23 Feb CGT Discount Changes: What a Cut Could Mean for Investors

CGT Discount Changes: What a Cut Could Mean for Investors

If you’ve built wealth by holding investments for the long term — whether that’s an investment property, a portfolio of shares, or managed funds — you’ve probably noticed the growing discussion about the capital gains tax (CGT) discount.

Why it matters is straightforward: if the CGT discount is reduced, it can increase the tax you pay when you sell an investment — which may change the after-tax return you end up with.

Let’s break it down in plain English and outline a simple way to review your position.

What is the CGT discount (and who gets it)?

When you sell an investment for more than you paid, the profit is usually a capital gain. In Australia, that gain is generally taxed as part of your income — but many investors get a discount if they’ve held the asset long enough.

Under current rules:

• Individuals and trusts can generally reduce a capital gain by 50% if the asset was held at least 12 months.
• Complying super funds (including SMSFs) generally receive a 33.33% discount on gains for assets held at least 12 months.
• Companies don’t get the CGT discount.

Your home (main residence) is usually exempt from CGT if you meet the conditions, and most discussions about reform focus on investment assets rather than the family home.

What does “reducing the CGT discount” actually do?

A reduced discount doesn’t mean you pay more tax every year. It mainly changes the tax bill in the year you sell.

If the discount is cut, a larger portion of your capital gain becomes taxable income that year. That can matter because it may:

• lift your taxable income enough to push more of it into higher tax brackets
• increase related costs that depend on taxable income (this varies by person)

Put simply: a lower discount can mean a bigger tax bill when you sell.

A simple example (property or shares held personally)

Scenario: You sell an investment held for more than 12 months and make a $200,000 capital gain.

If the CGT discount stays at 50%

• Discounted gain: $200,000 × 50% = $100,000
• $100,000 is added to your taxable income (after applying any capital losses).

If the discount were reduced (illustration only)

Say the discount became 25% (not confirmed — just an example often mentioned publicly).

• Discounted gain: $200,000 × 75% = $150,000
• That’s $50,000 more included in taxable income.

If you’re already near the top tax brackets, that extra $50,000 could be taxed at a high marginal rate. The takeaway is simple:

Reducing the discount increases the taxable amount of your gain — sometimes a lot.

Who might feel it most?

1) People planning to sell in the next 1–5 years

If you’re close to a planned sale (retirement tidy-up, selling an investment property, simplifying your portfolio), a change could affect the best time to sell.

2) Investors with large gains built up over many years

Long-held assets (especially property bought a long time ago) can have big “paper gains” sitting inside them. If you sell, the CGT discount can make a meaningful difference.

3) Anyone likely to have a “high income” year from selling

Selling a large asset can make one year’s taxable income jump sharply. A reduced discount could make that jump bigger.

What about investments inside super (including SMSFs)?

Inside super, the tax rules are different:

• In accumulation phase, super funds generally pay 15% tax on earnings, and the CGT discount can reduce the tax on long-held gains.
• In retirement phase, some fund earnings on assets supporting pensions may be tax-free, but it depends on the fund and the member’s situation (this is where personal advice matters).

If a future change applied to the 50% discount for individuals, it may or may not apply to super fund discounts too. Until draft legislation is released, it’s not certain.

Three realistic investor examples

Example 1: A couple, both 58, thinking about selling an investment property at 60

Chris and Dana (58) plan to sell an investment property in two years to reduce hassle before retirement. The property has a large built-up gain.

If the CGT discount were reduced, the tax on sale could be higher, which might change:

• whether selling earlier or later makes sense
• whether selling in one go or in stages (where possible) might help manage the tax impact

Practical step: Get a CGT estimate under today’s rules, then ask for a “what if” estimate under a lower discount. That gives you a sensible range without guessing what the government will do.

Example 2: An accumulator family investing in ETFs outside super

Sam (45) and Leila (43) invest $1,500/month into ETFs outside super for flexibility.

A lower CGT discount could reduce the after-tax benefit when they eventually sell, but the biggest drivers of their outcome are still likely to be:

• sticking with a long-term plan
• diversification
• fees
• avoiding frequent buying and selling

Practical step: Focus on keeping the portfolio simple and avoiding unnecessary trades that create tax earlier than needed.

Example 3: A single pre-retiree (64) planning a “portfolio clean-up”

Mina (64) plans to retire at 66 and sell a concentrated parcel of shares to rebalance and build a cash buffer.

If the discount were reduced, selling the whole parcel in one financial year could create a larger tax bill than expected.

Practical step: Consider whether the plan can be spread over time (where appropriate) to avoid one very high taxable-income year — but do this carefully, because the right approach depends on the full picture.

A simple decision framework: don’t guess — run the numbers

Step 1: Know where your biggest gains are

• Which assets have the biggest built-up gains?
• Are they held personally, in a trust, or inside super?
• Are you likely to sell within the next 1–5 years?

Step 2: Be clear on why you might sell

• Is selling optional (just rebalancing), or necessary (retirement plan, lifestyle change, estate planning)?
• How flexible is your timing?

Step 3: Test a couple of “what if” scenarios

Model your likely sale under:

• today’s rules, and
• one or two alternative settings (e.g., smaller discount)

This gives you a realistic range of possible outcomes.

Step 4: Don’t rush into big changes

Large moves — like selling quickly or shifting ownership structures — can create tax and costs right now. It’s usually better to be prepared and informed, rather than reactive.

Quick checklist (save this)

CGT discount change prep list

• ☐ List your top 5 assets with the biggest built-up gains
• ☐ Note how each is owned: personal / trust / super
• ☐ Estimate CGT under current rules (including any capital losses you can use)
• ☐ Identify any planned sales in the next 1–5 years
• ☐ Run a “what if” estimate under a lower CGT discount
• ☐ Check your plan still works after tax, not just before tax

So… is a lower CGT discount “bad” for investors?

It depends mainly on whether you’re selling.

A reduced discount generally:

• increases tax when you sell, and
• reduces the after-tax return for assets where a large part of the return is capital growth.

But for long-term investors who aren’t planning to sell for many years, the day-to-day impact may be limited — and staying disciplined often matters more than trying to out-guess policy.

Want help modelling the “what if”?

If you’re approaching retirement or planning a major sale (property or investments), it can be worth running a few scenarios so you know where you stand.

If you’d like, we can help you:

• estimate CGT under current rules,
• test alternative settings, and
• map out a plan that fits your retirement timeline.

Important information and disclaimer

The information provided in this document is general information only and does not constitute personal advice. It has been prepared without taking into account any of your individual objectives, financial solutions or needs. Before acting on this information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. You should read the relevant Product Disclosure Statements and seek personal advice from a qualified financial adviser. From time to time we may send you informative updates and details of the range of services we can provide.

FinPeak Advisers ABN 20 412 206 738 is a Corporate Authorised Representative No. 1249766 of Spark Advisers Australia Pty Ltd ABN 34 122 486 935 AFSL No. 458254 (a subsidiary of Spark FG ABN 15 621 553 786)