What the New Capital Gains Tax Changes Mean for Property Investors
Property investors across Australia are facing one of the most significant tax changes in more than 25 years. Following the Federal Government’s recent tax reform package, the long-standing 50% Capital Gains Tax (CGT) discount will be replaced with a new inflation-indexed system from 1 July 2027, alongside broader changes to negative gearing. While the legislation is aimed at improving housing affordability and encouraging investment in new housing supply, it is expected to influence investment decisions across the property market.
For landlords in Western Australia, understanding these changes now is essential when making future investment decisions.
What is Changing?
For more than two decades, investors who owned an investment property for longer than 12 months generally received a 50% discount on any capital gain when they sold.
Under the new legislation:
- The current 50% CGT discount will be replaced by cost base indexation, meaning the purchase price will be adjusted for inflation before calculating any taxable gain.
- A 30% minimum tax rate will apply to capital gains after indexation.
The reforms commence from 1 July 2027. - Investors purchasing newly constructed homes will have access to more favourable CGT treatment than investors purchasing established properties, as part of the Government’s strategy to encourage additional housing supply.
- The Government has stated that these reforms are intended to tax only the “real” capital gain above inflation while redirecting investor demand towards new housing construction.
What About Existing Investment Properties?
One of the biggest questions landlords have asked is whether existing investments will be affected.
Current legislation provides transitional protections for existing investors, meaning current tax arrangements are expected to continue for many existing holdings, while the new rules primarily affect gains arising after the commencement date. Investors should obtain individual tax advice before making decisions to buy or sell, as the application of the reforms will depend on their personal circumstances and the final legislation.
How Could This Affect New Investors?
The reforms are likely to change the way many investors assess property purchases.
Historically, both rental income and long-term capital growth have driven investment decisions. If the tax benefit on future capital gains is reduced, some investors may:
- Hold properties for longer
- Focus more heavily on rental yield and cash flow
- Prioritise newly built homes to access more favourable tax treatment
- Consider alternative investment classes that offer stronger after-tax returns
For investors already considering new developments or house-and-land packages, these reforms may actually improve the relative attractiveness of new construction compared with established homes.
What Could This Mean for the Rental Market?
While the Government’s objective is to improve housing affordability, many industry groups believe there could be unintended consequences. If fewer investors purchase established rental properties, Australia’s rental pool could shrink over time.
Possible outcomes include:
• Reduced availability of rental homes.
• Continued pressure on vacancy rates.
• Strong competition among tenants.
• Upward pressure on rents where demand continues to exceed supply.
Western Australia is already experiencing historically tight rental conditions. If investor activity slows without enough new housing entering the market, supply pressures could remain for several years.
Conversely, if the reforms successfully encourage significant new residential construction, additional housing supply may help ease rental shortages over the longer term. The ultimate impact will depend on how quickly new homes are delivered and whether investor confidence remains strong enough to support that construction.
What Should Landlords Do?
Tax law is only one factor influencing property investment. Interest rates, rental demand, population growth, infrastructure investment and local market conditions all remain important drivers of long-term performance. For existing landlords, there is generally no need to make rushed decisions. Instead, now is an ideal time to:
• Review your long-term investment strategy.
• Understand how the new tax rules may affect your future plans.
• Speak with your accountant or financial adviser before buying or selling.
• Continue focusing on well-maintained properties that attract quality tenants and achieve strong rental returns.
If you would like more information or have any specific questions about how Celsius Property can assist you with your investment goals, contact Taryn Blackburn in our team on 08 6144 0700.