Model the change in after-tax profit on an investment property when the proposed policy removes the 50% CGT discount and shifts annual negative-gearing losses to the capital-gains calculation.
Outcome at sale — Pre-budget policy vs Post-budget policy
| Item | Pre-budget policy | Post-budget policy | Difference |
|---|
Year-by-year cashflow detail
| Year | Rental income | Interest | Other costs | Total cost | Cashflow loss | Owner 1 tax saving | Owner 2 tax saving | -ve gearing tax saving |
|---|
How we calculate these figures
Property cashflow (per year)
- Your rental income grows each year at the Rental growth rate.
- Running costs — property manager, council, insurance, maintenance — grow at inflation each year.
- Interest stays flat:
purchase × LVR × interest rate. - The first year already includes one year of growth — it ends 30 June 2027, the day the new policy starts.
- Cashflow loss = total cost − rental income (positive when you're out of pocket).
Negative-gearing tax saving (per owner, per year)
- Each owner takes their share of the year's loss. Their saving is the extra tax they'd otherwise pay on that slice of salary — i.e.
tax(salary) − tax(salary − their share of loss)using the ATO brackets. - ATO 2024-25 resident brackets: 0% up to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000, 45% above. No Medicare levy, no offsets.
- Each owner's salary is grown forward at inflation year-by-year (wage-growth assumption).
- Old policy: you claim NG every year of the hold.
- New policy (transitional): you claim NG only in year 1 (the year before the policy starts). From year 2 onwards your losses no longer reduce your salary tax — they reduce your post-2027 capital gain at sale instead. If you sell within 1 year, no NG credit applies under the new policy.
CGT — Old policy
- Gross capital gain =
sale price − purchase − upfront cost − selling cost. - Half is taxable (the 50% discount):
taxable CG = gross × 50%. - Each owner pays tax on their share of the taxable amount, stacked on their sale-year salary:
CGT = tax(salary + share) − tax(salary). Their marginal rate applies. - If the property sells at a loss, CGT is shown as $0.
CGT — Proposed new policy (split at 30 June 2027)
- V₂₀₂₇ — the value of the property at 30 June 2027 =
purchase × (1 + property growth). - Pre-2027 slice =
V₂₀₂₇ − purchase − upfront. Keeps the 50% discount, frozen at the 2027 value no matter when you actually sell. - Indexed cost base at sale =
V₂₀₂₇ × (1 + inflation)(years − 1)— the 2027 value uplifted by inflation each year through to sale. - Post-2027 slice =
sale price − indexed cost base − selling cost − cumulative cashflow loss from year 2 onwards. No discount. Zero when property growth is at or below inflation (indexation fully shelters the gain). - Each owner's taxable amount =
their share × (pre × 50% + post), stacked on their sale-year salary the same way. - 30% minimum: each owner's CGT is at least
their share × post-2027 slice × 30%.
Bottom line
- Total tax (net of -ve gearing) = CGT − the NG savings you've already claimed across the hold.
- Profit after tax =
gross capital gain − total tax. The underlying gain is the same in both scenarios; only the tax bill differs.
A 2026–2035 projection of the capital-gains-tax impact of the proposed budget policy, property by property.
Assumptions
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Properties
Portfolio total
* Default Indexation is the average of the past 5 years of indexation rates. Reference: ATO - study and training support loans indexation rates.
CGT under the new policy splits the gain at the 30 June 2027 cutoff: the pre-2027 portion keeps the 50% discount (frozen at the 2027 value), while post-2027 growth is indexed at inflation and taxed at the greater of the minimum CGT rate or your marginal rate, with no discount.
How we calculate these figures
The split (30 June 2027 cutoff)
- Pre-2027 portion keeps the existing 50% CGT discount, frozen at the 2027 valuation regardless of when you actually sell.
- Post-2027 portion: cost base resets to the 2027 valuation, indexed forward at inflation; no 50% discount; taxed at the higher of marginal rate or 30%.
Deriving the 2027 valuation
- We use the apportionment-by-growth-rate method described in the budget paper:
V₂₀₂₇ = purchase × (1 + property growth)^(years held before 2027).
Cost-base allocation
- Acquisition costs (stamp duty, legals) are deducted in the pre-2027 slice — they were incurred at purchase.
- Selling costs (agent commission) are apportioned across the two slices in proportion to value:
- Pre-2027 slice:
V₂₀₂₇ × selling_cost_% - Post-2027 slice:
(V_sale − V₂₀₂₇) × selling_cost_% - Total selling cost deducted =
V_sale × selling_cost_%(matches what's actually paid at sale).
- Pre-2027 slice:
Tax calculation (per owner, per sale year)
- ATO 2024-25 resident progressive brackets: 0% to $18,200, 16% to $45,000, 30% to $135,000, 37% to $190,000, 45% above. No Medicare levy, no tax offsets.
- Each owner's annual income is inflated forward at CPI year-by-year (wage growth assumption).
- Both pre-2027 and post-2027 taxable shares are stacked on top of the owner's inflated sale-year salary in a single bracket calculation:
CGT = tax(salary + pre share + post share) − tax(salary). - 30% minimum: each owner's post-2027 CGT is the higher of (a) the bracket calculation, or (b)
their share × post-2027 taxable gain × 30%. - Final per-property CGT = Owner 1 CGT + Owner 2 CGT.
CGT (Old Policy)
- Represents what would be owed if the existing 50% discount continued unchanged after 2027.
- Computed the same per-owner bracket-stacking way, but on the full sale-year capital gain × 50%.