Will the government make changes to the 50% discount rule?
What the May 2026 Budget could mean for Australian expats with property
If you are an Australian expat with an investment property back home, the February headlines about Capital Gains Tax (CGT), and specifically, potential changes to the 50% CGT discount rule in the newspapers back home in Australia, may have raised the same question for you as what we’re hearing from clients:
“Do I need to do anything before the May 2026 Budget?”
For now, it is important to separate current taxation law from Budget speculation and fear-mongering
As of the date of writing (14 February 2026), no changes to the 50% CGT discount rule have been formally announced.
Current State of Play
The current law dealing with the operation of Australia’s 50% CGT Discount rule is clear and applies broadly as follows:
- Tax Residents: if you’ve owned your property for at least 12 months, and you’ve been a tax residents during the entire period of ownership, currently, you’d be entitled to reduce any gain on the sale of your property by 50%, meaning that 50% of the gain would be tax-free with the remaining 50% gain being subject to capital gains tax
- Non-residents who bought Australian property before 8 May 2012 – if you were a non-resident at the time when you purchased your property prior to 8th May 2012,, and you had no period of residency between when you purchased the property and the date of sale, then you’ will generally be entitled to a pro-rata discount calculated on the basis of the market value of the property on 8th May 2012, relative to the sale and purchase price. On a practical note, to be entitled to any pro-rata 50% discount, the property must be valued at its market value on 8 May 2012 (we recommend obtaining a formal valuation form a registered valuer so as to minimise ATO adjustment risk). Without a valuation, you will not be entitled to a pro-rata 50% discount.
- Non-residents who bought Australian property after 8 May 2012 – if you were a non-resident when you purchased your property, and you had no period of residency between when you purchased the property and the date of sale, then you’re not generally entitled to any CGT discount when you sell the property.
- Persons with periods of residency and periods of non-residency after 8th May 2012 – if you have owned your Australian property and you’ve had a period or residency and a period of non-residency after 8th May 2012 you would be entitled to a pro-rata discount reflecting the proportion of time that you held the property as a tax resident of Australia.
However, recent media speculation in Australia has suggested that that the Australian Government may seek to make changes to the 50% CGT discount rule by reducing the 50% CGT discount to a lower amount. Various numbers have been bandied about in the press, with the discount speculated to be reduced to 40% or 33%, or perhaps even 25%, all figures that have been raised in various tax policy debates over the years.
The groups most exposed if reform occurs are Australian tax residents residing overseas who currently receive a full 50% discount, foreign residents with pre-8 May 2012 assets who may still be eligible for an apportioned discount, and individuals who purchased post-2012 but had periods of Australian residency.
The speculation has not been subtle. In early February 2026, multiple outlets including the Australian Financial Review, the ABC, and Nine News reported that changes to the CGT discount could form the centre-piece of the May 2026 Federal Budget.
Senior government ministers, including Deputy Prime Minister Richard Marles, were given repeated opportunities to rule out changes and declined to do so.
Treasurer Jim Chalmers has spoken publicly about the need to address Australia’s widening “inter-generational divide,” and ALP national secretary Paul Erickson, widely credited as the architect of Labor’s last two election victories, hinted that the upcoming Budget would include “some pretty substantial contributions” in the reform space.
The political signals, in other words, have been anything but accidental and somewhat ominous. The reaction as you might suspect, has been swift and anxious.
For Australian expats, the speculation about potential changes to the 50% CGT discount rule has triggered a wave of concern about the value of property holdings back home, with many questioning whether they should sell before the Budget to lock in the current discount.
We have fielded dozens of enquiries from clients in the UK, US, Middle East and across Asia asking the same question: “Do I need to act now?”.
For property investors more broadly, it appears that the mood has been one of a deep and unsettling unease.
