Own a Property Bought Before 20 September 1985? What the 2027 CGT Changes Mean for You

If you own a property that was purchased before 20 September 1985, you may have assumed it would always be exempt from capital gains tax (CGT).

That has generally been the case for more than 40 years. However, from 1 July 2027, the rules are changing.

The good news is that the capital growth that occurred before 1 July 2027 will remain outside the CGT regime; however, future growth will become subject to CGT.

For owners of long-held family, investment, and commercial properties, the property’s market value immediately before 1 July 2027, effectively at 30 June 2027, will be particularly important.

What is changing?

Under the new rules, a property that remains a pre-CGT asset on 30 June 2027 will be treated as sold and reacquired at its market value immediately before 1 July 2027.

There is no CGT payable on this deemed transaction.

Instead, the property’s market value immediately before 1 July 2027 becomes the starting point for calculating any future capital gain.

In simple terms:

• Growth up to 30 June 2027 remains outside CGT
• Growth from 1 July 2027: may be subject to CGT when the property is eventually sold

Scenario 1: You sell before 1 July 2027

If you sell a genuinely pre-CGT property before 1 July 2027, the existing pre-CGT treatment generally continues to apply.

However, the position may differ if you have made significant improvements or additions to the property since 20 September 1985. Speak to your Morrows adviser for more on this.

Scenario 2: You keep the property after 30 June 2027

This is where the new rules become important.

Imagine you purchased a property in 1980 for $100,000. By 30 June 2027, it is worth $2 million.

The $1.9 million increase in value that occurred before 1 July 2027 is still capital gains tax-free.

From 1 July 2027, the property effectively restarts its CGT history at a value of $2 million.

If you later sell the property for $2.5 million, the capital gain will effectively be $500,000, less adjustments for inflation.

Why the 30 June 2027 valuation matters

For many pre-1985 properties, the original purchase price may be decades old, and the property may have been owned by the same family for generations. Establishing the property’s market value immediately before 1 July 2027, effectively at 30 June 2027, will be very important.

There are two ways to calculate the value:

• An independent valuation can provide clear evidence of the property’s market value at the relevant date.
• A formal valuation is not the only method available under the legislation; an alternative apportionment method can be prescribed.

However, for a long-held property, obtaining an appropriate valuation may provide greater certainty and a reliable record for the future.

Scenario 3: Your family home was purchased before 20 September 1985?

A property that qualifies for the main residence exemption can generally continue to be fully exempt from CGT.

Scenario 4: Your family home was purchased before 20 September 1985, but is now a rental property?

If a pre-1985 property is used as your main residence, the main residence exemption may continue to apply. However, if the property has been used to generate rental or business income, or its use changes over time, the CGT treatment can be more complex.

Contact your Morrows adviser to understand the impact depending on your circumstances.

Scenario 5: You have renovated or redeveloped a property purchased before 20 September 1985?

Buying a property before 20 September 1985 does not necessarily mean every part of the property is exempt from CGT.

Certain capital improvements, such as adding new buildings or structures, and those made after 20 September 1985, can be treated as separate CGT assets.

If you have substantially renovated, extended, redeveloped or subdivided a pre-1985 property, you should have the position reviewed. Contact your Morrows adviser to understand more about this.

What should you do now?

If you own a property purchased before 20 September 1985, consider:

• Confirm the ownership history and CGT status. Transfer of ownership will change the capital gain commencement date.
• Review any improvements, renovations or redevelopment undertaken since 20 September 1985.
• Consider whether the property has ever been used as a main residence, rental property or for business purposes.
• Planning for evidence of the property’s market value immediately before 1 July 2027, effectively at 30 June 2027, if the property will continue to be held after that date.

Keeping the valuation and supporting records for future CGT purposes.

Reviewing your broader tax, estate and succession plans, particularly where the property is a significant family asset.

The key takeaway

• The 2027 changes do not mean you will suddenly pay CGT on all the growth in your pre-1985 property.
• Instead, 1 July 2027 effectively marks a new starting point.
• The growth that occurred before that date remains protected; future growth may become subject to CGT.

If you have held a property since before 20 September 1985, now is the time to understand how the new rules apply and, where relevant, plan for the property’s 1 July 2027 valuation.

Although this article focuses specifically on property, the new capital gains regime applies to all assets, including businesses, artworks, and water rights owned by individuals, trusts and companies.

How Morrows can help

Your Morrows adviser can help you understand how the new CGT rules may affect your property and work with you on valuation, tax, and broader succession-planning considerations. Please feel free to reach out for tailored advice.

This article provides general information only and does not constitute tax, financial or legal advice. The application of the 2027 CGT changes will depend on your individual circumstances.