Could divisive CGT discount be rolled back in Budget?

A fresh parliamentary report has reignited debate over one of Australia's most controversial tax breaks: the 50% capital gains tax (CGT) discount.

The Senate Select Committee on the Operation of the Capital Gains Tax Discount handed down its final report on Tuesday after taking evidence from economists, industry groups, unions, academics and members of the public. It held public hearings in Melbourne, Canberra and Sydney across February.

The report found that the concession benefits wealthier Australians most, can skew investment toward existing housing and has helped tilt the market toward investors over owner-occupiers.

While political opinions differ, the broad consensus in submissions favours reforming the rules.

While the Greens chaired the Committee, which included Labor and Coalition senators, the government remains tight-lipped on whether the report will trigger changes.

What is the capital gains tax discount?

Capital gains tax applies to the profit made when you sell an asset.

Any net gain is added to your taxable income and taxed at your marginal rate. Your main residence is generally exempt.

Under current rules, Australian residents who hold an asset for at least 12 months can halve the taxable gain using the CGT discount.

According to the Treasury's 2025-26 Tax Expenditures and Insights Statement, about 830,000 people used the discount in 2022-23.

CGT discount: arguments for and against

The current discount was introduced in 1999 to simplify the system and encourage investment. Since then, housing prices have surged.

The report found the median home price has grown from roughly four to eight times the median income, while only half of 30-34-year-olds own property, down from 57% when the discount was introduced.

Coalition senators Andrew Bragg and Dave Sharma filed dissenting views, arguing the discount supports the supply of rental properties and that inadequate housing supply is the core problem.

"Australians are understandably frustrated by high prices and limited availability," they said in a joint statement. "However, it is misleading and irresponsible to blame the CGT discount for this crisis."

They pointed to Grattan Institute research estimating that increasing CGT could reduce housing construction by up to 10,000 homes over five years to 2030, with the removal of the discount likely cutting property prices by less than 1%.

Separate University of Melbourne research shows removing the CGT discount could push rents up by about 1.3%.

The Committee, however, cited research indicating the current settings do not increase the supply of new housing and therefore do not lift rental supply.

Over the past five years, 92% of investor lending has gone to existing housing, the report said. Only 8% of investor lending has funded new builds, compared with 20% of owner-occupier lending going to new housing.

"Australia's tax system is broken," says Nick McKim, committee chair and Greens senator.

"More and more young people are facing the prospect of never owning their home. Australia is in a nationwide crisis of housing unaffordability which the CGT discount has played a pivotal role in creating."

CGT discount: What could change?

While the Coalition wants no change, others are using the report to push competing models for reform.

The Greens are arguing for the most sweeping overhaul. Their view is that the capital gains tax discount should be wound back across all asset classes so income from owning assets is taxed more like income earned from work.

On housing, they want the discount abolished entirely on investment property sales.

They are also opposed to broad grandfathering, arguing that protecting existing investors for too long would blunt the reform and lock in the same intergenerational inequality the report says the current system worsens.

Independent senator David Pocock is proposing a narrower model.

He wants the CGT discount removed for residential investment properties bought after July 1, while keeping the current rules for properties bought before that date.

He would still allow a 25% discount for newly built homes held for more than three years, in an attempt to direct investor money towards adding supply rather than competing for existing homes.

He has also linked that approach to tighter negative gearing rules on second and subsequent investment properties.

What is grandfathering?

Grandfathering means existing owners keep the old tax rules, while new buyers face the new ones.

So if changes began from July, an investor who bought before that date could still claim the current 50% CGT discount when they sell, while someone buying after that date could not.

It is essentially a way of changing the rules without applying them retrospectively.

Capital gains tax: What is the government's position?

The more politically awkward question is Labor's position.

That is because the report, backed by Labor senators, makes firmer findings than Labor senator Richard Dowling was willing to embrace in his own remarks.

The report says the CGT discount disproportionately favours investors and worsens inequality.

Dowling, by contrast, said the inquiry had merely "heard evidence" about the discount's effects, and stressed that housing outcomes are shaped by many structural factors, with tax policy only one part of a broader housing policy mix.

That is the tension. The report itself reaches strong conclusions about the role of the CGT discount. Dowling stops short of owning those conclusions politically, and instead shifts the focus back to Labor's broader tax and housing agenda.

That is despite Dowling being the deputy chair of the Committee.

All eyes turn to the May Budget

Treasurer Jim Chalmers has also not backed any change to the CGT discount yet, but he has left the door open.

Before the report was released, Chalmers said the government would consider its findings "in the usual way", but made clear that parliamentary committees do not decide tax policy, cabinet does.

He also said the government's policy "hasn't changed in this area" and that any further steps would be a matter for cabinet.

This careful language means Chalmers is not endorsing reform, but he is not shutting it down either.

His most important comment may have been about timing.

"No doubt, the Committee's made a range of findings," Chalmers said in a press conference after the Reserve Bank handed down its latest cash rate decision.

"But when it comes to budgets, they usually finalise closer to May than the middle of March."

In that sense, the report raises the pressure, but the budget is where it counts. If Labor wants to revisit the discount, May is when that choice is most likely to show up.

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