---
title: "The CGT Discount Might Disappear. Here's Why Three Types of Investors Will Actually Profit."
description: "Australia may scrap the 50% CGT discount. Most investors panic. But if your structure is right, you could pay less tax than before. SMSF, company structures, and value investors explained."
author: Joey Don
date: 2024-04-22
category: Scam / Warning
url: https://premiumrea.com.au/blog/cgt-discount-abolished-three-types-investors-win
tags: ["CGT", "capital gains tax", "tax reform", "SMSF", "property investment", "Australia", "tax strategy", "family trust"]
---

# The CGT Discount Might Disappear. Here's Why Three Types of Investors Will Actually Profit.

*By Joey Don, Co-Founder & CEO at PremiumRea — 2024-04-22*

> Everyone's losing their minds over the potential CGT reform. I've run the numbers across our portfolio of 350+ transactions, and the truth is uncomfortable: if you bought right and structured right, this change barely touches you. It's the speculators and the lazy planners who should be worried.

I keep getting messages from panicked investors who've read the headlines about the capital gains tax discount being scrapped. "Joey, is this the end of property investing?" No. It's not. But it might be the end of a particular kind of property investing — the lazy kind, the speculative kind, the "buy and pray" kind.

Let me be blunt. I've helped clients purchase over 350 properties across Melbourne and regional Victoria. Not a single one of our long-term holders would be materially damaged by the removal of the 50% CGT discount. Not one. And I'll tell you exactly why, because the reasoning applies to anyone who's willing to think about structure before they sign a contract of sale.

Right now in Australia, if you sell an investment property you've held for more than 12 months, you only pay tax on half the capital gain. So if your property went up by $400,000, you're taxed on $200,000 [1]. It's generous. It's been in place since the Howard government introduced it back in 1999. And the current policy conversation — which has been simmering since the Henry Tax Review recommended reducing the discount to 40% back in 2010 [11] — is finally getting serious.

The question everyone should be asking isn't "will prices fall?" — it's "does my investment structure even depend on this discount in the first place?" Because if it does, you've got a bigger problem than tax reform. You've got a strategy that only works when the government subsidises your profit margin.

## Who actually gets hurt by this

Let's get specific. The CGT discount benefits two groups more than anyone else: short-term flippers and passive holders with no exit strategy.

Flippers buy, renovate, sell. We do this for clients regularly. Recent example: bought a property for $1.1 million, spent roughly $60K on targeted renovations, sold for $1.6 million [2]. That's a $500,000 gain. Under the current rules, if held for over 12 months, you'd only pay tax on $250,000 of that. If the discount disappears, you're paying tax on the full $500K. At a 45% marginal rate, that's an extra $112,500 in tax. Real money.

But here's the thing most people miss — serious flippers already account for this. When I'm running multiple development projects, I buy under a company structure specifically because I know I won't hold for 12 months anyway. Companies don't get the 50% discount regardless. They pay a flat 25% (base rate entity) or 30% company tax rate on the gain [3]. So this policy change? It doesn't touch me.

There's a reason I choose the company structure even though it misses the discount: speed and flexibility. I can run three renovation projects simultaneously, turn them over in six to eight months each, and pay the tax at a known, predictable rate. No need to hold properties artificially for 12 months just to qualify for a discount. The speed of capital recycling more than compensates for the higher tax rate on each individual deal.

The second group that gets hammered is the speculative punter. Bloke who buys a $400,000 house in some growth corridor hoping it'll magically become $600,000 next year because of a train line announcement or a rezoning rumour. These people have no renovation plan, no rental strategy, no structural thinking. Their entire investment thesis is "buy low, sell high, and the government will let me keep half the gain tax-free."

Take that discount away and their already-thin margins evaporate. Good riddance, honestly. This is speculation, not investing. And the government knows it — that's precisely why the discount is being scrutinised. It was designed to encourage long-term investment, but it's been co-opted by people who treat residential property like day-trading shares.

## Type 1: The value investor who never planned to sell

Here's where it gets interesting. If you're a genuine long-term property investor — the kind who builds a portfolio and holds it — the CGT discount is largely irrelevant to your actual wealth accumulation.

Think about it properly. You buy a property in Hampton Park for $590,000. You do some work on it — maybe $15,000 in light renovation: new flooring, fresh paint, a kitchen refresh — and you rent it for $850 a week [4]. The property appreciates. Five years later, based on the trajectory we've seen across our portfolio, it's sitting around $780,000. You've gained roughly $190,000 in capital growth and collected approximately $220,000 in gross rent over those five years.

Do you sell? Why would you? You're sitting on positive cash flow. The rent covers your interest-only repayments comfortably. Your annual holding costs are known and manageable: council rates ($2,000/year), land tax ($2,000/year), insurance ($1,500/year), water ($650/year) [5]. There's money left over every month.

When clients come to me wanting to sell a performing asset, I always ask the same question: "And then what? What are you going to do with the money that's better than what this property is already doing for you?"

