The federal government is considering a major shift in how capital gains are taxed for new investments, moving away from the current 50% CGT discount and towards an “inflation indexation” approach. If implemented, this would be one of the most consequential tax changes property investors have faced in decades.
For clients working with an accountant Box Hill investors are asking the same practical question: would indexation reduce or increase CGT on an investment property sale, and how do you plan when the details are not yet law? The key is understanding what would change, what stays the same, and what records you’ll need to defend your position later.
How the CGT discount works today
Under current rules, individuals and trusts can generally reduce a capital gain by 50% if the asset was owned for at least 12 months (with capital losses applied before the discount). Complying super funds generally apply a 33.33% discount, and companies are generally not eligible for the CGT discount. ATO CGT discount ITAA 1997 s115-25
For an investment property, that discount can materially change the after-tax result, which is why any proposed replacement needs careful modelling (particularly where properties have been held for many years).
What “inflation indexation” means in plain English
Inflation indexation is designed to tax real gains (your gain after inflation), rather than nominal gains (the simple dollar difference between sale price and purchase price).
Conceptually, indexation adjusts the property’s cost base upwards using an inflation measure such as CPI, so that only the inflation-adjusted “real” gain is taxed. CPI itself is published by the ABS on a regular release schedule, which is why CPI movements matter under an indexation-style design. ABS CPI (future releases)
Notably, indexation isn’t a foreign concept in Australia — the ATO still refers to indexation rules for certain assets acquired before 21 September 1999. That’s useful context, even though the current proposal being discussed relates to new investments and would depend on the final legislation. ATO – indexing the cost base
Why your CGT could go up or down under indexation
Indexation is not automatically “better” or “worse” than a flat 50% discount. Outcomes depend on:
- How long have you held the property
- Average inflation during that holding period
- How strong capital growth is compared to inflation
- Your deductible cost base items and capital works/improvements history
As a simplified illustration (ignoring other cost base elements), the discount method taxes half the nominal gain, while indexation taxes the gain after inflation-adjusting the cost base, which can be higher in low-inflation periods and lower in higher-inflation periods. This uncertainty is a key reason policy debate is intense, including commentary from building and property stakeholders about potential housing supply impacts. The Australian reporting
Record-keeping becomes more important, not less
If CGT calculations move closer to an indexation model, your evidence file becomes the difference between a correct outcome and an expensive dispute. At a minimum, investors should be confident they can substantiate:
- acquisition and disposal contracts (dates and values)
- stamp duty, legal fees, agent commissions
- capital improvements (not routine repairs)
- valuations (where relevant) and ownership structure changes
The ATO’s guidance is clear that you must keep records of everything that affects your capital gains and losses, generally for at least five years after the relevant CGT event (and potentially longer where losses are carried forward). ATO – keeping records (CGT guide) ATO – cost base of an asset
What you can do now
Until draft legislation exists, the practical move is preparation — not panic. Infinity Solution Tax Plus can help you run scenarios (discount vs indexation-style outcomes), clean up cost base records, and stress-test sale timing decisions with your broader tax position in mind as your Box Hill accountant.
Final thoughts
With the May 2026 Budget flagged as the likely vehicle for detail, the “rules of thumb” investors have relied on may be tested — especially for long-held properties where inflation and renovations materially change the story. The best defence is good documentation and early modelling, so you can make decisions with clarity rather than headlines. If you want a second set of eyes on your property CGT file, speak with a trusted accountant in Box Hill.
Disclaimer: This article contains general information only and does not constitute financial or taxation advice. You should seek personalised advice from a registered tax or financial professional.
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