CGT discount linked to lower home ownership rates among younger and lower‑income Australians
The NSW Treasury has indicated that it backs removing or reducing the Capital Gains tax discount.
Under current rules, individuals and trusts can reduce the amount of tax applied to capital gains in investments held for 12 months or more, while complying superannuation funds are allowed a 33.3% discount.
The CGT discount is routinely used by property investors to significantly reduce their annual tax bill, but according to state data, it costs the government an estimated $23 billion in foregone revenue in the 2024-25 financial year.
In a new submission to the Select Committee on the Operation of the Capital Gains Tax Discount, NSW Treasury called the impact “particularly relevant” for the state, given individual NSW taxpayers have contributed approximately 38% of Australia’s net capital gains since the 2018-19 financial year.
This statistic exceeds NSW’s 31% share of the national population, thanks to the state’s higher property values and investor activity.
NSW Treasury believes now is a good time to revisit CGT policy setting since “over time, as Australia’s economic and social landscape has evolved, a range of perspectives have emerged regarding the broader impacts of the CGT discount, including its effects on housing affordability, equality, and investment behaviour”.
NSW Treasury links the discount to falling home ownership, especially among younger and lower‑income Australians, noting that investor lending has vastly outpaced finance to first-home buyers since the late 1990s.
Generous tax treatment, combined with negative gearing, tilts the field against owner‑occupiers and entrenches the gap between those who already hold property and those locked out, it argues.
The submission also warns that the CGT discount distorts investment choices across the economy, arguing that by favouring lightly taxed capital gains over fully taxed income, it steers savings into speculative assets and existing dwellings rather than more productive investment.
“Furthermore, the benefits of the CGT discount are highly concentrated among higher-income individuals and are amplified through investment structures such as trusts, reinforcing wealth inequality,” NSW Treasury added.
Missing the point on housing supply
The debate around the CGT discount is unlikely to alleviate the biggest factor creating inequality in the housing market: supply.
According to independent buyer’s agency Propertybuyer, Australia risks undershooting its National Housing Accord target by up to 462,000 homes.
The Accord, led by the federal government, aims to deliver 1.2 million new homes by mid-2029 to ease affordability pressures through greater supply.
Data from the Australian Bureau of Statistics, the Housing Industry Association and PropTrack all concur that these housing construction shortfalls will further deteriorate housing affordability in the years ahead.
Tony MacRae, chief commercial officer of non-bank lender Bluestone Home Loans, agrees.
“We work closely with brokers and borrowers who often feel the ripple effects of housing policy changes, and the discussion around reducing the CGT discount is an important one, particularly given the ongoing challenges in housing affordability,” said MacRae.
He believes any changes need to consider “the flow-on effects for rental supply and investor confidence. A balanced approach that tackles both demand and supply will deliver better outcomes than focusing on one lever”.
“Unfortunately most of these initiatives don't address the real issue which is a lack of supply,” MacRae added.