Most of the time, they don't have an answer. Because the answer is usually: nothing. You'd pay the selling agent's commission (typically 1.8-2.5% plus marketing costs), pay the conveyancer, pay the CGT (discounted or not), and then sit on a pile of cash earning 1.5% in a savings account. Or worse, you'd reinvest it into another property — paying stamp duty all over again, losing another 5.5% to the state government on the way in.

The CGT discount is a tax event that only occurs when you sell. If your strategy doesn't require selling, the reform is just noise. Background static for people who built their portfolios properly.

Our investment philosophy at PremiumRea comes down to a simple principle: buy land, get the house essentially free. We look for properties where land value represents at least 80% of the total purchase price [6]. Then we physically transform the rental potential through renovation, conversion, or granny flat construction. The house depreciates — that's actually a tax benefit through depreciation schedules. The land appreciates. The rent pays the bills. Nobody needs to sell anything.

I've got properties in my own portfolio that I've held for years. The idea of selling them to "realise" the gain makes zero financial sense. They're producing income. They're appreciating. They're generating deductions. Why would I trigger a tax event to access capital I don't need?

## Type 2: The SMSF buyer who's already tax-free

This is the group that should be quietly celebrating. Self-managed super funds (SMSFs) already operate under a completely different tax regime, and the CGT discount conversation doesn't apply to them in the way most people assume.

Inside an SMSF, the capital gains tax rate during the accumulation phase is 15% (or effectively 10% with the one-third discount for assets held over 12 months). But here's the real kicker — once you move into pension phase (typically after age 60), the CGT rate drops to zero. Nothing. Absolute zero. You sell a $2 million property inside your SMSF pension phase and you pay absolutely no capital gains tax [7]. Not 50%. Not 10%. Zero.

So if the government abolishes the 50% discount for individuals, what happens? SMSF becomes relatively even more attractive. It's already attractive for property — the problem is most people's financial advisers and brokers don't understand SMSF lending well enough to guide them through it. But the demand shift will fix that. More investors will funnel their property purchases through super. More accountants will get busy setting up structures. More brokers will learn how to do SMSF lending properly (which, believe me, most of them currently butcher by recommending the wrong products or not understanding the bare trust requirements).

I've seen this play out dozens of times already. A couple in their early forties, combined super balance of $600K-$800K, sets up an SMSF with a corporate trustee. They buy a $450,000 house in Geelong — say Norlane or Corio — on an SMSF-compliant loan. Rent comes in at $600 a week [4]. The property is positively geared inside super from day one. The rent covers the SMSF loan repayments, the rates, the insurance. And when they retire and sell? Zero CGT. Whether the personal discount exists or not.

The limitation is the cap on superannuation balances — there's a transfer balance cap (currently $1.7 million per person) that limits how much you can move into the tax-free pension phase. But for anyone under 50 with a solid super balance and decades of contributions ahead, this is a genuine alternative path that most property investors completely overlook.

There's also a secondary benefit that people forget: contributions to super are taxed at 15% — far lower than most people's marginal tax rates. So you're effectively getting a tax deduction going in, tax-free growth inside the fund, and a tax-free exit on sale. Triple tax advantage. Name another investment structure that offers that.

If this reform does pass, I expect the SMSF property market to grow substantially. And frankly, that's not a bad outcome. It pushes more people toward structured, long-term investing rather than speculative flipping.

## Type 3: The structured investor who changes the exit

This is the most advanced play, and it's the one I'm personally most bullish on.

If the CGT discount is removed, the way you exit a property changes. Instead of the simple "buy, hold 12 months, sell, claim 50% discount" playbook, you start thinking creatively about how to realise value without triggering a straightforward sale.

Option one: develop and sell as new stock. If you own a large block — say 700 square metres or more — you can demolish the existing house and build two or three new dwellings. Yes, you'll pay GST on the new builds (because newly constructed properties attract GST), but you offset that against input tax credits on your construction costs. And the profit calculation changes entirely because you're selling a new product, not the original asset [8]. The development margin is separate from the capital gain on the original land. With the right block and the right builder, you can extract far more value through development than you ever would through a simple resale — discount or no discount.

We had a client with a property in Canterbury on 1,000+ square metres. They held for four years, did a split-level rebuild exploiting the down-slope topography, and walked away with $1.2 million in profit [4]. The CGT discount was nice to have on that transaction — but the development profit dwarfed what a simple hold-and-sell would have produced regardless of tax treatment.

Option two: the owner-occupier rotation. You buy, you live in it for 6 to 12 months, you renovate during that period, then you move out and rent it. Under the current six-year rule, you can sell within six years of moving out and pay zero CGT because it was your principal place of residence [9]. You do this across multiple properties over a decade — live in, improve, move out, rent, sell within six years — and you've built significant wealth without ever triggering a taxable event. It requires patience and a willingness to move regularly, but for younger investors it's a genuinely powerful strategy.

Option three: refinance and never sell. This is the approach I personally favour and the one I recommend most often. The property appreciates. You get a new bank valuation. You refinance at 80% LVR and pull out equity. That equity isn't income — it's a loan. No tax event whatsoever. You use that extracted equity as the deposit on your next investment property.

