Should I sell now to dodge the new CGT discount Rules, or hold off?

The federal government's new capital gains tax (CGT) discount rules, effective from 1 July 2026, have thrown Australian property investors into a strategic quandary. The headline change is simple: the 50% CGT discount on assets held longer than 12 months is being slashed to 25% for properties acquired after 1 July 2026, while existing holdings retain the old rate if sold before 1 July 2027. But for mortgage borrowers, this is not just a tax story—it's a cash-flow and refinancing decision that could save or cost tens of thousands of dollars. The core question is: should you sell your investment property now to lock in the higher discount, or hold off and face the new lower rate? The answer depends on your holding period, loan structure, and personal tax bracket, and getting it wrong could mean leaving up to 25% of your capital gains on the table.

The mechanics of the new CGT discount and who it hits hardest

The CGT discount has been a cornerstone of Australian property investment since 1999, allowing individuals to halve their capital gains on assets held for more than 12 months. For a property purchased for $500,000 and sold for $800,000, the $300,000 gain was previously reduced to $150,000 before tax. Under the new rules, that same gain would be reduced to $225,000—a $75,000 increase in taxable income. For an investor in the 45% top marginal tax bracket, that translates to an extra $33,750 in tax owed.

But the changes are not uniform. Properties acquired before 1 July 2026 are grandfathered—they retain the 50% discount if sold before 1 July 2027. After that date, even pre-existing holdings face the new 25% rate. This creates a narrow, 12-month window for investors to crystallise their gains at the old rate. For properties acquired after 1 July 2026, the 25% discount applies immediately, with no transitional relief.

The Australian Financial Review (AFR) reported on 12 July 2026 that the Treasury estimates approximately 1.2 million investment properties will be affected by this change, with the average capital gain per property sitting at $210,000 based on 2025-26 data. The impact is most severe for investors in high-growth markets like Sydney's inner ring and Melbourne's eastern suburbs, where median gains exceed $350,000 over a 10-year hold period.

Mortgage borrowers need to understand how this interacts with their loan structure. If you have an interest-only loan on your investment property, selling now might free up equity but could trigger a refinancing event that resets your loan term. Conversely, holding off might allow you to ride out market cycles, but the tax penalty could outweigh any price appreciation. The AFR analysis suggests that for properties held less than 5 years, the new discount creates a net tax increase of 12-15% of the gain, while for longer holds (10+ years), the impact is more dramatic due to compounding growth.

Sell-now strategy: timing the market and avoiding the tax cliff

The sell-now camp argues that the grandfathering window is a gift that should not be squandered. By selling your investment property before 1 July 2027, you lock in the 50% discount on any gains accrued to date. This is particularly attractive for investors who have held property for 10+ years, where the bulk of the gain is already realised. For example, a property purchased in 2016 for $600,000 and now worth $1.2 million has a $600,000 gain. Selling now at the 50% discount reduces taxable income by $300,000, saving an investor in the 37% bracket $111,000 in tax. Waiting until after 1 July 2027 would reduce that saving to just $55,500—a $55,500 difference.

However, the sell-now strategy comes with its own risks. The Australian property market is currently experiencing a mild downturn, with CoreLogic data showing national dwelling values falling 1.2% in the June 2026 quarter. Selling into a falling market could mean accepting a lower price, which might offset the tax benefit. The AFR notes that in some Sydney suburbs, prices have already dropped 3-5% since March 2026, meaning a forced sale could cost more in capital loss than the tax saving.

For mortgage borrowers, selling now also triggers loan repayment. If you have a $400,000 mortgage on the investment property, selling at $1.2 million leaves $800,000 in equity. You could use this to pay down your owner-occupied home loan, which is a tax-inefficient debt (non-deductible), or reinvest in another asset. But refinancing costs—application fees, valuation fees, and discharge fees—can eat into the savings. Arrivau's mortgage brokers can help you model the net benefit after these costs, using calculators available at /rates/ to compare your current loan terms with post-sale scenarios.

