CGT Reform Is Coming. These Are the Three Models on the Table.

Everyone online is screaming that CGT is getting abolished and the property market is finished. I've watched dozens of videos on this topic over the past week. Not one of them actually explained the three distinct reform models currently being discussed in Canberra.

So let me fix that.

Since 1999, Australia's capital gains tax framework has offered a 50% discount on gains from assets held longer than 12 months. For property investors, this means if your house appreciates by $200,000, only $100,000 gets added to your taxable income. By OECD standards, this is among the most generous tax treatments for investment gains anywhere in the developed world.

That generosity is why it's being targeted. But "targeted" doesn't mean "abolished." There are three credible reform pathways, each with different implications for property investors. Understanding which one actually passes — and what it means for your portfolio — is the difference between panicking and positioning.

Model 1: The Grattan Institute approach — discount to 25%

The Grattan Institute's proposal is the most technically sophisticated and the one Treasury has used as its core modelling reference.

The headline: reduce the CGT discount from 50% to 25% for individuals and trusts.

The mechanism: no grandfather clause. Instead, a five-year phase-in. Year one: discount drops to 45%. Year two: 40%. And so on until it reaches 25% by year five.

The economic logic is actually sound. When the 50% discount replaced the old cost-base indexation method in 1999, it was designed to compensate investors for inflation eroding the real value of their gains. But asset prices since 1999 have grown far faster than inflation. The 50% discount now over-compensates, effectively subsidising speculative gains that have nothing to do with inflation.

Grattan argues that 25% more accurately reflects the true inflation component of typical capital gains. Their modelling projects additional federal revenue of approximately $6.5 billion per year. The impact on property prices? Between 1% and 2% downward — barely noticeable in a market that fluctuates 5-10% annually. The impact on rents? Less than $1 per week.

My assessment: this is the most likely outcome if reform happens under this government. It's moderate, evidence-based, and difficult to attack politically because it preserves the discount rather than abolishing it.

"The Grattan model is reform by degrees. It doesn't shock the market. It slowly recalibrates the incentive structure over five years. For investors who hold long-term, the impact on total returns is modest." — Yan Zhu

Model 2: The Pocock/Lambie approach — new builds get special treatment

This model carries serious political weight because it comes from crossbench senators who hold the balance of power.

The proposal: slash or eliminate the CGT discount for investors buying existing properties, but preserve the full 50% discount (or even increase it) for investors buying new-build housing.

The intent is to redirect investment capital from the existing housing stock (where investor purchases compete with first-home buyers) toward new construction (where investment funds directly increase housing supply).

Critically, this model includes a grandfather clause — existing investments purchased before the reform date would retain the current 50% discount. Only future purchases of existing housing would face the reduced or eliminated discount.

The political logic is clever. It reframes the reform not as a tax increase but as a "supply-side incentive." That framing makes it palatable to moderate Labor voters and potentially even some Liberal supporters who are concerned about housing affordability.

For property investors, this model creates a stark before-and-after line. Properties purchased before the reform are unaffected. Properties purchased after the reform are treated differently depending on whether they're new or existing.

My assessment: this has the highest probability of passing the Senate. The grandfather clause protects existing investors (minimising backlash), while the new-build carve-out gives the government a "we're solving the housing crisis" narrative.

Model 3: The ACTU/ACOSS approach — restrict negative gearing too

This is the most aggressive model. The Australian Council of Trade Unions and the Australian Council of Social Service jointly propose:

• CGT discount reduced to 25% or lower
• Negative gearing restricted to a single investment property per individual
• Remaining revenue redirected to public and social housing

The target is multi-property investors — what the proponents call "professional landlords" who hold five, ten, or twenty properties and use negative gearing across each one to minimise their taxable income.

The political problem: this is very similar to the policy that Labor took to the 2019 federal election and lost. That defeat remains traumatic for the party. Full implementation of the ACTU/ACOSS model is politically unlikely in the current term.

However, elements of this model — particularly the CGT discount reduction — are likely to be incorporated into whatever reform eventually passes. The negative gearing restriction is the lightning rod. The CGT component is the quiet consensus.

My assessment: the full model won't pass. But it shifts the Overton window. It makes the Grattan model (25% discount, no NG changes) look moderate by comparison, which may be the actual strategic purpose.

"The 2019 election inoculated against radical reform. Nobody in Canberra will touch negative gearing directly. But the CGT discount? That's moving. The question is how far and how fast." — Yan Zhu

What this means for your investment decisions

Let me cut through the noise.

Scenario 1 (most likely): CGT discount reduced to 25-35% over 3-5 years, with or without a grandfather clause. Impact on a $200,000 capital gain at 37% marginal rate: your tax bill increases from $37,000 to approximately $46,000-$55,000. That's $9,000-$18,000 more tax on a $200,000 profit. Annoying? Yes. Portfolio-destroying? Not even close.

Scenario 2 (possible): New-build carve-out with grandfather clause. If you already own investment property, nothing changes. If you're buying after reform, existing houses face a higher tax bill at sale while new builds retain the current discount. This would shift some investment demand toward new construction.

Scenario 3 (unlikely): Full ACTU model with negative gearing restrictions. This would meaningfully reduce investor demand for second-and-beyond investment properties. But the political probability is low.

In every scenario, the impact on property prices is modelled at 1-3% downward. That's one to two months of growth in Melbourne's southeast suburbs erased. Over a 10-year hold, it's rounding error.

The real risk isn't the reform itself — it's the panic selling that might precede it. If reform is announced and a wave of nervous investors dumps properties simultaneously, it creates a short-term buying opportunity for those with the cash and confidence to act.

My recommendation: don't change your investment strategy based on potential CGT reform. The maths still works at a 25% discount. It just works slightly less spectacularly than at 50%. If you're holding property for 10+ years and achieving 6-8% rental yields through value-add strategies, a CGT discount change shifts your internal rate of return by 1-2 percentage points. That's not a reason to sit on the sidelines.