A new Social Development Tax for Australia - A new Capital gains Tax (the SDC).

A new capital gains tax on residential property in Australia will provide more revenue to the Commonwealth government.  Budget expenses are rising and the Commonwealth is expecting expenditure to rise to fund current policies and programs. In 2025 and in the future tax reforms are needed to update our current tax system. House prices have now become exorbitant for most average Australians to enjoy the security of there own home.

A new Social Development Contribution Tax : The potential to slow the unprecedented increases in house prices in Australia. The SDC can supplant or enhance the current Capital Gains taxes already in place.

This website is informative and instructive with a view to the future for those purchasing property in Australia. Limiting the spirally and damaging impacts of house prices is a difficult and hard concept to promote. Property investment in 2025 now seems to have no limits and now encourages entrepreneurs and cashed-up investors.  Inheritance and generational change is now one of the only ways forward for young people to purchase a property. Property prices are still rising in 2025 and strong economic measures are required to slow down the growth in prices and make it easier for younger Australians to enter the market. The Commonwealth and governments  in Australia have been unsuccessful at limiting prices and the future seems very uncertain for Australians trapped in the rent cycle.

Please note: The CONTACT BOX is at the end of the Website Page. This is an information Service only.  Further contact is via the CONTACT BOX. Though current on the 26-6-2025 the author reserves the right to update this website at any time.

Commonwealth debt and Capital Gains tax

To redress Commonwealth debt and to further fund social programs, including social housing and Health, an update and new legislation is likely required to overhaul Capital Gains Tax and Negative gearing. Capital Gains Tax policies were introduced in 1985 when home values and wages were a lot less and ratio of wages to home costs were significantly less. A fiscal update and tax reforms to fund better social conditions and to fund essential services is a worthwhile consideration. Also facilitating the taxing of large-scale businesses like Air-BnB, and Turo and other ‘Gig’ economy businesses, including other large corporations working in Australia, to ensure there is adequate fiscal reserves for the Commonwealth to build on its social policies is worthwhile. Assisting the States and Territories to build on the reserves for Infrastructure, and to cope with extra spending to assist with Climate Change and emergency assistance is also worth considering.

Quite a few States and Territories who could tax operators running Air-BnB operations, don’t tax operators in the accommodation market when they could.  The responsibility for hotel accommodation is managed currently through State legislation. Only Victoria has a direct Air-BnB tax.

 

Smart taxation

I don’t think it was Abraham Lincoln who said…” Nothing more certain in this world than death and taxes!”. Scott Morrison famously stated in 2021 that Australia could move forward with “more technology and less taxes”. This seems to be a Liberal National party credo. With a Commonwealth budget in deficit governments in Australia ought to apply fiscal reforms heading to 2030, and beyond. There is the opportunity to implement smart taxes. This becomes more of an imperative with a bigger Commonwealth budget and substantial repayments on Commonwealth debt. The Commonwealth is paying down fiscal debt incurred during the Covid era of 2020 and 2021. A platform suggesting young people borrow on their Super savings may have some slight merit though it implies sacrificing your future superannuation to become housing investors is a better return long term.  The Commonwealth has previously encouraged people to build for a secure retirement to avoid reliance on social security payments.

In 2025 the Commonwealth still seems to be having some difficulty delivering on their policies of building more homes and also not fueling inflation in the economy. It seems difficult to apply policies to stabilize house prices to reduce homes increasing in value. House prices are a significant inflation factor in 2025. For prices of homes and investment properties to remain stable, or even to further decline to offer better value, new tax levers will likely be required. 

Updating and amending Negative Gearing and Capital Gains Tax rules related to Australia’s tax system may still be the most practical way to stabilize the investment property market.  For young people to rely on generational change from their parents creates some limitations especially if housing prices continue to rise. The Commonwealth has recently implemented legislation forbidding overseas buyers of property to enter the Australian market though tradition.  This applies until July 2027. And in 2025 there are some limits being placed on student enrollments which is intended to slow the demand for homes and unit accommodation. Property investors are now increasing rents to pay down there mortgages on their property investments so they afford a second or third investment property.      This will only increase waves of increased property rents and prices and continue to make home purchases unaffordable.

