Like-Kind Property Rules in Australia (2025): A Guide for Investors

As Australian investors look to maximise their portfolios in a changing tax landscape, understanding the concept of like-kind property is more important than ever. While often associated with US tax law, the principles of like-kind exchanges are increasingly relevant for Australians navigating capital gains tax (CGT), property swaps, and asset rollovers in 2025.

What is Like-Kind Property?

Like-kind property refers to assets of the same nature or character, even if they differ in quality or grade. In practical terms, this means swapping one investment property for another of a similar type—say, trading a Melbourne apartment for a Brisbane townhouse—without triggering an immediate tax event. In Australia, the ATO’s approach to like-kind exchanges is less formalised than the US 1031 Exchange, but similar principles apply in some asset rollover and CGT deferral situations.

• Property-to-property swaps: Direct exchanges of real estate can sometimes defer tax events if conditions are met.

• Business asset rollovers: Reinvesting proceeds from selling business assets into similar new assets may offer rollover relief, under certain circumstances.

• CGT exemptions: Certain like-kind exchanges in small business restructures or main residence changes could be eligible for CGT relief.

2025 Policy Updates: What’s Changed?

The 2025 Federal Budget introduced tweaks to asset rollover and CGT rules to encourage investment and business continuity. The most notable updates include:

• Expanded asset rollover relief: The government has broadened eligibility for small business asset rollovers, allowing more types of like-kind property swaps without immediate CGT liability.

• Residential investment property guidance: The ATO clarified that direct swaps of residential investment properties may qualify for deferred CGT if structured under specific legal frameworks, such as a formalised property exchange agreement.

• Reporting requirements: From July 2025, all like-kind exchanges must be reported on a revised CGT schedule, detailing both relinquished and acquired assets to ensure transparency.

For example, a Perth investor who swaps a commercial office suite for another commercial property in Sydney under an eligible rollover provision could defer CGT until the final sale of the replacement asset.

Like-Kind Property in Action: Real-World Scenarios

Let’s look at how like-kind property rules might play out in 2025 for typical investors:

• Investor A: Sells a retail shop and acquires a comparable shopfront in another state. Under the expanded 2025 small business rollover relief, CGT is deferred if the swap meets the new eligibility criteria.

• Investor B: Swaps an investment apartment for a similarly valued townhouse. If both properties are used solely for investment and the transaction is structured properly, the swap may not trigger immediate CGT, though both assets’ cost bases are tracked for future tax purposes.

• Small business owner: Rolls over machinery assets into newer models under the expanded instant asset write-off scheme, leveraging the like-kind principle to maintain business momentum and defer tax.

It’s worth noting that not all swaps are eligible. The ATO will scrutinise transactions for market value equivalence, genuine like-kind status, and compliance with the new 2025 reporting requirements.

Maximising the Benefits: Strategic Considerations

To take advantage of like-kind property rules in 2025, consider:

• Early planning: Structure property or asset swaps in advance to align with the latest tax provisions and reporting standards.

• Accurate documentation: Maintain clear records of all exchanged assets, valuations, and formal agreements to meet ATO requirements.

• Professional advice: Complex exchanges may require legal or tax expert input to ensure eligibility for CGT deferral or rollover relief.

With the right strategy, like-kind property swaps can be a powerful tool for deferring tax, reinvesting efficiently, and building long-term wealth.