Capital gains tax (CGT) changes for 2027: the one date property investors can't afford to ignore

One of the worst things about the federal government’s changes to capital gains tax (CGT), announced in the Federal Budget earlier this year, is the huge confusion they’ve sparked.

Many people, for instance, think CGT is a standalone tax rather than part of their overall income tax return, and the emotional policy debates often seem to muddy the waters.

But with the new reforms set to come in on July 1, 2027, Australia’s tax experts have an important message for property owners.

“Don’t panic and don’t rush to sell purely for tax reasons – but don’t ignore July 1, 2027 either,” said Mark Chapman, director of tax communications at H&R Block Australia.

“Anyone sitting on a substantial unrealised gain should understand how much of that gain falls under the existing system, what happens to future growth under the new system, and whether obtaining a professional valuation makes sense. For many long-term property investors, that valuation could eventually become one of the most important documents in their tax file.”

So, what are the changes, and what should people understand?

What are the main CGT changes from July 1, 2027?

The biggest change is the end of the 50 per cent capital gains tax discount in its current form. At the moment, an individual who owns an investment property for at least 12 months can generally reduce the taxable capital gain by 50 per cent.

But from July 1, 2027, for gains accruing from that date, that system will largely be replaced by indexation of the property’s cost base. In other words, instead of simply halving the gain, the original cost will be increased to reflect inflation and tax will generally apply to the remaining ‘real’ gain.

A spokesperson from the Australian Tax Office (ATO) says, “The newly enacted CGT rules apply to capital gains that accrue from 1 July 2027 and are taxed when the gain is realised.”

Mark Chapman says there’s also a second change which has received less attention but could be just as important: a minimum 30 per cent tax rate on relevant capital gains.

“That means taxpayers will generally no longer be able to wait until a low-income year – retirement being the obvious example – and then sell an investment property in the expectation that the gain will be taxed at a very low marginal rate,” he says.

“For property investors, this is a fundamental change to the tax economics of long-term ownership. Under the existing system, the bigger the real increase in the value of the property, the more valuable the 50 per cent discount tends to become. Under the new system, the tax concession is tied to inflation instead. In a strongly rising property market, those can produce very different outcomes.”

What happens to properties people already own?

The ATO spokesperson says these changes will have limited impact on existing investments.

“Properties held at announcement (7:30pm AEST 12 May 2026) will be exempt from the negative gearing changes, while the CGT reforms will only apply to gains that accrue after 1 July 2027,” he says.

The government isn’t retrospectively taxing capital growth that occurred before July 1, 2027 under the new rules. So, if someone already owns an investment property on that date and later sells it, the gain will effectively be split between the period before and after July 1, 2027.

The existing CGT rules, including the 50 per cent discount where applicable, continue to apply to the pre-July 2027 component. The new indexation and minimum-tax regime only applies to the growth arising afterwards.

“That makes June 30, 2027 an extremely important valuation date,” Chapman says. “For many property owners, one of the most sensible things they can do will be to obtain a defensible market valuation around that date and keep it with their tax records.

“There will also be an ATO-approved apportionment methodology, but for a property that has experienced unusual or highly localised growth, I would be reluctant to assume that a generic formula will necessarily produce the best result. I suspect valuations will become one of the practical battlegrounds of the new CGT system.”

What stays the same after the CGT changes?

The family home isn’t suddenly being brought into the CGT system, with the existing main-residence exemption remaining, so you don’t pay CGT if you sell.

“These changes are overwhelmingly an issue for investment assets, not somebody simply selling the home they have lived in,” Chapman says. “The existing small-business CGT concessions are also being retained, subject of course to taxpayers satisfying their existing eligibility requirements.

“And capital gains aren’t being taxed annually. You don’t get a tax bill simply because Domain says your investment property has risen by $100,000. CGT continues to be a tax triggered by a CGT event – most commonly a sale.”

Who and what will be affected?

The obvious group is residential property investors, but the new regime may also affect shares, commercial property, interests in trusts and other CGT assets held by individuals, trusts and partnerships.

Chapman points out that even assets acquired before CGT began on September 20, 1985 are affected. Broadly, their existing CGT-free status is preserved until June 30, 2027, but growth after that point can fall within the CGT system. That makes getting the 2027 value right particularly important for families holding very old properties.

The ATO spokesperson says, “The ATO will develop tools, calculators, and guidance to assist taxpayers in clearly understanding and meeting their tax obligations. This includes obligations related to the valuation of assets.”

What won’t be affected?

The main residence exemption remains, and there’s deliberately favourable treatment for new residential property. Investors in qualifying new builds can choose between the existing 50 per cent CGT discount and the new indexation/minimum-tax regime.

“That’s significant because it sits alongside the government’s negative gearing changes,” Chapman says. “If the tax system is going to subsidise property investment, the government wants that investment directed towards creating additional housing, rather than investors competing with owner-occupiers for established homes.”

Income-support recipients, including Age Pension recipients, are also exempt from the new 30 per cent minimum CGT rate, although the ordinary CGT rules can still apply.

What could this mean for the property market?

The government says that, since 1999, housing prices have risen more than twice as fast as average full-time earnings and, from 2001 to 2021, the home ownership rate for households aged 25 to 34 declined by seven percentage points.

“These changes will help level the playing field for first-home buyers, preserve the gains investors have made, and support investment in new housing supply,” says a spokesperson.

But tax is only one factor in property prices and interest rates, credit availability, population growth, construction levels and the underlying housing shortage will continue to matter enormously.

Chapman believes, however, that the changes will alter investor behaviour at the margins – and property markets are often moved at the margins.

“The first potential effect is a pull-forward of some sales before July 1, 2027,” he says. “Owners who were already thinking about selling may decide there is little reason to wait, particularly if they expect substantial future capital growth.

“I wouldn’t sell a good investment solely because the tax rules are changing, but where somebody was planning to sell anyway, the timing question is now impossible to ignore.”

The second impact could be a longer-term shift away from established investment properties and towards new builds, especially with the negative gearing changes happening at the same time. That could mean less investor competition for established homes, particularly the types of apartments and entry-level houses that investors and first-home buyers often compete for.

The reforms could also create downside in the rental market. If the reforms encourage some existing landlords to sell and discourage replacement investors from buying established rental properties, rental supply could tighten in particular markets.

“Whether investors respond as intended will ultimately determine whether these reforms help housing supply or simply make investment property less attractive,” says Chapman.