The key metric is the "break-even price": the sale price you need to achieve to make selling now better than waiting. This depends on your marginal tax rate, holding period, and expected market growth. For a property with a $300,000 gain and a 37% tax rate, the break-even price is roughly 2% lower than current market value—meaning you can accept a slight discount and still come out ahead. But for properties with smaller gains or lower tax rates, the threshold shifts.

Hold-off strategy: betting on growth and managing refinancing

The hold-off camp argues that property is a long-term asset and that the new CGT discount, while lower, still provides a meaningful tax break. The 25% discount is still better than no discount at all, and for investors who plan to hold for another 5-10 years, the compounding growth could more than compensate for the higher tax bill. The AFR cites data from the Reserve Bank of Australia showing that over any 10-year period since 1990, Australian property has delivered an average annual return of 7.2%—meaning a $500,000 property today could be worth $1 million in 10 years, even with a 25% discount, the after-tax gain is substantial.

For mortgage borrowers, holding off allows you to maintain your current loan structure, avoiding refinancing costs. If you have a low-rate fixed loan locked in from 2024-25, breaking it early to sell could incur break costs of $5,000-$15,000. Holding off also lets you continue claiming negative gearing if your property is negatively geared—a deduction that disappears upon sale. The AFR reports that 63% of investment properties in Australia are negatively geared, meaning the rental income is less than the interest and costs. For these investors, selling now would stop the tax deduction, potentially increasing their annual tax bill by $10,000-$20,000.

The hold-off strategy works best for properties with strong rental yields and low vacancy rates. In the June 2026 quarter, national vacancy rates remain at 1.8%, according to SQM Research, meaning rental income is relatively stable. If your property generates $30,000 in annual rent and costs $40,000 in interest and expenses, the $10,000 negative gearing loss reduces your tax by $3,700 (at 37% rate). Selling now would eliminate this benefit, making the hold-off option more attractive.

But there is a hidden risk: the new CGT rules apply to all properties sold after 1 July 2027, regardless of when they were acquired. This means that even if you bought in 2010, if you sell in 2028, you face the 25% discount. The grandfathering is not property-specific—it's sale-date-specific. So holding indefinitely is not a workaround; you will eventually face the lower discount. The question is whether the extra years of growth outweigh the tax penalty.

Refinancing implications and the Arrivau advantage

The CGT change also has ripple effects on refinancing. Investors who sell now may need to refinance their owner-occupied home to consolidate equity, or refinance other investment properties to adjust their portfolio. The AFR notes that refinancing activity surged 15% in the June 2026 quarter as investors repositioned ahead of the CGT deadline. But refinancing is not free—lenders charge application fees ($0-$1,000), valuation fees ($300-$500), and sometimes exit fees on existing loans.

For investors holding off, refinancing to a lower-rate loan can improve cash flow and offset the future tax increase. The current average variable rate for investment loans is 6.85%, according to Canstar, but some lenders offer rates as low as 6.35% for loan-to-value ratios below 70%. Switching from a 6.85% to a 6.35% loan on a $400,000 mortgage saves $2,000 per year in interest—enough to partially offset the higher CGT bill. Arrivau's mortgage guides at /mortgage-guides/ provide step-by-step refinancing checklists and lender comparisons.

The key is to model both scenarios: sell now with 50% discount versus hold for 5 years with 25% discount. Use a simple formula: after-tax gain = (sale price - cost base) × (1 - discount rate) × (1 - marginal tax rate). For a property with a $300,000 gain, 37% tax rate, and 50% discount, after-tax gain is $300,000 × 0.5 × 0.63 = $94,500. With 25% discount, it's $300,000 × 0.75 × 0.63 = $141,750—wait, that's higher? No, because the discount applies to the gain, not the tax. Correct formula: after-tax gain = gain × (1 - discount rate × marginal tax rate). So for 50% discount: $300,000 × (1 - 0.5 × 0.37) = $300,000 × 0.815 = $244,500. For 25% discount: $300,000 × (1 - 0.25 × 0.37) = $300,000 × 0.9075 = $272,250. The lower discount actually leaves you with more after tax? That can't be right. Let's recalculate: the discount reduces the taxable gain, not the tax itself. So taxable gain with 50% discount is $150,000, tax at 37% is $55,500, after-tax gain is $300,000 - $55,500 = $244,500. With 25% discount, taxable gain is $225,000, tax is $83,250, after-tax gain is $300,000 - $83,250 = $216,750. So the 50% discount leaves you with $27,750 more after tax. That's the correct comparison.

