by:
- Planning and zoning rules
- Infrastructure availability
- Credit conditions
- Interest rates
- Population growth
Tax incentives affect investor behaviour at the margin – not total housing supply.
Some modelling suggests that halving the discount could reduce new dwelling construction by around 10,000 homes over five years if implemented abruptly.
Price impacts are generally estimated to be modest rather than dramatic.
This is not a crash lever.
It’s an incentive adjustment.
What About Renters?
Investors own a large share of private rental housing.
If an investor sells:
- To another investor → no change in rental supply.
- To an owner-occupier → rental supply decreases by one property.
Total housing stock doesn’t change.
But tenure changes.
Rental pressure depends on:
- The pace of investor exit
- The pace of new construction
- Population growth
Reform design matters.
Poorly structured reform could create short-term volatility.
Gradual, grandfathered reform would likely produce a more stable adjustment.
Who Benefits Under the Current System?
| Group | Effect |
| High-income investors | Significant tax savings |
| Long-term asset holders | Large nominal discount |
| Government budget | Revenue foregone |
Who Would Benefit From Reform?
If the discount were reduced or replaced:
| Group | Likely Outcome |
| Government | Increased revenue |
| First-home buyers | Reduced investor competition at the margin |
| Public housing sector | Potential funding boost if revenue reinvested |
| Existing investors (if grandfathered) | No retrospective impact |
The scale of impact would depend on implementation.
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Why Is This Being Debated Now?
Three structural pressures:
- The federal budget faces ongoing deficits.
- Housing affordability has materially deteriorated since the late 1990s.
- The benefit of the concession is heavily concentrated among higher earners.
In 1999, houses cost 3–4 times income.
In 2026, they cost closer to 9 times income.
That difference alone explains why the policy is being reconsidered.
What’s the Sensible Path?
There are several realistic options:
- Leave the system unchanged.
- Reduce the 50% discount.
- Replace it with inflation indexation (tax real gains above inflation).
- Apply reforms only to new purchases.
- Grandfather existing holdings.
The most stable path would likely involve:
- Protecting existing investments.
- Introducing changes gradually.
- Linking additional revenue to housing supply expansion.
That would adjust incentives without creating abrupt disruption.
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The Bottom Line
The capital gains tax discount costs $21.9 billion per year.
That’s more than JobSeeker.
More than rent assistance.
Almost double federal school funding.
It overwhelmingly benefits higher-income households.
But it is not the sole cause of Australia’s housing challenges.
Housing affordability is driven primarily by supply, planning, infrastructure and credit conditions.
Tax reform can influence behaviour.
It can improve fiscal balance.
It can rebalance incentives.
But it cannot build houses on its own.
The real question is not whether investors are right or wrong.
It’s whether a tax rule designed for a 3–4x income housing market still makes sense in an 8–9x income world.
That’s the policy decision now facing Australia.
And it’s one worth debating with clear eyes – and clear numbers.
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