We had a client buy in Boronia for $660,000. Four weeks after settlement, the desktop valuation came back at $890,000 [4]. That's $230,000 in paper equity. At 80% LVR on the new valuation ($712,000), minus the original loan ($528,000), they could extract approximately $184,000. That's enough for a 20% deposit plus stamp duty on a $700,000 property. No sale. No CGT event. No discount needed. Just equity recycling through the banking system.

The point is this: sophisticated investors have multiple exit strategies. The CGT discount is just one variable in a much larger equation. Remove it, and the equation adjusts — it shifts toward refinancing, development, SMSF, and owner-occupier strategies. The equation doesn't break. It just looks different.

## What you should actually do right now

If you're reading this and you own investment property under your personal name with no particular plan for how you'll eventually exit, this potential reform is your wake-up call. Not because the sky is falling, but because you've been operating without a structure. And operating without a structure in Australian property is like driving without insurance — it's fine until it isn't, and then it's catastrophic.

Here's my practical checklist:

First, talk to your accountant about entity structure. A family trust costs about $1,000 to set up through a decent accountant [10]. It provides asset protection (your investment properties are held separately from your personal assets), income distribution flexibility (stream income to the lower-earning partner), and a framework for multi-generational wealth transfer. If you're buying investment properties under your personal name in 2021 without having at least considered alternatives, you're making decisions by default rather than by design.

Second, stress-test your portfolio against a zero-discount scenario. Open a spreadsheet. For each property, calculate: what's my after-tax return if the full capital gain is taxable at my marginal rate? If your entire investment case collapses without the discount, you don't have an investment problem — you have a speculation problem dressed up as investment. The properties should make sense based on cash flow and long-term appreciation, independent of tax concessions.

Third, review your exit strategy. Write it down. For each property: will I refinance and hold? Will I develop? Will I transfer to an SMSF? Will I use the six-year rule? If you can't answer that question for every property you own, you're flying blind.

Fourth, if you're early in your investment journey — maybe you've got one or two properties — this reform might genuinely work in your favour. It'll push speculators out of the market, reduce competition at auction, and potentially soften prices in the segments where speculators concentrate (inner-city apartments, off-the-plan units, and overpriced new builds in growth corridors). More supply for value investors. Less competition from people who shouldn't have been in the market in the first place.

The CGT discount has been a generous gift from the Australian tax system for decades. If it goes, adapt. That's what investors do. The ones who built real portfolios — with proper structures, positive cash flow, and a plan that doesn't depend on selling — they'll be fine. They were always going to be fine, because their wealth was never built on a tax concession. It was built on land, rent, and time.

Everyone else should probably start asking harder questions about why they're in property in the first place.

## References

1. [Australian Taxation Office, 'CGT discount for individuals', updated June 2021. 50% discount on capital gains for assets held longer than 12 months.](https://www.ato.gov.au/individuals/capital-gains-tax/cgt-discount/)
2. [PremiumRea client case study: $1.1M purchase, targeted renovation, sold for $1.6M. 50% gross return on a flip project in Melbourne's eastern suburbs.](#)
3. [Australian Taxation Office, 'Capital gains tax for companies', 2021. Companies do not receive the 50% CGT discount — full gain is taxed at the corporate rate of 25% (base rate entity) or 30%.](https://www.ato.gov.au/business/capital-gains-tax/)
4. [PremiumRea portfolio data: 350+ transactions across Melbourne and regional Victoria. Hampton Park: $590K purchase, $850/week rent. Boronia: $660K purchase, $890K valuation within 4 weeks. Geelong (Norlane/Corio): $400-450K, $600/week rent.](#)
5. [PremiumRea internal holding cost data for $700K-$800K Melbourne properties: land tax ~$2,000/yr, council rates ~$2,000/yr, insurance ~$1,500/yr, water ~$650/yr.](#)
6. [PremiumRea investment philosophy: minimum 80% land-to-value ratio for all acquisitions. Business principle documented in company knowledge base.](#)
7. [Australian Taxation Office, 'Tax on SMSF income', updated March 2021. Concessional rate of 15% during accumulation phase; 0% during pension phase for complying funds.](https://www.ato.gov.au/super/self-managed-super-funds/paying-benefits/tax-on-smsf-income/)
8. [Australian Taxation Office, 'GST and property', 2021. GST applies to the sale of new residential premises. Margin scheme may apply.](https://www.ato.gov.au/business/gst/in-detail/your-industry/property/gst-and-residential-property/)
9. [Australian Taxation Office, 'Treating a dwelling as your main residence after you move out (the 6-year rule)', 2021.](https://www.ato.gov.au/individuals/capital-gains-tax/property-and-capital-gains-tax/your-main-residence/)
10. [CPA Australia, 'Setting up a family trust for property investment', 2020. Typical establishment cost $800-$1,500 through a registered tax agent.](https://www.cpaaustralia.com.au/)
11. [Henry Tax Review (Australia's Future Tax System Review), 2010. Recommended reducing the CGT discount from 50% to 40%. Policy discussion ongoing since.](https://taxreview.treasury.gov.au/)

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Source: https://premiumrea.com.au/blog/cgt-discount-abolished-three-types-investors-win
Publisher: PremiumRea (Optima Real Estate) — Melbourne buyers agent