A 2025 survey by the Property Investment Professionals of Australia found that 19 per cent of investors who had sold one or more properties in the prior year cited the perceived risk of government tax reforms as a key reason, while 51 per cent of current investors flagged the same concern as a reason they may sell within the next 12 to 24 months. The prospect of CGT reform, it seems, is already influencing behaviour well before any policy has been announced it seems.
The broader economic implications are contested however.
The Property Council of Australia, representing the construction industry, has warned that halving the CGT discount would be akin to “slamming the brakes” on residential building activity at precisely the moment that Australia is trying to meet an ambitious 1.2 million new homes target, to ease housing pressures across the country.
The Grattan Institute, which supports reform, accepts that a halving (of the current 50% discount) would likely reduce construction by roughly 10,000 dwellings over five years, but argues that were that to occur, the outcome would be modest in context, and that the case for reform, outweighs that impact.
Similarly, Grattan believe that potential effect on housing prices is likewise expected to be limited by any potential changes to the 50% CGT discount rule. Their modelling suggests that even by phasing a reduced discount into existing properties (rather than maintaining the 50% discount temporarily by grandfathering existing properties) would lower prices by only around 1 per cent relative to where they would otherwise be.
Conversely, Deloitte’s 2019 modelling, which examined a more aggressive scenario of a the discount being reduced form 50% to 25% combined with negative gearing reform, estimated a combined price effect of roughly 4 per cent.
As Brendan Coates of the Grattan Institute has noted, the strongest case for reform is not really about house prices at all: “The main case for this reform is that it helps fix the budget bottom line and reduces the inequity of the budget.”
For the Federal Government, the fiscal arithmetic is stark.
The CGT discount is projected to cost the budget nearly $250 billion over the next decade, more than double what the concession has cost in its entire 25-year history.
Official figures suggest that 90 per cent of this benefit flows to the wealthiest 20 per cent of taxpayers. At the same time, the budget remains in structural deficit, and the Government is under mounting pressure from economists, housing advocates, and even state governments (the NSW Government publicly called for CGT reform in January 2026) to act.
Whether that pressure translates into actual policy remains to be seen, but I think it’s safe to say, that the political winds are clearly shifting in a direction that Australian expats and property investors generally, cannot afford to ignore.
What should you do now in anticipation of any potential changes to the 50% CGT discount rule? Confirm your tax residency status. Check your acquisition dates and cost base. If you purchased before 8 May 2012 and were a foreign resident on that date, arrange a valuation of your property as at that date. Then model scenarios. What should you not do? Panic-sell purely on speculation. Wait for Budget details and, later, draft legislation.
What is actually on the table (and what is not)
Whilst there’s been a flurry of media reports speculating about potential changes to the 50% CGT discount rule, let’s start with what we know for certain, as of 12 February 2026, there is no official policy announcement about any such changes.
There’s been no proposals, no draft bills, nor even a detailed statement of intent.
What we have instead is a series of media reports and carefully worded political responses that suggest something may be looming, but all stop short of confirming what may be coming, and potentially, when.
The Australian Financial Review and other outlets have reported the Government is considering making changes to the 50% CGT discount rules by scaling back the 50% discount introduced in 1999 to a lesser amount.
The Prime Minister and Treasurer have not ruled out changes, with the Treasurer stating he is open to major ideas with a focus on “inter-generational inequity”. That language is significant: it signals that the Government is thinking about tax policy through the lens of fairness between generations, particularly the gap between younger Australians struggling to enter the property market and older taxpayers who have benefited from decades of property appreciation.
The rates being discussed in public forums and the media cluster around three main figures. The 2010 Henry Tax Review, one of the most comprehensive examinations of Australia’s tax system in the past two decades, recommended a 40% discount.
Some commentators have suggested a 33% discount, often described as aligning with the CGT discount for complying superannuation funds and thers have mentioned a reduction in the discount to 25%, the level proposed by Bill Shorten for the 2019 election, which became a lightning rod in that campaign.