The challenge is to put in place levers that can further slow house prices. Changing the tax legislation on Capital Gains Tax (CGT) may also create a useful lever to limit investor growth and margins in the property market. Applying new taxes on capital may further limit or slow the increase in prices on investment properties. The Commonwealth may be able to apply further tax legislation on Capital Gains with the aim to limit prices.  Using flat rates of taxation to apply an extra Capital gains margin related to extra profits, or gains, and separate the tax from individual income tax may have some merit.

It is difficult to create an equitable type of tax that is practical to limit house prices.  A Social Development Contribution tax, or new capital gains tax, could include the principal home to slow prices and to create a more tax system. Simplifying the system has some benefit.

In 2025, people simply don't have to pay tax on their existing home and can purchase a new principal home anytime as the principal home is exempted. The use of a time-based lever to slow house sales may be more practical. If a investment or principal home was assessed within a minimal timeframe  (eg 10 years) then an extra ‘Social Development Contribution’ tax could be applied.  This would be a new form of Capital Gains Tax that legislates the sales of property within a legislated time-frame (eg 10 years). This tax can replace  the current Capital Gains Tax legislation or can supplement the current system. It applies to individuals, or entity, or companies and trusts. This is an incremental tax based on the sale price of the home and the capital gain made within the early-sale timeframe of 10 years. In this way, the Commonwealth can be reimbursed for its subsidies and assistance to first home buyers and slow investor growth in property. A regular SDC capital gains would apply for any property owned after 10 years (e.g. 15%).

Further regulation in the market is important to limit prices.

Exempting one investment property, or the principal home assists  consumers to easily “move-up” in the market by changing the exempt property and just moving into the next one.  The current Capital Gains Tax does allow an exemption on the principal home. Though there is the scope to still allow an exemption on a principal home tax reform could apply a tax based on certain principles.  By imposing an early-sale factor (e.g. 10 years) it encourages the commitment to holding one family property and limiting growth for investors in the property market also.  An incremental tax penalty imposed on “early-sales” and  higher prices being paid in the market is likley to deter and slow speculators, and shift the market into longer-term cycles. If the tax also was applied that aims to penalise high dollar-return sales this would also have the potential to “cool-off” the high-end market to some extent.

It is quite possible to still use the existing CGT tax rate for all property investing. Though if the property is sold within the limiting time frame (like 10 years) then an “early-sales”  tax may assist to slow house prices. Varying ratios may also be used based on the length of ownership. An additional tax instead of the individual marginal rate can also be applied.

Funding the States and Territories for Social housing and the Commonwealth to have adequate funds to build on social programs for home construction is a critical issue in 2025 and has not recently been adequately funded with a “everyone for themselves” attitude. A new Capital Gains formula may be useful to limit investor “reno and flip” in the property market. I have termed this the ‘Social Development Contribution’ tax. If tax levers are put in place to slow turnover in the property market and aim at a 10 year cycle this may slow investor growth. Property and “bricks and mortar” were originally seen as long-term investments and not subject to “cowboy” investors and businesses in the market pushing to drive prices up further.  A new formula in the property and investment market is now overdue with the Commonwealth facing issues with fiscal returns to fund other Commonwealth priorities. Putting a “handbrake” and lever on prices is still seen as a priority by many analyzing the property market.

Principles to consider:

Principals that may be useful:

  • A principal home may no longer be exempt from a capital gains tax under certain conditions.  If sold within 10yrs( for example), a tax may be imposed on the profit made. The motivation is to slow the market.
  • All residential properties will be subject to the new ‘Social  Development Contribution’ (SDC) tax - a new form of Capital Gains Tax. 
  • Removal of the 50% discount for properties that are owned more than 12 months and the use of  a full profit amount for any capital gains tax.
  • A new tax will apply based on ratios calculated on the length of ownership and profit made from the sale of the property.
  • The tax is aimed to slow the growth in house prices and to repay  government investment in social housing and other priorities.
  • A new tax contribution will apply if homes are sold within a legislated time frame (eg 10 years). After 10 years, properties fall under a marginal capital gains rate. The SDC aims to make it a disincentive to sell a property in the first 10 years.
  • It employs a variable rate or ratios that are separate from individual tax rates and marginal tax rates based on annual income.
  • Some exemptions may still apply.
  • A higher tax contribution may also be applied to those individuals and entities who own multiple properties. A ‘portfolio’ factor can be applied.
  • The current Capital Gains Tax could be amended to reflect a flat tax rate based on the initial 10 years of ownership, rather than a marginal rate based on income. Removal of  the current 50% discount is justified.

