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The Senate select committee on the operation of the capital gains tax discount handed down its final report on Tuesday (17 March), highlighting structural issues in how the tax concession operates across the economy.
The longstanding, but controversial tax concession, which has been in place since the 1990s, reduces the taxable portion of a capital gain by 50 per cent for assets held for longer than a year.
The Senate inquiry, led by The Greens, was established in November 2025 to investigate the discount, its impact on inequality, and its wider role in the economy and housing market.
“The Senate inquiry has confirmed what Australians have known for a long time – the capital gains tax discount (CGTD) is an unfair tax break that favours property speculators over first home buyers, older Australians over younger, and investors over workers,” Greens economic justice spokesperson and committee chair, Senator Nick McKim said.
The federal government is reportedly considering changes to the discount in the lead-up to the federal budget.
What did the committee find?
The committee found the current design of the CGTD is driving distortions across the housing market and wider economy.
In its findings, the inquiry said the discount provides concessional treatment relative to labour income, incentivising tax planning and influencing how investors structure their financial decisions.
It also found that the policy is affecting how capital is allocated, with a substantial share of discounted gains tied to existing housing rather than more productive investments.
Importantly, the report highlighted that, when combined with negative gearing, the tax settings have shifted housing ownership away from owner-occupiers and towards investors, contributing to ongoing affordability pressures.
Furthermore, the committee concluded that the benefits of the discount are unevenly distributed, with implications for income, wealth, and intergenerational inequality.
Recommendations
The committee outlined a range of options to address the issues identified:
- Reducing the CGTD (e.g. 50 per cent to 25 per cent): This would increase the portion of capital gains that is taxed, reducing incentives for speculative investment and raising tax revenue.
- Abolishing the discount entirely: Capital gains would be fully taxed like ordinary income, removing any preferential treatment compared to wages.
- Return to the Keating model of inflation adjustment: Gains would be adjusted for inflation, so that only real increases in value are taxed, rather than nominal gains.
- Treating housing differently from other asset classes: Housing investments could be taxed less favourably than other assets to reduce incentives to invest in existing property.
- Reforming negative gearing arrangements: This would limit or change the ability to deduct investment losses (such as from property) against other income.
- Limiting the use of the discount through trusts: This would restrict the ability to use trusts to distribute capital gains in a way that minimises overall tax.
- Introduce a dual income tax system: Labour income and capital income are taxed separately at different rates. Under this model, wages would continue to be taxed at progressive rates, while capital income would be taxed at a lower, flat rate.
A key issue raised alongside reform was “grandfathering”, where any changes would apply only to new investments, allowing existing assets to retain current tax treatment.
There was also discussion about how changes to the CGTD could be achieved in combination with broader reform to the tax system.
The report added: “Inquiry participants overwhelmingly called for reforms to the CGTD. The one area of unanimous agreement by witnesses was that the discount distorts the housing market in favour of investors and makes it more difficult for renters to compete in the market to buy their first home.”
Dissenting report warns against ‘damaging’ changes
However, not all committee members agreed with the findings, with Coalition senators issuing a dissenting report warning against major changes to the CGTD.
The dissenting view said that the discount plays an important role in encouraging investment and supporting capital formation in Australia.
It rejected the idea that tax settings are the primary driver of housing affordability challenges, instead pointing to supply constraints, planning restrictions, and population growth.
Concerns were also raised that reducing the discount could have unintended consequences, including:
- reduced investment
- lower housing supply
- increased rents.
Dissenting senators cautioned that significant changes could undermine investor confidence and weaken economic growth.
“The Chair’s report is a simplistic and one dimensional analysis of Australian housing policy which sidesteps the biggest factor in the housing system – supply,” the Coalition senators’ dissenting report said.
“Supply of housing has collapsed in Australia as the population has surged. Supply is at the heart of the housing crisis, as repeatedly stated by representatives from the housing sector during the hearings.
“The idea that Australia’s housing woes could be solved by one tax tweak is as shallow as it is cruel.”
Brokers have previously told Broker Daily that the policy plays a limited role in housing affordability and have suggested that removing it would fail to address the market’s structural problems, while exacerbating other issues.
Another recent report found that changes to CGTD could push one in three investors to sell their properties, putting further pressure on the rental market.
[Related: Labor reportedly weighing up changes to CGT discount]