Australian property investors are facing a major decision as new capital gains tax changes approach, with experts warning that choosing the wrong method to calculate future tax liabilities could leave some owners paying significantly more.

The federal government’s new CGT regime, scheduled to begin on 1 July 2027, will change the way capital gains are calculated for many investment properties. Under the reforms, the existing 50 per cent CGT discount for assets held longer than 12 months will be removed for many investors and replaced with an inflation-adjusted cost base and a minimum 30 per cent tax rate on real capital gains.

However, the changes will not apply retrospectively. Investors who purchased properties before the new rules begin will need to split their capital gains into two periods — the growth achieved before 1 July 2027 and the growth recorded after that date.

This transition has created a difficult choice for property owners. Investors can either pay for a professional valuation to determine the property’s market value on 1 July 2027, or use a Treasury-designed calculation method that estimates the split based on the number of days the property was held before and after the changes.

While the Treasury method is free and designed to simplify the process, tax advisers and valuation experts warn it may disadvantage some investors. They argue that property prices do not always rise evenly over time, meaning a formula-based approach could incorrectly attribute more growth to the period after the new rules take effect, potentially increasing the final tax bill.

A professional valuation could provide a more accurate picture by establishing the property’s true market value at the transition date. Although this would involve an upfront cost, experts say the potential tax savings could outweigh the valuation fee, particularly for properties that have experienced significant growth before 2027.

The changes are part of a broader overhaul of Australia’s investment tax settings, including restrictions on negative gearing for some future residential properties.

Treasury is continuing consultations on the final details of the reforms, with industry groups calling for greater clarity around how valuations and transitional calculations will be handled.

With the 2027 deadline approaching, financial advisers are urging property investors to understand their options early and consider professional advice before making decisions that could affect future tax outcomes.