Why is this being discussed now? Treasury estimates the CGT discount represents material foregone revenue. Deloitte Access Economics modelling, reported in media, suggested a 33% discount could raise additional revenue over time. However, as the AFR’s economics editor John Kehoe noted, “while there may be a case to change the 50 per cent discount on capital gains, the economic reality is that the tax break is not as generous as critics claim”. That’s a reminder that the debate involves both revenue considerations and questions of fairness and economic efficiency, and that reasonable people can disagree about the net impact of the discount.
The bottom line? This is all speculation. Any policy seeking changes to the 50% CGT discount rule, if announced, still needs to be drafted and passed into law.
This means that there will be time up your sleeves, but that time might best spent preparing, modelling some calculations, and devising a plan, not panicking.
From indexation to discount: a short history
To understand the current debate, it helps to know how we arrived at the 50% discount in the first place. More importantly, it helps to understand that the discount was not a gift: it was presented to Parliament and the Australian public as compensation for the removal of a pre-existing concession. What is now being contemplated is the reduction or removal of that compensation, while the original concession remains abolished.
Before 21 September 1999: the indexation method
Prior to the introduction of the CGT discount, taxpayers who had owned a CGT asset for at least 12 months could index the cost base of the asset using the Consumer Price Index. Indexation adjusted the original purchase price upwards to reflect the erosion of purchasing power caused by inflation. In effect, taxpayers were only taxed on “real” gains above inflation, not on the nominal increase in dollar terms.
The indexation factor was calculated as the CPI figure for the quarter in which the CGT event occurred, divided by the CPI figure for the quarter in which the expenditure was incurred. Each element of the cost base, other than certain ongoing costs such as interest, rates and taxes, was increased by this factor. The result was a system that, in theory, taxed genuine economic gains rather than inflationary increases.
While this approach was conceptually sound, it was administratively complex. Taxpayers and the ATO needed to track CPI movements over potentially decades of ownership, maintain detailed records, and apply indexation formulas at disposal. Australia was one of the few countries in the world that allowed indexation of an asset’s cost base in this manner. It was accurate, but it was cumbersome.
1999: the Ralph Review and the introduction of the 50% discount
The Review of Business Taxation, chaired by businessman John Ralph, recommended replacing the indexation method with a simpler approach: a flat 50% discount on capital gains for individuals and trusts, and a one-third discount (that is, two-thirds of the gain included in assessable income) for complying superannuation funds, for assets held at least 12 months.
The rationale, as set out in the Explanatory Memorandum to the New Business Tax System (Integrity and Other Measures) Bill 1999, was twofold.
First, simplification: “Removing indexation will simplify the law and reduce compliance costs.”
Second, and critically, compensation: “An alternative relief is provided to individuals, trusts and complying superannuation entities with the introduction of the CGT discount.”
The discount was not a standalone policy choice. It was explicitly presented as “alternative relief” for the removal of indexation. The word “alternative” is important. Parliament was told that taxpayers would lose one form of relief (indexation), but would receive another form of relief (the discount) in its place.
This was the deal, simplicity in exchange for a generous flat discount that, in most circumstances, would deliver an outcome equal to or better than indexation had provided.
The new rules took effect on 21 September 1999. For assets acquired after that date, indexation was no longer available. For assets acquired on or before that date, transitional assets, taxpayers were given a choice: they could use frozen indexation (indexed to 30 September 1999) or the new discount method, whichever produced a better outcome. The choice was theirs.””
The broken promise: giveth with one hand, taketh with the other
The 50% discount was presented as a trade-off. Taxpayers would lose the ability to adjust their cost base for inflation, but in return, they would receive a generous discount that, in most circumstances, would deliver an outcome equal to or better than indexation had provided. That was the deal.
The Explanatory Memorandum to the 1999 Bill is unambiguous. Paragraph 10.2 states: “Removing indexation will simplify the law and reduce compliance costs. An alternative relief is provided to individuals, trusts and complying superannuation entities with the introduction of the CGT discount (refer to Chapter 11 of this Explanatory Memorandum).”
