Case Study: If the CGT Discount Halves: What That Does to a $4.9 Million Property Decision

Treasury and the Senate Select Committee now point to a 25 percent CGT discount as the most credible May 2026 Budget outcome. We modelled what that does to a real property purchase across five ownership structures. The right answer holds; the gaps move; one option drops sharply.

Despite the comments and views expressed below, the most ideal structure will still primarily be a discretionary trust.

What is on the table

Australia's capital gains tax discount has been the most stable feature of property investment economics since 1999. That stability is now in question. Following the Senate Select Committee on the Operation of the Capital Gains Tax Discount running hearings earlier this year, and Parliamentary Budget Office costings released ahead of the May 2026 Budget, the most credible reform scenario is a phased reduction of the CGT discount from 50 percent to 25 percent for assets acquired after the commencement date.

To be clear about what we know and what we do not. No legislation has been introduced. The Treasurer has signaled that negative gearing and the CGT discount are both being modelled. Existing properties are very likely to be grandfathered under the current rules; it is the next acquisition that is on the table.

If you are weighing a significant property purchase in the Northern Rivers, Brisbane, or anywhere else, the structure decision you make now compounds for the entire holding period. Halving the CGT discount changes the arithmetic, but it does not change it the way most commentary suggests. The structure question is more nuanced than "trust good, company bad," and at the higher end of the market, land tax often matters more than CGT. The case study below works through a real-world scenario.

The case study: a $4.9 million commercial property

Consider a individual nearing retirement purchasing a $4.9 million commercial property in NSW with the following parameters:

•     6 percent net yield, generating $294,000 of net rental income annually

•     60 percent LVR, with a $2.94 million loan at 7 percent interest only

•     Land value approximately 60 percent of purchase price ($2.94 million dutiable for land tax)

•     Four adult children, currently in the $45k to $135k bracket (32 percent marginal rate including Medicare)

•     10-year intended hold, 4 percent capital growth per annum

We modelled five ownership structures: individual ownership, a discretionary trust distributing to the four children, a discretionary trust distributing to a bucket company, Pty Ltd direct ownership, and a fixed unit trust with each child holding 25 percent of units.

Same property. Same yield. Same growth assumption. Same exit. The only variable is the structure, and therefore the tax.

Wealth outcomes under the current 50 percent discount

After 10 years, accounting for income tax annually, capital gains tax on exit, land tax differentials, and ongoing compliance costs, the wealth outcomes diverge by more than $440,000:

Structure	10-year wealth	vs winner	Rank
Fixed unit trust (kids 25% each)	$1,997,252	(winner)	1
Discretionary trust to four kids	$1,886,972	($110,280)	2
Individual ownership	$1,827,115	($170,137)	3
Pty Ltd direct	$1,713,790	($283,462)	4
Discretionary trust to bucket company	$1,552,990	($444,262)	5

Figures are net of debt repayment, CGT on sale, cumulative after-tax operating cash flow, initial equity invested, and ongoing compliance costs. Source: MAP CGT Effect Modelling.

Why the fixed unit trust wins

Three factors drive the outcome.

1. Income splitting. Distributing $33,260 of taxable rental income to four beneficiaries at 32 percent costs roughly $10,600 in annual tax. The same income in mum's hands at 47 percent costs $15,600. Compounded over 10 years, that is more than $50,000 saved on the income side.

2. The CGT discount. The fixed unit trust retains access to the 50 percent CGT discount because units are held by individuals. On a $2.16 million gross capital gain, applying the 50 percent discount and taxing at the children's 32 percent rate produces CGT of approximately $345,000. A Pty Ltd company faces 30 percent on the full gain (no discount), which works out to $647,000. The CGT differential alone is over $300,000.

3. NSW land tax, the underrated variable. NSW treats most discretionary trusts as "special trusts" with no threshold; land tax applies at 1.6 percent from the first dollar. On $2.94 million of land value, that is $47,040 per year. Individuals, companies, and properly drafted fixed unit trusts qualify for the $1,075,000 threshold and pay $29,940 per year on the same property. Over 10 years, that is a $171,000 difference. The fixed unit trust gets the threshold; the discretionary trust does not.

   
   

What changes under a 25 percent discount

Under a halved discount, the CGT calculation looks materially worse for every structure that previously enjoyed the discount. Re-running the same case study with the 25 percent assumption:

Structure	10-year wealth	Change	Rank
Fixed unit trust (kids 25% each)	$1,824,615	($172,637)	1
Discretionary trust to four kids	$1,714,335	($172,637)	2
Pty Ltd direct (unaffected)	$1,713,790	$0	3
Individual ownership	$1,573,555	($253,560)	4
Discretionary trust to bucket company	$1,552,990	$0	5

Three observations follow.

1. The unit trust still wins. Even with the discount halved, a 25 percent discount applied to a gain taxed at 32 percent gives an effective CGT rate of 24 percent, still better than the company's 30 percent on the full gain.

2. Individual ownership drops sharply. From third place to fourth, losing $253,000 of 10-year wealth. The 47 percent top rate combined with the loss of half the discount makes personal ownership the most exposed structure to the reform.

