Housing affordability has been a hot button issue for years, including playing a major role in last year’s federal election, with the default solution seeming to always revolve around either negative gearing or the capital gains tax discount.
However, while often touted as a no brainer option, the Financial Advice Association Australia (FAAA) disagrees that it would be a silver bullet to reduce housing inequality.
In November last year, the Senate created the Select Committee on the Operation of the Capital Gains Tax Discount to inquire into and report on the topic by 17 March 2026.
According to the committee’s terms of reference, it will examine the role of CGT discounting on inequality in Australia, whether it suppresses the nation’s productivity potential by “funnelling investment into existing housing assets”, and how it influences the types of assets investors are buying, including whether they are productive or speculative.
In its submission to the committee, the FAAA said the CGT discount an important role in Australia’s taxation regime and encourages the “use of capital for business growth purposes through investment in productive assets”.
“It is however recognised that the discount currently applies in the same way to most investments, when not all assets demonstrate the same prospects of growing the overall economy and employing more Australians,” the submission said.
“One of the benefits of the CGT discount is its simplicity and broad application.”
Noting that the terms of reference make it clear that the CGT discount’s impact on housing is a key focus of the committee, the FAAA said that while changing the rate of the discount on housing would be possible, it would “create additional complexity and may result in restructuring activity designed to avoid the impact of any differential in the rate”.
“Our members hold divergent views on whether the CGT discount should be changed in relation to housing assets,” the FAAA said.
“However, it is generally agreed that making changes to the CGT discount alone is unlikely to have a material effect on housing, housing assets and housing inequality.
“It is agreed that changes (if any) to the CGT discounts aimed at addressing housing affordability, should only be made as part of a broader review of the policy settings and issues generally that have led to issues of availability and affordability in the housing market.”
The association added that it believes the CGT discount is just one factor influencing investors’ purchasing decisions.
“This is a complex issue, as it needs to be considered in the context of investments by corporations, super funds, trusts and individuals. The application of the discount varies across each of these different types of investors,” it said.
“The choice of assets is also likely to be influenced by the vehicle of investment and by access to financial advice.”
In line with this, the FAAA backed the application of the CGT discount for trusts, including with respect to superannuation.
“With superannuation being such an important vehicle for Australians to invest for their retirement, retention of the discount, even in the context of the different taxation arrangements that apply to superannuation, is important,” it said.
“We believe that the CGT discount is continuing to have a positive impact with respect to its intended purpose of promoting investment in productive assets.
“The FAAA believes that the CGT discount has an important role to play in Australia’s future tax mix.”
Additionally, the association recommended that a broader review of housing inequality should also look at negative gearing, individual borrowing capacity, immigration impact on demand for housing, Social Security settings and their housing market impact, incentives that impact on the reported empty bedroom surplus, the supply of new housing, and programs to promote first home purchases.
