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The Senate select committee’s final report found that the longstanding capital gains tax discount (CGTD), which halves the taxable portion of gains on assets held longer than a year, is distorting investment decisions, worsening housing affordability, and contributing to inequality.
The inquiry concluded the policy encourages capital to flow into existing residential property rather than more productive areas of the economy, while also favouring investors over owner-occupiers and older Australians over younger cohorts.
It also pointed to the combined impact of the CGT discount and negative gearing, saying the settings have shifted housing ownership toward investors and made it harder for first home buyers to compete. The benefits of the concession were found to be unevenly distributed, with broader implications for wealth and intergenerational inequality.
To address these issues, the committee outlined a suite of reform options, including reducing or abolishing the discount, reintroducing inflation indexation, limiting access through trusts, and treating housing differently from other asset classes. Broader tax reform, such as a dual income tax system, was also raised, alongside the possibility of “grandfathering” existing investments.
The Labor government is reportedly considering making changes to the discount at the next federal budget.
Brokers: Tax reform not a silver bullet
Mortgage brokers broadly acknowledged the report’s findings, but stressed that tax settings are only one piece of a much larger puzzle, with supply constraints remaining the dominant issue.
Costa Arvanitopoulos, broker for Finni, told Broker Daily that the inquiry captures an important perspective, but not the full picture.
“The recent Senate report regarding the CGT discount and its influence on housing ownership provides an important perspective, but it only tells part of the story. Without CGT or with a reduced threshold, investors may be less inclined to sell, as selling can become financially unviable. While governments often view taxing property as a lever to manage the market, simply reducing the CGT incentive doesn’t address the underlying cause of the housing crisis, which is fundamentally a supply issue,” Arvanitopoulos said.
Josh Corley, director of Brisbane-based The Brokerage, said while the CGT discount does influence the market, particularly alongside negative gearing, reform in isolation risks unintended consequences.
“The CGT discount clearly influences the housing market, particularly when combined with negative gearing. While a reform may improve owner-occupier access over time, it also risks reducing rental supply. In my opinion, without addressing supply constraints, CGT reform alone is unlikely to resolve affordability challenges,” Corley said.
Alex Veljancevski, director of Eventus Financial, said the report raises valid points about investor behaviour, but cautioned against overstating the role of tax.
“From a broker’s perspective, the Senate report raises valid points about how the CGT discount can influence investor behaviour and capital allocation. It’s clear that the interaction between CGT and negative gearing plays a role in shaping demand, particularly for established housing,” Veljancevski said.
“That said, I think it’s important to distinguish between what’s driving demand and what’s driving supply. In my experience working with investors, most are not making decisions purely based on tax settings. They are focused on long-term wealth creation, cash flow and risk management. The CGT discount is one factor in that equation, but not the sole driver.”
He warned that removing or reducing the discount could have flow-on effects for rental markets.
“If the discount were removed or significantly reduced, it would likely dampen investor confidence and reduce participation, particularly in higher-risk or lower-yield markets. The more immediate impact of that would be on rental supply, which is already under pressure in many parts of the country,” Veljancevski said.
A recent report found that changes to CGTD could push one in three investors to sell their properties, putting pressure on an already tight rental market.
Veljancevski added that while some reform options may be worth exploring, they need to be considered alongside broader structural changes.
“While reform options such as indexation or partial adjustments are worth considering, I don’t believe changes to CGT alone will materially improve housing affordability. The bigger constraints remain on the supply side – planning systems, construction costs and labour availability,” Veljancevski said.
“A balanced approach would focus on increasing housing supply, while ensuring tax settings continue to support stable, long-term investment in the market.”
Barriers to supply
Matt Spears, managing director of Sydney brokerage Evoke Capital, said that the CGT discount wasn’t the primary driver of demand, but rather successive government first home buyer incentives. These schemes are reportedly fuelling strong price growth in lower-priced markets.
Spears said: “These policies are politically popular because they expand access to home ownership, but they also push more buyers into the market without addressing the constraint that actually matters: supply.
“The problem is that governments keep claiming they want to ease housing affordability, while continuing to pull the demand levers – yet their main supply lever (building more homes) can’t scale fast enough in the current environment of high construction costs, labour shortages, and slow planning approvals.
“So the mismatch is structural: demand gets juiced quickly, while supply responds slowly – and prices rise as a result.”
Arvanitopoulos also pointed to regulatory barriers as a key constraint on new housing.
“Government red tape continues to grow year on year, adding costs for developers that are ultimately passed on to buyers. In some cases, the additional compliance burden makes developments financially unfeasible, meaning fewer projects proceed and supply remains constrained,” Arvanitopoulos said.
“The reality is that market supply, not tax incentives alone, drives housing affordability. Unless development is incentivised and streamlined, new housing supply will continue to lag behind demand, keeping prices elevated.”
What do you think about the CGTD, and do you think it needs reform? Let us know in the comments below.
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