The Albanese government’s capital gains tax (CGT) reforms, designed to tighten rules around property investment, could have an unintended consequence: penalising investors who renovate their properties. According to tax and accounting experts, the changes may mean that costs incurred for improvements — such as kitchen upgrades, extensions, or landscaping — are no longer fully deductible against capital gains, potentially increasing the tax payable when the property is sold.
Under current rules, investors can add the cost of renovations to the property’s cost base, reducing the taxable capital gain. However, the proposed changes would treat some renovation expenses as capital improvements that are not fully deductible, or require them to be depreciated over time rather than offset against gains. This could lead to higher tax bills for investors who actively maintain or improve their properties.
The government has stated the reforms are intended to close loopholes that allow investors to claim excessive deductions and to ensure the tax system is fairer for homebuyers. However, experts argue that the changes could discourage property maintenance and improvements, potentially affecting housing quality and supply.
The Property Council of Australia has expressed concern, noting that renovations are often necessary to meet rental standards or improve energy efficiency. They argue that penalising such investments could have negative flow-on effects for tenants and the broader housing market.
The government is yet to release detailed legislation, but consultation with industry stakeholders is ongoing. The final form of the reforms remains uncertain, with potential for amendments based on feedback from tax professionals and property groups.