After three hearings in three cities and months of work, the Senate Committee tasked with determining the future of the Capital Gains Tax (CGT) Discount has delivered 135 blistering pages of findings. Here’s what they could mean for you and your investments.
Before we get started, it’s important to realise that this is just a Senate Inquiry report, not an actual proposed law-change at this stage. The Committee’s job was to interview experts, hear from witnesses and take a snapshot of how the tax operates now and make recommendations on if it should be changed.
However, it’s worth noting that much political hay is being made of the Committee’s work. Especially by Federal Treasurer Dr Jim Chalmers, who probably wouldn’t mind if the CGT discount went back into the box for good.
While this report likely won’t move markets, it’s likely to move the discussion from ‘is this tax discount fair?’ to ‘what should we do to change it?’.
There were four findings delivered in the final report. Here are each of them, and what they could mean for you.
Tax on capital is lower in Australia than tax on labour
The committee’s first finding dives right in to declare that Australia has a tax system that treats labour differently to how it treats capital.
Specifically, the report finds that the CGT discount scheme gives preferential treatment to capital income compared to wages, and that difference isn’t neutral. Moreover, that has shaped the behaviour of Australians when it comes to how they approach their financial lives, organising it around capital gains rather than salary.
The committee heard repeatedly that this creates incentives not just to invest, but to structure those investments in ways that maximise access to discounted gains. This is its first finding, simply because it sets up the rest of the report: if the discount scheme is shaping behaviour in a way that is affecting one group more than another, rules should be changed to correct it.
The CGT discount has ‘distorted’ where Australians invest (mostly into housing)
Building on the first finding that this tax discount changes people’s investing behaviour, it sought to find where those changes were showing up. No surprises here: it’s in the housing market.
The CGT changes that ushered in the discount practically made Australian property a national sport, and a quick scan of your local real estate agent’s window will tell you that prices have been a runaway train for some time.
The committee was able to draw a dotted line from the CGT discount to skyrocketing property prices:
“The CGT discount has given professional investors a huge advantage in bidding up house prices…”
…and…
“…the CGT discount increases after-tax returns for investors, enabling them to bid more aggressively… making it even more difficult for first home buyers to secure properties.”
It’s creating an ‘unbalanced’ housing market that is shutting people out
The report draws a clearer connection that finds there has been a shift in the balance of housing ownership away from owner-occupiers and towards investors.
Not to say that there are more people invested than living in housing, but rather that the benefits of the former compared to the latter are creating a distorted housing market. One that favours those who can afford to take short-term losses and claim a greater benefit when they sell versus just those who buy and live in a house. Especially when paired with negative gearing, for example.
This imbalance “compounds” over time, according to the committee:
Over time, that advantage compounds. Investors are able to bid more aggressively, hold assets longer, and structure their investments around eventual capital gains. The result is a market where they are often better positioned than first-home buyers competing for the same properties.
The end-result is a system that ultimately decides who gets to purchase homes and who doesn’t based on their access to capital and ability to take on short-term losses.
The committee doesn’t claim this is the only factor driving housing outcomes, but it does make clear that tax settings are part of the reason the ownership mix has shifted.
The CGT discount is driving ‘intergenerational inequality’
This is a pretty big one.
The committee heard that capital gains are already concentrated among those who own assets — and those assets are disproportionately held by higher-income, older Australians. When those gains are then taxed at a discount, the benefits flow in the same direction.
In other words, the system doesn’t just reflect inequality — it can reinforce it.
That dynamic becomes more pronounced over time. Those who already hold assets are able to accumulate more wealth through capital growth, while those trying to enter the market (read: younger Australians) face higher barriers to entry.
The report links this directly to broader trends in the housing market, including declining home ownership and widening gaps between generations.
You can read the full report on the Committee’s website.