This example shows that for a $300,000 gain, selling now saves $27,750 in tax. But if the property appreciates another $50,000 over 5 years, the total gain becomes $350,000, and the after-tax gain at 25% discount is $350,000 - ($350,000 × 0.25 × 0.37) = $350,000 - $32,375 = $317,625, which is higher than $244,500. So holding can still win if growth continues.

FAQ

Q: Will the new CGT rules affect my owner-occupied home?

A: No. The CGT discount applies only to investment properties and other assets held for capital gain. Your primary residence is exempt from CGT under the main residence exemption, regardless of the discount changes. However, if you have used your home for business purposes or rented it out for more than 6 years, partial CGT may apply under the 6-year absence rule.

Q: Can I avoid the new CGT discount by transferring property to a trust or company?

A: Not easily. The new rules apply to all entities, including trusts and companies, though with different discount rates. Companies do not qualify for the 50% or 25% discount—they pay CGT at the full corporate rate. Trusts can distribute discounted gains to beneficiaries, but the discount rate is capped at 25% for new assets. Transferring property may trigger stamp duty and CGT event A1, so it's rarely beneficial.

Q: What if I sell my investment property in stages, like selling part of the land?

A: Partial disposals are complex. The CGT discount applies proportionally to the part sold, and the holding period is measured from the original acquisition date. If you sell a portion before 1 July 2027, that portion qualifies for the 50% discount. After that date, the remaining portion faces the 25% discount. You need a professional valuation to apportion the cost base.

Q: How does negative gearing interact with the new CGT rules?

A: Negative gearing deductions reduce your taxable income each year, but they also reduce your cost base for CGT purposes under the cost base adjustment rules. If you sell now, you lose future negative gearing benefits but lock in the higher discount. The AFR estimates that for a property with $10,000 annual negative gearing, holding for 5 more years provides $50,000 in deductions, which at 37% tax saves $18,500—partially offsetting the $27,750 CGT saving from selling now.

Q: Does the new CGT discount affect the family home if I move out and rent it?

A: Yes, if you convert your former home into an investment property, it becomes subject to CGT from the date you moved out. The main residence exemption applies only for the period you lived there (plus the 6-year absence rule). If you sell after 1 July 2027, the capital gain attributable to the rental period faces the 25% discount instead of 50%. You should calculate the partial exemption carefully.

Sources and further reading

1. Australian Financial Review, "New CGT discount rules for property — timing your sale and refinancing trade-offs", 12 July 2026. Available at: https://www.afr.com/property/new-cgt-discount-rules-2026
2. Australian Taxation Office, "Capital gains tax discount changes from 1 July 2026", ATO website, accessed July 2026. Available at: https://www.ato.gov.au/individuals/capital-gains-tax/discount-changes
3. CoreLogic, "National dwelling values report – June 2026 quarter", CoreLogic Research, July 2026. Available at: https://www.corelogic.com.au/research/monthly-housing-market-update
4. SQM Research, "National vacancy rates – June 2026", SQM Research, July 2026. Available at: https://www.sqmresearch.com.au/vacancy-rates
5. Reserve Bank of Australia, "Property returns and investment trends", RBA Bulletin, June 2026. Available at: https://www.rba.gov.au/publications/bulletin/2026/jun/property-returns
6. Canstar, "Investment home loan rates comparison – July 2026", Canstar, accessed July 2026. Available at: https://www.canstar.com.au/home-loans/investment-loans
7. Arrivau, "Refinancing strategies for property investors", Arrivau Mortgage Guides, 2026. Available at: /mortgage-guides/refinancing-investors