Chapter 11 of the same memorandum explains: “These amendments to the ITAA 1997 will provide a broad form of CGT relief that has only a limited relationship to the period of holding of the asset. They will enable an individual, complying superannuation entity or trust to choose to include a set percentage of their capital gain, rather than claiming indexation of the cost base of the asset.”
The Government told Parliament, and the Australian public, that indexation was being removed, but that this would be offset by the introduction of the discount as an alternative form of relief.
The word “alternative” appears repeatedly in the legislative materials.
It was not presented as a windfall or a new concession. It was presented as a replacement.
Taxpayers were being asked to give up something valuable, indexation, in exchange for something else, the discount.
The implicit promise was that the exchange would be, on balance, fair.
However, if media reports are correct, the original deal may not be honoured. Indexation was removed in 1999. The 50% discount was introduced to replace it. But now, nearly three decades later, there is discussion of reducing or removing the discount, while indexation remains unavailable. The discount was meant to be the alternative to indexation. If the discount is scaled back without restoring indexation, taxpayers are left with neither the original concession nor the replacement that was promised in 1999.
As tax commentator, Tony Anamourlis recently observed in Neos Kosmos, “that rationale has collapsed”. Inflation is now primarily managed through monetary policy settings rather than being reflected in long-term asset appreciation. Meanwhile, the CGT discount has, in his view, become a mechanism that “overwhelmingly rewards leveraged investment in existing assets, particularly housing”, rather than serving as a proxy for inflation relief.
More fundamentally, the structure of the original bargain has been violated. The Government gave with one hand in 1999, the discount, and took with the other, indexation.
If the changes to the 50% CGT discount rule are enacted and the discount is reduced, the Government will have taken twice: first by removing indexation, and second by reducing the discount that was meant to compensate for that removal. That is not a policy tweak. It is a breach of the original understanding and undertaking that the government an on which the 1999 reforms were sold.
Why this matters for expats and foreign residents
For expats and foreign residents, this historical context is not academic. Many Australian expat have already been excluded from the 50% discount rule when it was removed for non-residents in May 2012. Individuals who are foreign residents for tax purposes and who acquired property after 8 May 2012 generally receive no CGT discount at all, unless they were Australian residents for part of the ownership period, in which case a pro-rata discount applies. The 2012 changes meant that this group lost access to the “alternative relief” that was meant to compensate for the removal of indexation.
If the discount is now reduced for those who still have access to it, Australian residents living overseas, or individuals with pre-2012 assets and apportioned entitlements, the effective tax burden increases again, further compounding the erosion of the original 1999 bargain.
Australian expat taxpayers in this position will have experienced three separate adverse changes: the removal of indexation in 1999, the removal or limitation of the discount for foreign residents in 2012, and, potentially, the reduction of the discount for those still eligible.
The promise made in 1999 was clear. The reality in 2026 may be very different.
How CGT works today for expats (current law)
Your CGT outcome depends on tax residency, not citizenship, and when you acquired the asset. These two factors determine whether you receive a discount, and if so, how much.
If you are a foreign resident for Australian tax purposes
Foreign residents are generally only subject to Australian CGT on Taxable Australian Property, which includes Australian real property. Your access to the CGT discount depends on the acquisition date and your residency history.
If you bought your Australian property after 8 May 2012 while you were already living overseas as a foreign resident (and if you’ve had no period of residency since, the current rules are blunt – you don’t get any CGT discount at all. Every dollar of capital gain is taxable, at non-resident rates (without the benefit of the tax-free threshold).
But if you were still an Australian resident when you bought, the picture changes.
In that case, you are entitled to a pro-rata discount reflecting the number of days you were an Australian resident during the ownership period. The formula is straightforward: take the number of days you were an Australian resident, divide by the total days you owned the property, and multiply by 50%. That’s your discount percentage.
