Capital Gains Tax: What Investors Need to Know in 2026

23 February 2026

1. The Ongoing Debate: Will the CGT Discount Change?

Speculation surrounding Australia’s 50% Capital Gains Tax (CGT) discount has intensified in recent months, with government leaders repeatedly declining to rule out changes ahead of the May 2026 Federal Budget. Media reports reveal ongoing internal discussions about whether the discount—described as one of Australia’s most controversial tax concessions—should be wound back to help address housing affordability and structural budget pressures.

Recent reporting from the ABC highlights Treasury modelling exercises and political pressure, noting that while changes have been played down publicly, multiple leaks suggest reform could still form part of wider housing policy measures.

Economists and policy groups argue that the current 50% discount disproportionately benefits high‑income earners and older Australians, and there is growing political momentum for revisiting the rate in pursuit of greater equity.

Unions and several think tanks have directly advocated reducing the discount to 25%, claiming it would reduce inequality and improve affordability over time, while phasing reforms gradually to protect existing investors.

While no formal policy has been announced, the message to investors is clear:

CGT settings are under active review, and 2026 may bring meaningful change.

2. A Brief History of Capital Gains Tax in Australia

Capital Gains Tax was introduced in Australia on 20 September 1985 as part of broader reforms under the Hawke/Keating government. It applied to assets acquired from that date onward—pre‑1985 assets remain CGT‑free.

Between 1985 and 1999, capital gains on long‑held assets were indexed to inflation (via CPI), and taxpayers used an averaging method to smooth the impact of large one‑off gains on taxable income.

The major modern reform arrived on 21 September 1999, when the Howard government replaced indexation with the now‑familiar 50% CGT discount for individuals holding assets longer than 12 months.

3. Worked Example: A Couple Selling an Investment Property in 2026

Property Details

• Purchase price (2015): $500,000

• Sale price (2026): $1,100,000

• Capital gain: $1,100,000 − $500,000 = $600,000

Assumptions

• Asset held for >12 months → eligible for 50% CGT discount under current rules.

• The couple owns the property 50/50.

• Annual incomes:

  • Partner A: $50,000

  • Partner B: $150,000

Step‑by‑Step CGT Calculation

1. Apply the 50% CGT Discount

• Total gain: $600,000

• Discounted taxable gain: 50% × $600,000 = $300,000

 Each partner declares half:

• Partner A taxable gain: $150,000

• Partner B taxable gain: $150,000

 2. Add to Each Partner’s Income

• Partner A: $50,000 + $150,000 = $200,000 taxable income

• Partner B: $150,000 + $150,000 = $300,000 taxable income

Their tax payable will follow marginal tax rates applicable for FY2025‑26. 

4. What Investors Should Consider When Buying or Selling Property

Based on current tax law and the policy environment, investors should keep the following in mind:

When Purchasing

1. Holding period matters - Assets held >12 months currently qualify for the 50% discount—but reforms could alter this in future.

2. Record‑keeping - Maintain detailed records of acquisition costs, legal fees, stamp duty, and improvement costs to accurately calculate the cost base.

3. Future policy risk - Ongoing debates indicate potential reductions in the CGT discount, which could affect long‑term returns.

4. Negative gearing interplay - Some reform discussions include both CGT and negative gearing as part of broader housing policy reforms.

When Selling

1. Timing of sale - Ensure you pass the 12‑month holding threshold unless short‑term sale is strategically beneficial.

2. Impact on taxable income - Capital gains are added to your assessable income, potentially pushing you into a higher tax bracket.

3. Offsetting capital losses - Current‑year or carried‑forward capital losses can reduce taxable gains.

4. Anticipated policy changes - With a Senate inquiry report due and budget speculation ongoing, consider the risk that future sales may occur under less favourable CGT rates.

5. Market conditions vs. tax strategy - Don’t allow tax considerations to outweigh fundamental investment decisions—markets can move faster than policy.

5. Final Thoughts

Capital Gains Tax remains one of the most politically sensitive areas of Australia’s tax system. With affordability pressures, budget deficits, and intergenerational equity taking centre stage, 2026 is shaping up as a pivotal year for CGT policy.

If you have any queries or would like to discuss your circumstances, please don't hesitate to contact us.