The 50% CGT discount – changes afoot?

How the Discount Currently Works

There is a lot of discussion in the media about whether the government may change the 50% CGT discount. Under the current rules, eligible taxpayers are only assessed on half of their capital gain.

Importantly, the discount only applies if the asset has been owned for more than 12 months—in practice, 12 months and 2 days, as both the acquisition and disposal dates are excluded when calculating the holding period.

The discount applies to most classes of capital assets, including real property, shares and other investment assets. However, companies are not entitled to the discount and are instead taxed at their standard corporate rate.

The Australian Taxation Office explains how the discount operates in detail here:
ATO – CGT discount

When the Discount Does Not Apply

Despite its broad application, the 50% CGT discount is not available in all circumstances.

In particular, it does not apply to certain capital gains that arise when an asset is created in another person, such as when granting a lease, option or similar contractual right for consideration.

The discount also does not apply to capital gains made by companies, and its availability for foreign residents has been restricted since 2012.

Where the discount does apply, it can still push a taxpayer into a higher marginal tax bracket if the capital gain is large enough, even though only half the gain is assessable.

Why the Discount Was Introduced

The 50% CGT discount was introduced in 1999 and replaced two earlier concessions:

• Indexation of capital gains for inflation
• The averaging concession, which limited tax rate spikes

Some commentators now argue for a return to inflation indexation. However, when introduced, the 50% discount was deliberately set at a high level to replace both concessions and simplify the system.

It was also intended to:

• Encourage long‑term investment
• Promote asset turnover
• Attract foreign investment (prior to later restrictions)

Senate Inquiry and Policy Debate

There is currently a Senate inquiry into the operation of the CGT discount, examining its impact on housing affordability, investment behaviour and equity within the tax system.

The inquiry’s findings suggest the discount, particularly when combined with negative gearing, may distort investment towards existing housing and away from productive assets.

The full inquiry report is available via Parliament:
Parliament of Australia – CGT Discount Inquiry

Whether any reform would materially improve housing affordability remains a contested issue, with strong arguments on both sides.

Planning Ahead

If you are considering buying or selling assets, it may be worthwhile seeking advice sooner rather than later.

Any proposed changes to the 50% CGT discount are most likely to be announced as part of the May Federal Budget, and timing can significantly affect tax outcomes.

Discussing your position in advance can help determine whether action before any announced changes may be beneficial as part of broader tax planning. The 50% CGT discount – changes afoot?

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