Consider an example. You purchased a property on 1 January 2014 and sold it on 1 January 2016, a total of 730 days. You were an Australian resident for 365 of those days, then moved overseas and became a foreign resident. Your discount percentage would be (365 divided by 730) multiplied by 50%, which equals 25%. So if your capital gain was $100,000, you would apply a 25% discount, reducing the taxable gain to $75,000.
The rules are more generous if you acquired the property before 8 May 2012. In that case, you may have two methods available to calculate your CGT discount, and you can choose whichever produces the better outcome.
The first is the pro-rata apportionment method, similar to the post-2012 formula, but applied across the entire ownership period, including pre-announcement days. The second is the market value method. Under this approach, you obtain a market valuation of the asset as at 8 May 2012. The full 50% discount then applies to gains accrued up to that date, the “excess”, and a pro-rata discount applies to gains accrued after that date, the “shortfall”.
The market value method can be advantageous if a substantial portion of the gain occurred before the announcement. However, it requires a formal valuation, and the valuation must be retained to satisfy ATO record-keeping requirements. The formula, from the explanatory memorandum, is:
Discount % = [Excess + (Shortfall × Apportionable resident days / Apportionable total days)] / (2 × Discount capital gain)
Where the excess is the market value at 8 May 2012 minus the cost base, representing the gain accrued up to the announcement. The shortfall is the discount capital gain minus the excess, representing the gain accrued after the announcement. Apportionable days are the days after 8 May 2012 until disposal.
If the excess equals or exceeds the total discount capital gain, in other words, the asset has not increased in value since 8 May 2012, or has fallen, the discount percentage remains at 50%. This reflects the policy intent that taxpayers who were residents on the announcement date should retain the full discount for gains that accrued while they were residents and before the rule change was announced.
The ATO provides a CGT record-keeping tool that can assist with calculating discount percentages, including for foreign residents with complex residency histories. The tool is available via myGov and includes worksheet options for manual calculation.
There are a few other points worth noting. Australian expats have been hammered hard by recent Australian governments.
On the 9 May 2017, the main residence exemption was removed for Australian expats and non-residents, with grandfathering until 30 June 2020, subject to limited exceptions. Thus, if an Australian expat disposes of their Australian property whilst they are a non-resident, no main residence exemption is available to them and the entire gain (before discount) becomes fully taxable.
Australian states have taken a dig at Aussie expats too. Australia’s states and territories levy high rates of land tax on properties owned by Australian expats that were formerly exempt from tax, by disallowing them from continuing to treat their former Australian homes as their principal place of residence for land tax purposes.
It doesn’t end there however. When an Australian expat sells their Australian property (when they’re a non-resident), Australia’s Foreign Resident CGT Withholding Tax rules require the purchaser of the property to withhold 15% of the sale price of the property and remit that to the government on the non-resident expat’s behalf
A final kick in the tail is that many non-residents are not able to use negative gearing effectively if they do not have other Australian income to absorb losses and are unable to utilise those losses, until they either sell their properties, or until they return to Australia and start earning income back home.
If you are still an Australian tax resident while living overseas
Some expats remain Australian tax residents, for example, whilst on temporary assignments overseas, particularly when they maintain significant ties to Australia. If you are an Australian tax resident when you sell, you’ll generally have access to the full 50% CGT discount, provided the asset has been held at least 12 months at the time of disposal.
If a changes to the 50% CGT discount rule are announced and if existing properties are not grandfathered you will feel the impact directly when you sell.
Why changes to the 50% CGT discount rule could hit non-resident Australian expats harder
Even without any new reforms, many expats who are foreign residents already face less favourable settings than residents.
Australian residents with investment property can potentially benefit from the CGT discount, currently 50% for individuals, the main residence exemption for their home, reduced land tax (or none at all) and the practical benefit of negative gearing against other Australian income.
Many expats who are foreign residents have already lost the main residence exemption and often cannot use negative gearing effectively. Some have also lost the CGT discount entirely, those with post-8 May 2012 acquisitions and no Australian residency.
