Property tax shake-up: why investors shouldn't rush to buy or sell

With significant changes to capital gains tax and negative gearing approaching, Australian property investors have some important decisions to make. But could rushing to buy or sell before the new rules commence prove to be an expensive mistake?

For many Australian property investors, the decision to buy or sell has traditionally been driven by capital growth, rental returns, borrowing costs and the property’s long-term prospects. Tax has always been an important consideration, but generally not the sole reason for making an investment decision.

With significant changes to capital gains tax and negative gearing taking effect from 1 July 2027, investors now have another factor to consider.

Should you sell an investment property before the new capital gains tax rules commence? Is there an advantage in retaining an existing property? And if you are considering another investment, would buying before July 2027 provide a better tax outcome?

What is actually changing?

Under the current rules, Australian resident individuals who hold an investment property for at least 12 months can generally apply a 50 per cent capital gains tax discount when the property is sold.

From 1 July 2027, this discount will generally be replaced by a system that adjusts the property’s cost base for inflation, together with a minimum 30 per cent tax rate on relevant capital gains after allowing for inflation. Qualifying new residential builds will retain access to a choice between the existing discount and the new arrangements.

Importantly, the changes are not retrospective.

Eligible capital gains accumulated before 1 July 2027 will generally retain the existing tax treatment, even when the property is sold years later. It is the growth occurring after that date that will be subject to the new rules.

This is particularly important for investors who have owned properties for many years and are sitting on substantial unrealised capital gains.

Should you sell before July 2027?

Consider an investor who purchased a property 15 years ago for $500,000. Today, it is worth $1.2 million, representing capital growth of $700,000 before allowing for purchasing costs, improvements and other adjustments.

Under the existing CGT rules, assuming the investor qualifies for the full 50 per cent discount, approximately $350,000 of that gain would be included in their taxable income if they sold today.

With the upcoming changes, it might seem logical to sell before July 2027 to preserve that discount.

However, because the legislation protects eligible gains accumulated before that date, there may be little tax advantage in selling simply to beat the deadline. In fact, selling could leave the investor worse off.

The sale would trigger capital gains tax and selling expenses. Purchasing another property would generally involve stamp duty, legal fees and potentially new borrowing costs. There is also the opportunity cost of paying capital gains tax now rather than allowing that capital to remain invested.

Of course, if the property has limited future growth potential, requires substantial expenditure or is producing a poor return, selling may still make sense. The important question is whether the investment continues to justify the capital tied up in it, not simply whether tax legislation is changing.

What about negative gearing?

There is another consideration for investors holding established properties.

Under the new rules, properties acquired before 7.30 pm AEST on 12 May 2026 will generally retain their existing negative gearing treatment. This means eligible rental losses can continue to be offset against other assessable income, including salary and wages.

However, investors purchasing established residential properties after that date will generally face restrictions from 1 July 2027, with rental losses limited to qualifying residential property income and gains. Unused losses can be carried forward.

This means an investor selling an existing property and purchasing another established property could lose an important tax benefit, even where the replacement investment is otherwise very similar.

It also means that rushing to purchase an established property before July 2027 will not preserve the existing negative gearing arrangements. That grandfathering date has already passed.

Newly built residential properties are treated differently and can continue to qualify for negative gearing under the new rules, subject to the relevant conditions.

But buying a new property simply because it offers more favourable tax treatment is not necessarily a sound investment strategy. A tax deduction reduces the cost of an investment loss. It does not turn a poorly performing property into a profitable one.

Is your investment still the right investment?

One of the most common issues I see in tax planning is investors concentrating on the tax consequences of buying or selling without giving enough consideration to what happens over the following five, 10 or 20 years.

A property purchased 15 years ago may have delivered exceptional capital growth but now be producing a relatively modest rental return compared with its current market value. Alternatively, an investment that was originally negatively geared may now be generating strong positive cash flow and require very little ongoing expenditure.

The decision to retain or sell these properties should be based on their expected future performance rather than what they have achieved historically.

There are also personal circumstances to consider. An investor approaching retirement may place greater importance on reducing debt and generating income, while someone in their 40s may be more focused on capital growth and continuing to build their portfolio.

The upcoming CGT changes make reviewing these circumstances particularly worthwhile, especially for investors with multiple properties who have some flexibility over when assets are sold.

So should you buy, hold or sell?

For investors holding well-performing properties purchased before the negative gearing grandfathering date, there may be good reasons to retain those assets, particularly given the protection of existing CGT concessions.

For those holding properties with limited future potential, selling and reinvesting may provide a better long-term outcome despite the immediate tax and transaction costs.

For investors considering another purchase, the uncertainty created by the changes to tax legislation may also present opportunities. If market sentiment weakens and established properties become available at significantly lower prices than before the Federal Budget, the potential savings on the purchase price and improved investment returns could more than compensate for the loss of certain tax concessions. Ultimately, the focus should remain on purchasing a quality investment at the right price, with consideration given to its future growth potential, rental returns and appropriate ownership structure rather than allowing tax concessions alone to drive the decision.

The introduction of the new rules does not mean investors need to act before 1 July 2027. It does provide a very good reason to review existing investments and understand how future decisions could affect their financial position.

Good tax planning is not about avoiding a tax bill at any cost. It is about understanding how tax influences the financial outcome of an investment decision.

An investment property that has performed exceptionally well over the past decade may not necessarily be the best investment for the next decade. Equally, selling a quality asset simply because the tax rules are changing could prove to be an expensive mistake.