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.
Under the current structure, individuals and trusts can reduce taxable capital gains by 50% on assets held for more than 12 months. The original intent was to compensate for inflation in asset values and to encourage long-term investment and capital formation. Owner-occupied homes remain fully exempt, and companies do not receive the discount. The ATO confirms the discount applies primarily to property, shares, and business assets held by individuals and trusts.
Treasury estimates the CGT discount costs the Commonwealth over $20 billion per year in foregone revenue. Parliamentary evidence shows around 80 to 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.
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.
Housing market. The discount increases the after-tax return on capital growth, encouraging investors to prioritise price appreciation over rental yield. Treasury-commissioned 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.
Productivity and capital allocation. Inquiry terms highlight concerns that capital is being channelled into existing housing stock rather than productivity-enhancing sectors. Modelling presented to the Senate suggests this reduces long-term GDP growth by diverting savings away from higher-return productive assets.
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 discount compounds wealth accumulation among those already holding appreciating assets. Senate evidence highlights the extensive use of the discount through trust structures.
| Option | Economic effect | Social effect |
|---|---|---|
| Reduce discount rate (e.g. 50% to 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. Treasury emphasises that any reform must be considered alongside planning, zoning, and housing-supply measures to achieve durable affordability outcomes.
General information only. This is not financial, tax or legal advice. Consult a qualified professional about your circumstances.
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