If a future policy reduces the CGT discount, expats who are still tax residents, or who have apportioned discount entitlement, could see after-tax outcomes worsen again.
In short, you are already starting from a less favourable position, and reform would push you further back.
Worked example: what a lower discount could mean (illustrative)
The following example is simplified. Actual tax payable depends on your full taxable income, deductions, residency status, and timing. But it illustrates the scale of the potential impact.
Example: Australian tax resident working in London
Consider Sarah, an Australian accountant who moved to London in 2020 to work for a major financial services firm.
Sarah remained an Australian tax resident because her move was intended to be temporary, she maintained significant ties to Australia, and she planned to return. Before she left, she bought a Sydney investment apartment in 2018 for $600,000. In 2026, she decides to sell. The market has been strong, and she receives $900,000. Her capital gain is $300,000.
Under the current rules, with a 50% discount, Sarah’s taxable capital gain is $150,000. She includes this in her Australian tax return, and it is taxed at her marginal rate. If she is in a higher tax bracket, that could mean a significant tax bill, but the discount has halved the taxable amount.
Now imagine the discount were reduced to 33%, one of the figures being discussed in media commentary. Sarah’s taxable capital gain would be $201,000. That’s an additional $51,000 of taxable income. If Sarah is on the top marginal rate, that could translate to an additional $23,000 or more in tax, depending on her circumstances.
If the discount were reduced to 25%, the level proposed in the 2019 election, Sarah’s taxable capital gain would be $225,000. That’s $75,000 more than under the current rules. The additional tax could easily exceed $30,000.
The difference is not just “a smaller discount” in the abstract. A lower discount increases the taxable portion of the gain, which can push you into higher marginal tax brackets and interact with other parts of the tax system.
For someone in Sarah’s position, the difference between a 50% discount and a 25% discount could be the difference between a manageable tax bill and a punishing one.
Grandfathering: what might happen (speculation, with precedents)
If the Government announces changes to the 50% CGT discount rule, the next major question is whether the government will allow grandfathering, (transitional rules for assets that you already own).
Although, we cannot know the answer until a Budget announcement and/or draft legislation, that said, Australia has several relevant precedents.
Pre-CGT assets, those acquired before 20 September 1985, received full grandfathering and remain exempt from CGT decades later.
The 1999 transition allowed some assets to choose between indexation and discount methods.
The foreign resident CGT discount change on 8 May 2012 provided partial grandfathering via apportionment and the foreign resident main residence change on 9 May 2017 provided time-limited grandfathering to 30 June 2020.
If reform proceeds, possible approaches could include full grandfathering for existing assets, a time-limited window to sell under old rules, apportionment based on ownership before and after the change, or no grandfathering. The last option is politically less likely, but not impossible.
If you are making a major decision, a sale, a restructure, bringing forward a contract date, it is worth waiting for details and ensuring you understand how the rules apply to your residency position.
Acting on speculation may be very costly if the speculation turns out to be wrong, or if grandfathering provides more protection than expected.
What you can do now (before Budget night)
1) Confirm your tax residency status
Your residency status at the time of the CGT event, generally the contract date, affects the rules that apply.
If it is not clear whether you are an Australian tax resident or a foreign resident, seek advice early. Residency is a question of fact and degree, and the answer can depend on your specific circumstances, including the purpose and expected duration of your time overseas, your family and economic ties to Australia, and your behaviour and intentions.
2) Audit your assets (dates, cost base, residency history)
Create a simple inventory keep organised records for each property or CGT asset. Record the acquisition date and locate the contract documents. Gather cost base evidence, including purchase costs, stamp duty, legal fees, and capital improvements. Estimate the current value. Document the periods where you were an Australian tax resident versus a foreign resident.
This is the information you need to model calculations and assess risks under any CGT discount reform scenario. If you acquired an asset before 8 May 2012 and were a foreign or temporary resident on that date, consider obtaining a market valuation as at 8 May 2012 now is a good idea, even if you do not plan to sell immediately. Having the valuation on hand gives you the option to elect the market value method if you sell in the future.
