CGT changes reshape property investment outcomes

Recent Federal Budget announcements signal a structural shift in Australia’s capital gains tax (CGT) settings. From 1 July 2027, the 50% CGT discount will be replaced with a cost base indexation model, alongside the introduction of a minimum tax on capital gains. 

While tax should not be the sole driver of investment decisions, these changes are expected to alter after tax return profiles across asset classes, with differing implications for residential and commercial property.  

It’s important to note that at the time of writing, the legislation to enact these taxation changes has not been tabled to parliament. There is considerable speculation that the final legislation could be materially different to what was proposed in the government’s budget handed down on 12 May 2026, particularly in relation to the CGT changes on non-residential asset classes. 

What is changing 

• From 1 July 2027, the 50% CGT discount will be removed and replaced with a cost base indexation model, with gains taxed on an inflation adjusted basis. The changes will apply broadly across asset classes (such as Australian and international equities, bonds, ETF’s etc). 

• Investors in new residential developments that add to housing supply will retain the option to apply either the existing 50% discount or the cost base indexation model. 

• Transitional arrangements will apply such that gains arising before 1 July 2027 will continue to be subject to existing CGT settings. 

Minimum tax on capital gains 

From 1 July 2027, a minimum 30% tax rate will apply to capital gains, which will be imposed after the application of indexation, ensuring a baseline level of tax for individuals and reducing the benefit of deferring gains to years where marginal tax rates may be lower, while leaving superannuation funds and foreign investors largely unaffected. The minimum tax will not apply to certain means tested income support payment recipients.  

Discretionary trust changes 

From 1 July 2028, discretionary trusts (such as Family Trusts) will be subject to a minimum 30% tax on taxable income, reducing the benefit of distributing income to lower tax beneficiaries and limiting their effectiveness as a tax planning structure. 

Where income is distributed to corporate beneficiaries, it may be taxed at both the trustee and company level, resulting in a higher overall tax outcome. As a result, the use of discretionary trusts for income distribution may become less effective under the new rules. 

There is no direct impact to Charter Hall, as its funds are structured as fixed or widely held trusts and are excluded from these proposed new rules. 

Negative gearing changes 

From 1 July 2027, negative gearing will be restricted for established residential properties acquired from 7:30pm on 12 May 2026, with losses quarantined rather than offset against other income. New developments will retain full deductibility, while existing investments remain protected under grandfathering provisions. 

There are no changes to commercial property, meaning its current tax treatment remains intact. As tax settings for established residential assets become less favourable, this may increase the relative appeal of commercial property over time. 

In almost all cases, commercial properties held within Charter Hall and its associated funds are positively geared, generating surplus cash after all costs and interest expenses are accounted for. This is one reason why it is common to receive a 6-8% p.a. income distribution from unlisted commercial property investments (office, industrial and logistics, retail or social infrastructure) compared to the negative or 1-2% p.a. net income yield often associated with residential properties. 

Implications for commercial property 

The combined impact of changes to negative gearing and capital gains tax may influence how investors allocate across asset classes over time. With less favourable tax settings for established residential property, some investors may reassess portfolio positioning. At the same time, the move to taxing real gains increases the relative importance of income in total return.