3. Pty Ltd becomes competitive. Companies were never given the discount, so they are unaffected by the change. The Pty Ltd direct option moves from fourth to a near-tie with the discretionary trust, and beats individual ownership outright. The structure ranking does not invert at the top, but the middle of the table reorders meaningfully.

   
   

The caveats

This is where the modelling stops looking simple.

• A "unit trust" does not automatically qualify for the NSW land tax threshold. Per the High Court decision in CPT Custodian Pty Ltd v Commissioner of State Revenue [2005] HCA 53, most off-the-shelf unit trust deeds fail Revenue NSW's fixed-trust test under section 3A(3B) of the Land Tax Management Act 1956. Get the deed wrong and you lose the threshold; the structure that was best becomes worse than holding personally. A purpose-drafted NSW Fixed Unit Trust deed is required.

• Land tax thresholds change the answer when you scale up. The arithmetic above assumes a single property in NSW. Add a second NSW investment property held in the same name and the threshold is consumed by the first; the second property pays land tax from dollar one. Group structuring across multiple properties is its own analysis and can flip the conclusion.

• Ongoing compliance has a real cost. A fixed unit trust with each child as a unit holder generates an annual trust tax return, four amended individual returns to incorporate distributions, ASIC fees on the corporate trustee, and trustee resolutions. We estimate $3,810 per year ongoing for this structure. Over 10 years that is $41,600. Built into the wealth comparison above, but it makes the simpler structures look better when the wealth gap is small. A trust plus bucket company arrangement runs closer to $6,600 per year.

• The fixed unit trust is rigid. Income follows units. If one of the four children moves into the top bracket during the 10-year hold (promotion, partnership equity, business sale), the income-splitting benefit on her quarter of distributions evaporates. A discretionary trust would let you redirect income to a bucket company at 30 percent for that year. The fix is a hybrid trust (fixed for capital, discretionary for ordinary income), which adds approximately $4,500 to set-up cost and a more complex deed.

• GST applies to commercial property. The purchaser needs to register for GST and lodge BAS quarterly, regardless of structure. Add roughly $1,500 per year to compliance.

• If the kids are top-bracket, the conclusion flips. We re-ran the model assuming the four children are at 47 percent, not 32 percent. Income splitting collapses, the trust structures lose roughly $200,000 of 10-year wealth each, and individual ownership becomes the highest-ranked option. The optimal structure depends on whose hands the income lands in. Without a clear view of beneficiary brackets across the holding period, the structuring decision is fragile.

Five principles to hold in mind

1. The structure decision is acquisition-locked. You cannot change your mind in year three without triggering a CGT event on the transfer (treated as a disposal), paying stamp duty again on the new entity, and resetting the cost base. Restructuring after the fact is rarely economic.

2. Grandfathering is the working assumption, not legislation. If you already own property under the current rules, every credible reform scenario protects existing assets. The decision facing existing owners is different from the decision facing new buyers.

3. Land tax compounds annually, CGT does not. At entry-level price points the CGT discount dominates the analysis. At higher land values, particularly NSW commercial in the Northern Rivers, land tax compounds annually and can eclipse CGT in total dollar impact over a 10-year hold.

4. Compliance is real money. A poorly chosen complex structure wastes $4,000 to $7,000 per year. A correctly chosen complex structure earns its keep many times over.

5. Beneficiary brackets matter as much as the entity choice. The structure question is downstream of the family tax position. We have seen well-intentioned trust set-ups that produced no benefit because the available beneficiaries were all on top marginal rates.

   
   

A word of caution

This is a complex area. The right answer depends on the specific property, the family tax position, the state, the lender's appetite for the entity, the existing portfolio, and your time horizon. Generic advice (use a trust, never use a company, always hold personally) is wrong as often as it is right.

If you are weighing a property acquisition (residential or commercial) in the Northern Rivers or beyond, and you want a model run on your specific numbers before you exchange, I am happy to do that. We will look at CGT exposure under both 50 percent and 25 percent discount assumptions, model land tax across structures, factor in compliance, and stress-test the answer against changes in your beneficiaries' tax positions over time.

The CGT reform picture should sharpen significantly on Tuesday 12 May 2026 when the Federal Budget is handed down. Acting on speculation alone is not a strategy; ignoring it is also not a strategy. Modelling your specific situation under both regimes is.

Disclaimer

This article is for informational and educational purposes only. It contains general information about Australian tax and structuring matters and does not constitute personal tax, financial, or legal advice. The content does not take into account your particular objectives, financial situation, or specific needs, and you should not rely on it as a substitute for advice tailored to your circumstances.

Tax laws, rates, thresholds, and proposed reforms referenced in this article are current as at the date of publication and may change without notice. Any examples or modelling are illustrative only and use simplifying assumptions that may not reflect your situation.

For individualised advice on property structuring, capital gains tax, land tax, or any other matter discussed, please contact Felix Margraf at Margraf Advisory Partners on 0431 409 045 or felix@margraf.com.au.

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