3) Model scenarios without assuming the outcome
Consider running your numbers under current rules, a 40% discount, a 33% discount, a 25% (or pro-rata calculations if applicable) along with different potential grandfathering outcomes.
A spreadsheet is often enough to identify whether a change is “interesting” or “material” for you. If the difference is modest, you may decide to wait and see. If the difference is substantial, you may want to prepare for action, but only after you have concrete details.
4) Do not panic-sell based on headlines
Selling property has real costs, agent fees, legal fees, and opportunity cost. Selling early may be sensible only if you were planning to sell soon anyway, the potential tax saving is likely to exceed transaction costs, and you have advice that reflects your residency status and full tax position.
Panic-selling based on speculation is rarely the right answer. Markets are unpredictable, and tax law can change in unexpected ways.
Wait for the facts.
What to watch for next
Budget night (May 2026)
If the Federal Treasurer announces potential changes to the 50% CGT discount rule, the key details to look for include the proposed discount rate, the start date (often 1 July, but not guaranteed), whether grandfathering applies and how, and which assets are affected (property only versus all CGT assets).
Budget night announcements are often high-level. The real detail comes later, in exposure drafts and explanatory memorandums. But the Budget speech will give you a sense of the Government’s intent and the broad parameters of the change.
Draft legislation and final law
Even after a Budget announcement, the legal mechanics usually come later via exposure draft legislation and the parliamentary process. Treasury will usually release an exposure draft for public comment.
Submissions will be made by industry bodies, professional associations, and affected taxpayers. The draft may be revised in response to feedback. The final bill will be introduced to Parliament, debated, and voted on.
That process can take months. Treat the Budget as the starting point for detail, not the final word.
FAQ
Will there be grandfathering if the CGT discount changes?
Possibly, but it is unknown until a Budget announcement and draft legislation. Past changes have used a range of approaches, and there is no single “standard” approach to grandfathering.
Full grandfathering, such as for pre-CGT assets, protects existing holdings entirely. Choices between methods, as in the 1999 transition, give taxpayers flexibility.
Apportionment, as in the 2012 foreign resident changes, provided partial protection based on the period before and after the change.
Time-limited grandfathering, as in the 2017 main residence changes for foreign residents, provides a window to exit under the old rules. Which approach the Government chooses will depend on policy intent, revenue considerations, and political calculations.
The best you can do is be aware of the precedents and prepare to respond once the details are known.
Which Australian expats are most likely to be affected (if reform happens)?
Based on the issues flagged in media commentary, the groups to watch are Australian tax residents living overseas, who are currently eligible for the full 50% discount on eligible assets held at least 12 months. If the discount is reduced, this group will feel the impact directly.
Foreign residents who acquired assets before 8 May 2012 and may still have access to an apportioned discount under current rules are also at risk. If the base discount is reduced, the apportioned discount will also fall.
Individuals who purchased after 8 May 2012 but had periods of Australian residency, and are therefore entitled to a pro-rata discount, are in a similar position. The extent of the impact will depend on the size of the discount reduction, whether grandfathering applies, and the individual’s specific circumstances.
Would a CGT discount change apply to shares, or just property?
As at 14 February 2026 (Valentines Day, and the date of this article), there is no formally announced policy about potential changes to the 50% CGT discount rule.
Media commentary has discussed a reduction in the general CGT discount, which, if implemented broadly, could potentially affect CGT assets generally, not just property.
However, until there is an announcement and draft legislation, it is not possible to confirm what asset types would be covered.
Some commentators have suggested the Government may target property specifically, given the focus on housing affordability and inter-generational equity. Others have suggested a broader change to the discount rate across all assets.
We will know more after Budget night, assuming the Government proceeds with an announcement.
For CGT, is it the contract date or settlement date that matters?
For Australian CGT purposes, the CGT event for a sale happens when the contract is entered into, not at settlement.
