Australia’s capital gains tax (CGT) discount is under formal government review because of its growing fiscal cost and its role in shaping housing affordability, wealth distribution, and investment behaviour. Evidence from Treasury, the Australian Taxation Office, and Parliament shows the concession delivers large benefits to high‑income households while influencing broader social and economic outcomes.
What the Capital Gains Tax Discount Is and Why It Exists
- Current structure: Individuals and trusts can reduce taxable capital gains by 50% on assets held for more than 12 months.
- Original intent:
- Compensate for inflation in asset values.
- Encourage long‑term investment and capital formation.
- Key exclusions:
- Owner‑occupied homes remain fully exempt.
- Companies do not receive the discount.
The Australian Taxation Office confirms the discount applies primarily to property, shares, and business assets held by individuals and trusts.
Why the Government Is Reviewing the Capital Gains Tax Discount
Fiscal Cost and Distribution
- Treasury estimates the CGT discount costs the Commonwealth over $20 billion per year in foregone revenue.
- Parliamentary evidence shows around 80–90% of benefits accrue to the top income quintile, with a heavy concentration among high‑wealth households.
- The Senate Select Committee is examining whether the discount contributes to inequality, particularly through housing.
Investment Distortions
- Treasury analysis indicates the discount favours existing asset trading, especially residential property, over productive investment such as business expansion or innovation.
- The concession interacts with negative gearing to amplify after‑tax returns on leveraged property investment.
Economic Impacts
Housing Market Effects
- The CGT discount increases the after‑tax return on capital growth, encouraging investors to prioritise price appreciation over rental yield.
- Treasury‑commissioned housing system analysis identifies insufficient supply, not tax alone, as the primary driver of affordability pressures—but tax settings materially influence demand.
- National dwelling prices rose 7.1% year‑on‑year to August 2024, despite higher interest rates, reflecting strong demand fundamentals.
Productivity and Capital Allocation
- Parliamentary inquiry terms highlight concerns that capital is being channelled into existing housing stock rather than productivity‑enhancing sectors.
- Economic modelling presented to the Senate suggests this reduces long‑term GDP growth by diverting savings away from higher‑return productive assets.
Social Impacts
Intergenerational Equity
- Younger Australians face higher barriers to home ownership as asset‑rich households benefit disproportionately from capital gains concessions.
- Treasury data shows the gap between house prices and incomes has widened significantly since the discount’s introduction in 1999.
Wealth Concentration
- The CGT discount compounds wealth accumulation among those already holding appreciating assets.
- Senate evidence highlights the extensive use of the discount through trust structures, further concentrating benefits among high‑net‑worth groups.
Policy Options Under Consideration
| Option | Economic Effect | Social Effect |
|---|---|---|
| Reduce discount rate (e.g., 50% → 25%) | Increases revenue, moderates speculative demand | Improves equity, reduces wealth concentration |
| Index gains to inflation | Targets original policy intent | Neutral distributional impact |
| Retain discount, redirect revenue | Maintains investment incentives | Funds housing supply or social programs |
The Senate Select Committee is due to report by March 2026, with findings expected to inform future tax mix decisions.
Broader National Implications
- Economically: Reform could improve budget sustainability and redirect capital toward productivity‑enhancing investment.
- Socially: Adjustments may ease intergenerational inequality and support fairer access to housing without undermining long‑term investment confidence.
Treasury emphasises that any reform must be considered alongside planning, zoning, and housing supply measures to achieve durable affordability outcomes.