How higher CGT affects returns (IRR and NPV)

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In this episode, Stuart breaks down the growing political debate around capital gains tax (CGT) and what potential changes could mean for Australian property investors.

Following a Senate committee review, policymakers are now discussing the possibility of reducing the CGT discount and even limiting negative gearing to a small number of properties. Stuart examines the claims behind these proposals, including whether investor tax incentives are really responsible for rising house prices, and why housing supply remains the dominant driver of affordability.

He then walks through modelling that compares three potential CGT systems: the current 50% discount, a reduced 33% discount, and the original inflation indexation model used when CGT was first introduced. Using a 30-year property investment example, Stuart shows how reducing the discount would affect after-tax returns, internal rate of return (IRR), and the overall profit investors might expect from a leveraged property strategy.

The episode also explores how these tax changes could alter the investment landscape. If property tax advantages are reduced, borrowing to invest in shares, particularly tax-efficient global equity portfolios, may become comparatively more attractive.

Finally, Stuart discusses lessons from the UK, where investor-focused tax reforms reduced landlord participation and tightened rental supply, contributing to rising rents.

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