This timing can matter for both residency status and any future start date for reforms. If you are a foreign resident when the contract is signed, that is the relevant status for CGT purposes, even if you become an Australian resident by settlement.
Similarly, if a reform takes effect on a specific date, the contract date will generally determine whether the old or new rules apply. There are exceptions and complexities, particularly for certain types of transactions and CGT events, but for a standard property sale, the contract date is the key date.
Do post-2012 purchasers get any CGT discount if they were Australian residents?
Yes, and this is a common misunderstanding. If you purchased a property after 8 May 2012 and were an Australian resident for any part of the period you owned it, you are entitled to a pro-rata discount reflecting the number of days you were a resident.
The discount is only zero if you were a foreign or temporary resident for the entire ownership period.
Many expats assume they are entirely excluded from the discount because they purchased after 2012, but if they were residents when they bought, or became residents at any point before selling, they are entitled to a partial discount. The apportionment formula is straightforward, days as a resident divided by total days, multiplied by 50%. It is worth checking your entitlement before assuming you have none.
What is the ATO’s CGT record-keeping tool?
The ATO provides an online tool, available via myGov, and downloadable worksheets to help calculate CGT, including discount percentages for foreign residents with apportioned entitlements.
The tool guides you through the calculation process, prompts you to enter relevant dates and amounts, and produces a result you can use in your tax return. It is not a substitute for professional advice, particularly for complex situations, but it is a useful starting point for understanding your position. The tool can be found at:
https://www.ato.gov.au/calculators-and-tools/capital-gains-tax-record-keeping-tool
The bigger picture for Australian expats
It is worth stepping back from the technical detail for a moment and acknowledging what the last decade has looked like for Australians living and working overseas.
In 2012, the Government removed the CGT discount for foreign residents on post-announcement gains.
In 2017, it stripped away the main residence exemption for expats selling their family home from overseas, with only a narrow and time-limited grandfathering window that closed in June 2020.
Negative gearing, while still technically available, offers little practical benefit to most non-residents who lack sufficient Australian income to absorb the losses.
And through all of this, the foreign resident CGT withholding regime has meant that expats selling property often have 15 per cent of the sale price withheld at settlement, regardless of their actual tax liability, creating cash flow problems that can take months to resolve through the return process.
Each of these changes, taken individually, had its own policy rationale. But taken together, the cumulative effect has been unmistakable, Australian expats have been progressively excluded from the tax concessions that domestic residents continue to enjoy, often with little notice and limited transitional relief.
The message from successive governments, both Liberal and Labor, has been consistent if unspoken – if you leave Australia, expect to pay more.
If the May 2026 Budget does announce a further reduction in the CGT discount, it will represent yet another layer of erosion for a group of Australians who already occupy the least favourable position in the system.
For those with pre-2012 assets and apportioned discount entitlements, the stakes are real. For those who are still Australian tax residents while living overseas, the impact could be significant. And for all expats, it is a reminder that the rules can, and do, change, often in ways that disproportionately affect those who are not in the country to make their voices heard.
None of this means you should panic. But it does mean you should pay attention, understand your position clearly, and make sure you are not caught off guard if the rules shift again.
Need help working out where you stand?
If you have read this far, you probably have a property back in Australia, a residency history that is not straightforward, and a growing sense that the rules are more complex than the headlines suggest. You are right. They are.
Whether you need to confirm your tax residency status, calculate your pro-rata CGT discount entitlement, obtain a market valuation for a pre-2012 asset, or simply model what changes to the 50% discount rule would mean for your specific situation, that is exactly the kind of work we do every day for Australian expats in over 100+ around the world.
We are not here to sell you a decision. We are here to make sure that whatever you decide, you decide it with the right numbers in front of you and a clear understanding of the rules as they stand today, not as the media speculates they might change tomorrow.
If you would like to talk through your position before Budget night, book a consultation or get in touch with our team.
The earlier you start considering these potential changes, the more options you’ll have.
