4 Strategies to Prepare Investors for the New CGT Changes

The Federal Government’s proposed changes to Capital Gains Tax have understandably raised questions among Australian property investors. For many, the prospect of paying significantly more tax on future investment gains raises questions about whether it still makes sense to hold, upgrade or expand a property portfolio.

While the headlines may be alarming, the reality is that good property strategy has always involved far more than simply reacting to tax changes. In our experience, investors who focus on asset quality, long-term wealth creation and strategic financing decisions generally achieve better outcomes than those who make decisions based solely on minimising tax.

What is Changing?

The Federal Government has proposed significant changes to the way capital gains are taxed in Australia. If implemented in their current form, the reforms would replace the long-standing 50% Capital Gains Tax (CGT) discount with an inflation indexation system and introduce a minimum 30% tax rate on capital gains from 1 July 2027.

Under the current rules, investors who hold an asset for more than 12 months are generally entitled to a 50% CGT discount. In practical terms, this means only half of the capital gain is added to their taxable income when the asset is sold.

Under the proposed model, investors will no longer receive the 50% discount. Instead, the original purchase price will be adjusted for inflation before calculating the taxable gain. The rationale is that investors should pay tax on their real gain after accounting for inflation, rather than on the nominal increase in value over time.

The impact of the changes will vary depending on the asset, the holding period and the rate of inflation. In some circumstances, indexation may produce a similar outcome to the current system. In others, particularly where an asset has experienced strong capital growth, the tax payable may be significantly higher than under the existing 50% discount regime.

While the final form of the legislation remains to be seen, the proposal has prompted many investors to review their long-term strategies and consider ways to minimise unnecessary CGT events. Fortunately, there are still a number of legitimate and effective strategies that can help investors preserve wealth and improve tax outcomes over time.

1. Refinancing Instead of Selling

The most powerful and underused way to unlock property wealth is to refinance and release equity instead of selling. When you refinance, you are not disposing of the property; you are simply replacing or increasing the loan secured against it, which in itself does not trigger a CGT event.

In practical terms, lenders will generally allow you to redraw up to a certain loan‑to‑value ratio (LVR), often around 80 per cent without lenders mortgage insurance, based on the updated market value of the property. Where a Sydney investment property has doubled in value over a 10 – 15 year period, the equity released through refinancing can be substantial, and it can be redirected towards deposits, renovations or debt consolidation.

Key benefits of refinancing over selling include:

• You retain ownership and exposure to long‑term capital growth in a market like Sydney where holding periods of 10 years or more have historically delivered strong compounding returns over cycles.
• You avoid crystallising a CGT liability today, which means you keep more capital working for you rather than diverting a portion to the ATO.
• You reduce transaction costs such as selling agency fees, marketing costs and stamp duty on a replacement purchase, which can run into tens of thousands of dollars on Inner West and broader metropolitan assets.

For many of our clients, the best long‑term outcomes have come from disciplined refinancing every few years, in consultation with their tax advisor and mortgage broker, while holding high‑quality assets through multiple market cycles.

2. Use the Six‑Year Rule Strategically

The ATO’s main residence exemption and associated “six‑year rule” create significant opportunities for former owner‑occupiers who move out and rent their property. Under the main residence rules, your home is generally exempt from CGT while it is your Principal Place of Residence (“PPOR”) and not used to produce income, and in some circumstances this status can continue after you move out.

The six‑year rule allows you to continue to treat a former home as your main residence for CGT purposes for up to six years after you stop living in it. During this period, the property can remain fully exempt from CGT as if you were still living there, even though it is an investment for practical purposes.

There are important conditions and trade‑offs:

• You generally cannot treat another property as your main residence for the same period, except for a short six‑month overlap when you are changing homes.
• If you rent the former home for more than six years in a single absence, any gain will usually be apportioned, and CGT will apply for the period beyond the six‑year limit.
• If you move back in, the six‑year clock can reset, which means that multiple periods of absence can each potentially benefit from their own six‑year exemption period, provided the other conditions are met.

From a strategy perspective, this means a Sydney owner‑occupier who moves overseas or upgrades to another dwelling may be able to:

• Retain the original home as an investment,
• Rent it out and use the income to support a new mortgage or lifestyle goals, and
• Preserve a full or substantial CGT exemption on eventual sale, depending on the timing and the way the rule is applied.