Perhaps all property purchased can be made subject to legislation based on a total portfolio holding of all property held by individuals or companies, and trusts, or investment funds. This is where a total portfolio value is assessed as part of a tax calculation. This is also a rational and fair way to approach limiting access to Negative Gearing and Capital gains deductions. If an individual holds multiple properties, from the date of new legislation, a proportion of the Capital gain is based on a proportional tax rate and ruling. At a point of sale for any property held in a portfolio, the total value of all property held by the individual (or company), or entities, is assessed and a proportional value of all properties owned creates a percentile capital gains factor.  10 years is the minimum time frame of ownership to apply a new standard for a new capital gains formula.

Any property sold within the first 10 years of ownership is subject to a form of ratio tax based on the timeframe it is owned before sale of the property.  A new tax may apply to both principal homes and investor properties though the rate of tax may vary. The ratio applied is wholly dependent on the length of time owned. If a property is bought and renovated and sold within a qualifying period, a specific percentage of the profit will be taxed e.g. if owned 3 years a 50% may apply; if owned over 7 years 35% may apply).

A portfolio facto may be added to include the value of a principal home and other property increases over the 10 year time period. A flat rate of an ‘Early-Sale’ ‘Social Development Contribution’ (SDC) based on a profit margin, or a ratio based on only the time owned, can be used over a 10 year timeframe. Properties owned beyond 10 years become exempt from the “Early-Sale” SDC formula. Though under new legislation all homes, including the principal home, would be liable to a standard marginal capital gains tax. Conceivably, an exemption to CGT on the principal home could be applied only if there are no other properties owned over the 10 year timeframe. A CGT is created on the principal home from the date of purchase of another property.  These new tax rules would only apply from the date of the new legislation. The aim is to create new taxes on owning more than 1 property.

There are several methods and options that can be considered. All options are based on an extra social development contribution, or new capital gains tax,  if any property is sold within the first 10 years of ownership. Several methods could be applied and depend on whether each home is treated individually or as a portfolio. A ratio can be based on the amount of profit made from a sale made within the first 10 years after purchase. Ratios can be varied based on the timeframe and the amount of profit made.

Scenario 1: Simple taxation rate on Homes sold within a 10 year time frame.

An incremental tax  is applied based on the profit amount made on a home when it is sold within the initial 10 years of purchase. The ratio can be varied depending on the profit made. E.g. if a property is purchased for $2,000,000 on 1st July 2020 and sold for $4,500,000 on the 1st September 2024 a component of the $2,500,000 is paid as a an SDC ‘Social Development Contribution’. This may vary depending how long the property is owned for; e.g.45% if sold within 5 years (eg. $1,125,000) and 35% if sold within 5-10 years (e.g $875,000). Possibly, the rate of tax could be based on the profit made rather than duration.e.g $1,000,000 is taxed 45% and an amount above $2,000,000 is taxed 60%. At 10 years a flat rate of SDC capital gains tax can be applied on all properties sold (eg.20%). The Social Development Contribution (SDC) now also applies on all principal homes.

Scenario 2:  A simple Profit tax based on the Investment property which still exempts the principal home.

The principal home is still exempted. Any investment property bought and sold within a 10 years time frame would be subject to the SDC capital gains tax. If purchased and sold within the 5 years a tax (e'g. 40%)  is applied on the profits made. If the property is sold between 5-10 years a tax of  25% would apply. If the principal home is sold and the owners move into their investment property within the 10 year time frame, a valuation on the investment property is required at the time of sale (of the principal home) and the rate of SDC tax is applied on the value of the investment property at the time the principal home is sold and the investment property becomes the new principal home. A ratio of SDC will still apply on the previous investment property depending on length of ownership.  After 10 years the current Capital Gains Tax rulings apply based on the marginal tax rate or a new flat rate is imposed.(e.g 15%) on investment properties. This scenario does add a level of complexity  when it relies on valuations and not actual sale prices. 

Scenario 3: A total portfolio variable rate is included and does not apply any principal home exemption.

As an example, a total portfolio is $8 Million is calculated including the principal home. There is a total of 3 properties. An increase in value of $2.5 Million of the portfolio has been made since a property was purchased 9 years previously.  A ratio of 40% is imposed if a property is sold within the first 10 years. Ie. $1,000,000 @ 40% tax rate. If an increase of $1.5 Million has occurred for the total portfolio since time of purchase a flat rate of 20% is applied (ie $300,000). If portfolio value has increased $5 Million a tax rate of 50% may apply (ie $2.5 Million).  The rate can vary depending on the number of properties owned in the portfolio or the total value if a property is sold within 10 years.

