Treasury is reportedly exploring modelling that would trim the capital gains tax (CGT) discount for individuals and trusts from 50 per cent to 33 per cent on assets held longer than 12 months. What would that look like for you?
As we’ve been flagging ahead of the reported May shake-up of the Howard-era capital gains tax discount changes, the mechanics of modelling by Treasury being conducted are pretty straightforward:
• Under the current 50 per cent discount, half the nominal capital gain is assessable income.
• Under a 33 per cent discount, 67 per cent of the nominal gain is assessable income.
So what would that look like for some of Australia’s most popular investments? We took a look (based on some assumptions and not taking into account your personal circumstances, mind you), and here’s what the additional bill shakes out to.
For an investor on a 45 per cent marginal rate (ignoring Medicare levy for simplicity), the effective tax rate on a discounted long-term capital gain rises from 22.5 per cent (0.50 × 0.45) to 30.15 per cent (0.67 × 0.45). That is a 7.65 percentage point increase in the effective tax rate on the gain, or a 34 per cent increase in the tax burden relative to the status quo.
To make this concrete, consider these common realisation events.
Scenario 1: Investment property realisation (capital gain of $300,000)
This is a plausible magnitude across a full cycle in major capitals, particularly where leverage amplifies equity gains.
At a 45 per cent marginal rate:
Current settings (50 per cent discount)…
- Assessable gain: $150,000
- Tax payable: $67,500
- After-tax gain: $232,500
- Under a 33 per cent discount…
- Assessable gain: $201,000
- Tax payable: $90,450
- After-tax gain: $209,550
That is an additional $22,950 in tax on the same nominal gain.
At a 37 per cent marginal rate, the extra tax on the same gain is $18,870.
The point is not the property debate. It is the capital structure reality: property investors often target total returns dominated by price appreciation rather than cash yield, so lifting the effective tax on realised growth directly compresses after-tax equity outcomes.
Scenario 2: Shares or cryptocurrency realisation (capital gain of $100,000)
Assume an investor sells a parcel held for more than 12 months.
At a 45 per cent marginal rate:
50 per cent discount
- Assessable gain: $50,000
- Tax payable: $22,500
- After-tax gain: $77,500
33 per cent discount
- Assessable gain: $67,000
- Tax payable: $30,150
- After-tax gain: $69,850
- Additional tax: $7,650.
At a 32.5 per cent marginal rate, additional tax is $5,525.
This matters because the discount is not merely a concession, it is a behavioural parameter. A smaller concession reduces the value of deferring realisation, weakens the after-tax payoff from long holding periods, and may push some investors toward income-heavy strategies or structures with different tax treatments.
Scenario 3: Gold bullion realisation (capital gain of $50,000)
Assume a physical gold investor crystallises a gain after 18 months.
At a 45 per cent marginal rate:
50 per cent discount
- Assessable gain: $25,000
- Tax payable: $11,250
33 per cent discount
- Assessable gain: $33,500
- Tax payable: $15,075
- Additional tax: $3,825
Gold is an instructive case because the return profile is typically “no yield, all price”. If the state increases its claim on realised appreciation, it reduces the after-tax efficiency of the hedge.
What it might mean for you
Cutting the discount is a quiet way to lift the tax wedge on long-term capital formation without touching headline marginal rates. It narrows the differential between taxing income and taxing growth, reducing the relative attractiveness of strategies where returns are heavily back-ended.
If this modelling becomes policy, the investors most exposed are those with:
• large embedded gains,
• assets held outside tax-sheltered structures,
• return profiles dominated by capital growth rather than income.
