New Capital Gains Tax Changes: Should Property Investors Sell Before 2027?

With the proposed changes to capital gains tax, many property investors may be wondering whether they should sell their investment properties before 1 July 2027. 

While the changes are significant, they don’t necessarily mean you should rush out and sell. Instead, they provide an opportunity to review your property strategy and consider how your portfolio fits into your medium- to long-term financial plan. 

What are the current CGT rules? 

Currently, property investors who own an investment property for more than 12 months can generally access a 50% capital gains tax discount. 

For example, if you make a $100,000 capital gain on a property, the 50% discount means only $50,000 of that gain is generally included in your taxable income. 

This has made property investing relatively attractive from a tax perspective, with the maximum tax impact on a discounted capital gain typically around 23%, depending on the investor's circumstances. 

However, these rules are proposed to change from 1 July 2027. 

What happens from 1 July 2027? 

Under the proposed changes, the current 50% CGT discount will be replaced with an indexation-style approach, with a minimum 30% tax rate applying to the net gain after adjustment for inflation. 

The changes are intended to raise additional government revenue and, as a result, could increase the tax payable on future capital gains for some investors. 

So, does this mean you should sell your investment property before 1 July 2027? 

Not necessarily. 

Don't make a rushed decision 

It can be easy to look at the upcoming changes and assume that selling before 1 July 2027 automatically means avoiding the new rules. 

However, that's not how the proposed transition is expected to work. 

If you continue to hold a property beyond 1 July 2027, the value of the property at that date will be important. The gain that has accrued up to that point would be treated under the existing rules, while future growth after that date would be subject to the new rules. 

This means that if you sell shortly after 1 July 2027, you aren't suddenly paying the new tax treatment on the entire gain you've made over the life of the investment. 

Instead, there can be a portion of the gain under the old rules and a portion under the new rules. 

For this reason, selling immediately before the change isn't necessarily going to produce a significantly better outcome than selling shortly afterwards. 

What should property investors consider? 

If you're already considering selling a property, the proposed CGT changes should certainly form part of the discussion. But they shouldn't be the only factor. 

You should also consider: 

• What is your medium- to long-term plan for the property? 

• What level of capital growth are you expecting? 

• What is happening in the property market? 

• What will your other taxable income look like in the year you sell? 

• Is there an opportunity to use superannuation contributions as part of your overall tax strategy? 

• Does the property still make sense within your broader investment portfolio? 

The timing of a property sale can be important. The most appropriate time to sell may depend on your overall financial position, rather than simply whether it falls before or after 1 July 2027. 

Review your property strategy 

For investors who have successfully built a property portfolio, these changes are a good reason to step back and reassess how those properties fit into the bigger picture. 

The same principle applies to other investments, including shares. You shouldn't sell an investment simply because the tax rules are changing. 

Instead, understand what is changing, consider how those changes may affect you, and then make a decision based on your broader financial strategy. 

There may be situations where selling before the changes makes sense. Equally, there may be situations where continuing to hold a property remains the better option. 

The important thing is to have a plan. 

At Financial Edge Group, we believe investors should understand what's happening and why, so they can make informed decisions about their financial future. 

If you're unsure how the proposed CGT changes could affect your property portfolio, now may be a good time to review your strategy and consider your options.