Scenario 4: A principal home and two investment properties and a SDC-Development tax based on the length of ownership of each property. Principal home exempt until an investment property purchased.

There is also the potential to have a high-to-low percentile based on a varied rate. The principal home is exempt until an investment property is purchased.  This may include a Property 1 ratio (25%), a property 2 ratio (35%), and a property 3  (and more) ratio (45%).  The ratio would affect from the date of purchase of each property based on the length of time held. The ratio that would apply would depend on the number of properties held at any given time. Eg. A 35% ratio of SDC tax would apply only after a 2nd property was purchased. On that basis property 1 would be impacted by a 35% ratio after purchase of property 2, and for as long as any further properties are owned  (50% for more than 2 properties).  If a property is sold, and the entity owns 1 property, the ratio of SHD tax reduces back to 25%.

Example: The principal home was purchased 1-7-2011 for $350,000. An investment property was purchased in 1-4-2017 for $450,000. A 2nd investment property was purchased on  1-9-2020 for $600,000. Property 1, the principal home, was sold 1-7-2022 for $850,000. Sale proceeds garner an SDC“early-sale”, ruling from the time the first investment  property was purchased; 1-4-2017 till 1-9-2020( 25%).  The higher ration (45%) applies from 1-9-2020 to 1-7-2022.  Owners decide to rent for a period from 1-7-2022.

On the 4th July 2024 investment property 1 is sold for $750,000. The profit of $300,000 is assessed on the 10-year rule for 7 years at a 35%  SDC (Early-sale ) from 1-4-2017 till 1-9-2020 and then 45% for the period 1-9-2020 till 1-7-2022 . Then 35% until 4-7-2024. The remaining investment property is now subject to a 25% tax rate from 1-7-2024 or until a new investment property is purchased.

SDC tax is payable  from 1-9-2020 to 1-7-2022  @45% ratio as 3 properties were owned at this time. Only two properties are owned from 1-7-2022 when the applicable tax rate is 35%.  Any future sales will reflect these percentages. If the owners decide to purchase again a higher percentile ratio would also apply.  If one of the investment properties is resume for the owners then the percentile tax  ratio may drop. (eg. 25% for 1 investment property).  If the 2nd investment property is sold then an assessment applies on the rate applicable to the date of sale. An exemption applies to any principal home unless an investment property is purchased(and sold within 10 years). An exemption could apply on the principal home until a new investment property may be purchased.   After that date a  marginal rate15% could apply for any period in which an investment property applies.  An average annual increase would apply or an average based on the average median house price would apply.  After each property is owned for a 10 year period they become subject to the minimal SDC tax (15%) or the current Capital Gains Tax already legislated.

Scenario 5: Individual property assessment with a time varying ratio and a property number percentile. Uses existing  marginal CGT rules.

This will only apply a ratio of SDC tax on a property solely based on its purchase date and length of time owned. If a property is sold after being owned only 3 years, then a high flat rate (eg 40%) may apply. If a property is owned 7 years a lesser rate would apply (eg 25%). After 10 years of ownership a marginal CGT tax rate, that is currently used, applies. Also, a new flat rate-SDC (Early-Sale) tax (15-20%) could also apply to the principal home for the period that more than 1 property is owned, i.e. for the duration  that more than 1 property is owned the higher SDC applies.  CGT would still apply on the principal home if no other property was owned. A portfolio assessment could be also used if deemed necessary. This scenario requires adjustment to the current Capital gain Tax rules to incorporate the principal home and vary the rate if more than 1 property owned.

There are a range of scenarios that can be used.

There are a range of scenarios that can be considered. Given that many property investors can borrow on the significant capital on their principal home to invest in new property it seems reasonable to also apply a Social Development Contribution or capital gains tax on the principal home. This tax would penalize investors more if they sold any property within an initial 10-year timeframe.  A flat rate can apply as a SDC after a 10-year timeframe, or the current Capital Gains Tax legislation can be amended to include the principal home. Some consideration will likely be required for construction companies to allow time for sales to occur once construction is completed  (e.g. 18 months- 2 years).