This is a sophisticated area where the details matter, particularly around dates, use of the property and record‑keeping, and we strongly recommend specialist tax advice before making decisions. Nevertheless, when properly applied, the six‑year rule can allow you to extract rent, borrow against the property, and still unlock wealth later without a corresponding CGT liability.

3. Upgrade Your Portfolio Without Selling

Many investors default to a sell‑to‑upgrade model: they sell Property A, pay CGT, then use what is left as the deposit for Property B. In a market such as Sydney, where transaction costs and CGT can materially erode capital, that approach can significantly reduce the capital you have available for the next acquisition.

An alternative is to retain Property A, extract equity, and use that equity to purchase Property B, effectively upgrading your portfolio without selling. You can do this either by refinancing Property A, or by cross‑collateralising (which requires careful risk management and lender selection), and then using the borrowed funds as the deposit and costs for the new purchase.

This approach delivers several important advantages:

• You avoid a CGT event on Property A, so you are not paying tax today on gains that could continue to compound for another decade or more.
• You maintain exposure to multiple properties in different suburbs or asset types, which can diversify your portfolio across the Inner West, Lower North Shore, or emerging growth corridors in Greater Sydney.
• You potentially enhance long‑term net worth by using the bank’s money to leverage into additional assets while rates and serviceability allow, rather than shrinking your asset base through sales.

To illustrate, consider an investor who purchased a Leichhardt unit for $700,000 that is now worth $1,100,000 after several years of growth. Instead of selling, incurring agent fees, stamp duty on the next purchase and a CGT liability on the $400,000 gain (before discounts and cost base adjustments), the investor might refinance to an 80 per cent LVR, release part of the $400,000 equity, and use this to buy a second property in a complementary suburb.

This strategy requires robust cash flow management, clear buffers for interest rate changes, and careful asset selection. As buyers’ agents, we focus on identifying properties with strong fundamentals so that holding multiple assets remains sustainable over the long term.

A word of caution: Investors considering a hold-and-upgrade strategy should also factor in the Government’s proposed negative gearing changes. If implemented, properties acquired after the commencement date may no longer enjoy the same tax benefits that investors have historically relied upon to offset holding costs.

That does not mean the strategy ceases to work. It simply means the quality of the asset, the strength of the rental income and the investor’s cash flow position become even more important. In our view, a property should always stack up on its fundamentals first, with any tax benefits treated as a secondary consideration rather than the primary reason for investing.

4. Ownership Structures Need to Be Reassessed Under the Proposed CGT Rules

One of the most important but underappreciated consequences of the proposed CGT reforms is not just how gains are taxed, but how different structures interact with losses, timing, and the ability to manage taxable outcomes over time.

Once the changes are in force, the relative advantages between structures begin to shift in more subtle ways, particularly around loss utilisation and tax timing. Some structures may be more beneficial than others.

Companies

Companies remain structurally distinct because they already do not access the 50 per cent CGT discount under current law. As a result, the removal of the discount for other taxpayers does not materially change the way companies are taxed on capital gains.

Instead, companies continue to be taxed at the corporate tax rate on net capital gains, with full access to capital loss utilisation at the company level. These losses can be offset against capital gains within the company but, importantly, are also trapped within the corporate structure and cannot be distributed to shareholders or used to offset personal income.

This “loss trapping” effect is one of the most important but often overlooked features of corporate ownership. While companies may offer advantages in relation to profit retention and tax timing, they do not provide flexibility in distributing losses or accessing individual-level tax offsets.

In practice, the proposed reforms narrow the CGT gap between companies and individuals, but they do not materially improve the structural flexibility of companies. Instead, they reinforce the fact that companies are primarily accumulation vehicles rather than tax-flow-through structures.

Self-Managed Superannuation Funds (SMSFs)

SMSFs operate under a separate regime entirely, including distinct rules for capital gains and losses.

Within superannuation, capital losses can only be used to offset capital gains within the fund and cannot be transferred to members or other entities.

However, super funds already benefit from concessional tax treatment on capital gains, including discounted treatment in accumulation phase and potentially tax-free outcomes in pension phase, subject to compliance rules.

As a result, SMSFs appear to remain largely insulated from the proposed CGT discount removal, but they also remain structurally constrained in terms of loss utilisation and liquidity.

