The Property Tax Changes Coming in 2027 — What Every Investor Needs to Decide in the Next 12 Months

The Federal Government’s decision to restrict negative gearing and replace the 50 per cent CGT discount with a tax rate of 30 per cent tax on inflation adjusted gains, effective from 1 July 2027, creates an important and time-limited decision window.

All property owners should take the time over the next few months to review their property holdings and decide whether they are better or worse off as a result of keeping them.

Importantly existing investment properties are largely grandfathered from these changes. This means if you are claiming a negative gearing benefit on a property this will continue as long as the cost of holding the property exceeds the income generated by it.

However, typically this slowly changes with time and inflation, as rents rise and most property investments slowly move from being negatively geared to positively geared with time.

The existing discounted capital gains tax arrangements will also remain in place but from July 1, 2027, any further gains in a property’s capital value will be taxed at 30 per cent on any gains made after they have been adjusted for inflation.

This change is largely targeted at retirees who might hold an investment property until they formally retire. They then declare they have no income for the year the property is sold and so significantly reduce the marginal tax rate applied to the discounted capital gain.

This was a legitimate and legal strategy – but one the Government has now moved to close. Australians will no longer be able to do so with the tax rate applied to all capital gains adjusted for inflation set at 30 per cent regardless of your overall marginal tax rate.

It is important that anyone holding an investment property, particularly those that are holding them with the view of those properties supporting them in retirement, review whether this strategy still makes sense.

For many it will be more tax advantageous to sell any investment property sooner rather than later, enjoy the 50 per cent tax discount on any capital gains, and move the funds into their superannuation account.

This is because as soon as they turn 60, they can start an account-based pension and any assets within super supporting this pension will not be taxed. Not for any capital gains or any income generated and the pension paid to the owner will also be tax free.