Practical measures

Legislation currently in place may still apply for capital gains taxes applied by the Commonwealth beyond the 10-year Social Development Contribution (SDC) tax. The SDC main objective is to apply a higher rate of tax if properties are sold within 10 years of purchase. Current legislation on the marginal tax rate would need to change to incorporate the principal home to initiate a flat rate on capital gains. New legislation would be required. Some existing capital gains could remain in place beyond the SDC after the 10-year timeframe. 

Negative Gearing has also the potential to be updated.  

New legislation may assist the Commonwealth to build on its priorities while slowing down price growth in the property investment market. Even if ‘Grandfathering” is allowed up to the date of legislation then new laws may assist in slowing property prices further into the future. Limiting tax deductions on negative gearing to only one investment property for an investor, company, or trust may be a useful step. Applying a percentile limit-threshold on negative gearing for any property portfolio limiting the amount that can be may be a useful strategy. E.g. Only allowing 50% on a loans deduction for any further, investment properties. I.e. principal home remains exempt and a first investment property, or a holiday home remains exempt, though further properties owned by any entity, or an individual linked to a trust, company, or partnership, or individuals or partnerships only allows a 50% deduction on a property loan. That implies that cashed up investors need to reduce their loan commitment and provide more capital to purchase further investment properties rather than seek out loans.

Complexity and considerations

Postponement of the Social Development Contribution (SDC) tax could be applied for situations where an individual goes into Aged Care or Residential care and they need to pay an Accommodation Charge. An agreement could be made to sign over the SDC on a contract basis that can be a debt owed to the Commonwealth. When the Accommodation Charge is discharged at a later date or at death it can be repaid to the Commonwealth as part of testate and will process. 

Also, consideration needs to be given to property transfer situations in gifting, death or divorce, and the circumstance where a later sale will impact the taxpayer. In fairness, in a situation of divorce  when the property is transferred in the first 10 years some exemptions ought to apply. A  reset may apply for a 10 year time frame when transferred through death or gifting. An estimate may be required from the date of transfer for the new owner for tax purposes. Or  an ATO estimate can be used for sale purposes if the property is sold at a later date. 

Social housing policy needs change.

Some suggestions in 2025 included taking over church premises to house homeless or for government housing. There are plenty of parks in City areas that could also be transformed into Japanese style basic capsule accommodation to assist homeless to get off the streets at night. Canberra has plenty of park space for homeless hotels which could be apportioned. Some space could be taken from botanical gardens that are in most cities. This would not impact greatly on the ambience and heritage of Australia’s capital. Centennial Park in Sydney is another example where small-charge Japanese style homeless accommodation can be built in an apportioned area of the park. There are many parks in Sydney and Melbourne that could possibly do this with no significant impact do the heritage aspects. There is no shortage of viable land in Australia. Applying laws to effectively get people off the streets and to bus them to shelters has some merit.

Revenue needs to be sustainable.

Tax revenue for the Commonwealth of Australia in the 2025-26 financial year is $750 billion and expenditure is $785 billion. Commonwealth expenditure is likely to remain in deficit.  Commonwealth debt will increase in the short to medium term.  Tax revenue is below expenses of the budget and Commonwealth debt is set to extend beyond $1 trillion dollars. Interest payments on Commonwealth debt is expected to be $28 billion in 2025-26. Taxation reforms and rebuilding Commonwealth revenue now and towards 2030 is a priority. Limiting inflation factors for taxpayers is also a priority.

In 2025, it seems clear that many young people and low income earners are being impacted by the costs of entry to the housing market and other inflationary issues. Relying on generational assistance from relatives is also a long term solution and not an option for everyone. Current capital gains taxes exempt the principal home and this has always been an expectation. A tax on the principal home would create considerable controversy and may be too ambitious for legislators. Though saving now for a deposit for a home is getting more difficult in Australia and many people are stuck in a rent cycle. The Commonwealth of Australia needs more revenue to fund its social policies and to further assist lower income earners and support an energy transition. New legislation will likely require careful consideration. Legislating to remove the 50% discount on profits, and a flat, or varying, rate that encourages a longer term ownership to gain tax concessions may assist. This may possibly slow the "turnover" rate in the property market. Updating the current capital gains legislation is overdue. An update or new legislation needs to reflect current market attitudes and circumstances.

This is an information website only and the author has no direct authority from the Commonwealth of Australia and is not directly linked to the Commonwealth of Australia for the development of policy.

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