Comparative Summary of Ownership Structures Under Proposed CGT Reforms (Including Loss Treatment)

Key Structural Insight

Once the 50 per cent CGT discount is removed, the key differentiator between structures is no longer simply the headline tax rate, it becomes how losses are trapped, how gains are timed, and how flexible you are in using tax outcomes across a portfolio.

In that environment, no structure is universally optimal. Each one involves trade-offs between flexibility, control, taxation, and long-term planning efficiency. Speak with your accountant or financial advisor about the right ownership strategies for you.

Practical Steps for Sydney Property Buyers

If the proposed CGT reforms are implemented in their current form then the way investors approach portfolio decisions becomes more focused on timing, structure and capital efficiency. Most structuring mistakes occur because investors act after acquiring, not before tax settings change.

The following steps are designed to help investors adapt to that environment. They are not advice, but illustrate how a more strategic approach can operate in practice.

1. Reassess your portfolio through a “real gain” lens

• Review each property based on real, inflation-adjusted growth, not just nominal price increases
• Identify which assets would still be strong holds under an indexation-based CGT system
• Separate “tax winners” from “investment winners” — they are no longer always the same thing

2. Understand the 1 July 2027 valuation / cost base issue

• Under an indexation-based system, the key technical issue becomes how the “starting point” is determined for assets already owned
• Investors should expect that properties held before commencement will require an agreed cost base reference point (likely options under consideration include market value or acquisition cost depending on final legislation)
• This creates a practical question: whether formal valuations around the transition date become necessary to support future CGT calculations
• Investors should also be aware that aggressive or unsupported valuations may create audit risk if later reviewed by the ATO

In practice, this means the period leading up to and around 1 July 2027 may see increased demand for independent valuations and greater scrutiny of asset values.

3. Model refinancing before crystallising gains

• Given CGT may be higher on sale under the new rules, test whether equity can be accessed instead of selling
• Model refinance scenarios against both current lending conditions and long-term holding costs
• Ensure borrowed funds are clearly split between investment and personal use to preserve deductibility rules

4. Re-check main residence and timing-based exemptions

• Map any potential future sales against the six-year rule and main residence periods
• Under an indexation system, holding period becomes more important than ever, so timing of sale decisions should be stress-tested carefully
• Confirm record-keeping is robust enough to support cost base indexation calculations if required

5. Stress-test “sell now vs hold longer” under the new CGT model

• Compare outcomes under both regimes:
  • current: 50% discount system
  • proposed: indexation + 30% minimum rate
• In many cases, the key variable becomes whether additional holding time materially reduces “real gain” tax exposure via indexation adjustments

6. Treat structure as a pre-purchase decision, not a post-purchase fix

• Reassess ownership structure before acquisition, not after
• Model how different structures handle: indexation, loss utilisation, and future policy changes
• Recognise that restructuring later may trigger CGT and stamp duty, which becomes more significant if future tax settings are less favourable

Consider also that changes of this nature often create a ‘lock-in effect’, where investors time disposals to avoid triggering higher tax outcomes, potentially distorting transaction volumes in the short term. This remains to be seen.

How Professional Buyers’ Agents Can Help

As specialist Sydney buyers’ agents, we focus on helping clients acquire and hold assets that are worth refinancing and retaining through multiple market cycles. Our role is not to provide tax advice, but to ensure that the properties you purchase align with the property strategies your tax and financial advisors recommend.

We assist by:

• Identifying suburbs and property types with strong fundamentals, particularly in the Inner West and surrounding areas, where long‑term demand is likely to support both capital growth and rental resilience.
• Stress‑testing proposed acquisitions against different rental scenarios  so that your portfolio is built to endure.
• Coordinating closely with your advisory team, so that choices around refinancing, holding periods and ownership structures are integrated with your acquisition strategy rather than treated in isolation.

Tax settings are changing but the investors who consistently outperform are not the ones reacting to policy headlines. They are the ones who structure, finance and acquire correctly from the outset.

If you are unsure how these proposed changes might impact your existing portfolio, or whether your next purchase still stacks up under a different tax regime, now is the time to get clarity before decisions are locked in. The first thing to do is speak to your accountant or financial advisor.

At Buyer’s Domain, we work with accountants and financial planners to help investors stress-test their portfolio strategy, identify new property opportunities, and ensure new acquisitions are aligned with long-term structural outcomes.

If you want us to stress-test your existing and future portfolio in the current market, book a strategy review with Buyer’s Domain.