Recent changes to negative gearing and capital gains tax have raised questions about how the family home will be treated under the new rules.
While the principal place of residence exemption remains unchanged, there are some important considerations if you later decide to retain your home as an investment property, or refinance a property covered by the grandfathering arrangements.
For Week 4 of The Budget Breakdown, we answer some of the key questions about what the changes could mean for homeowners and property investors.
Q. Will the family home, known as the principal place of residence, still be exempt from capital gains tax?
Yes. The Government has indicated the full exemption will continue to apply to owner-occupied homes.
Q. Can an existing owner-occupied home later become negatively geared under the proposed changes?
Yes. If the property was already owned prior to 7:30pm AEST on 12 May 2026.
The Government has confirmed that if a homeowner later converts their existing principal place of residence into an investment property, the property may still retain access to the current negative gearing arrangements under the grandfathering provisions.
This means:
- if the property is rented out
- the rental property makes a loss
- the owner may still be able to use those losses to offset other taxable income, subject to the final legislation and individual circumstances.
Clients should seek professional tax and financial advice before making decisions based on the proposed reforms.
Q. What could this mean for you?
The changes may create additional questions regarding:
- retaining an existing home as an investment property
- upgrading or relocating while keeping the former home
- the tax and cash flow implications of converting a home into an investment property.
However:
- the property generally must have been owned prior to 7:30pm AEST on 12 May 2026 to access the grandfathering arrangements
- clients generally cannot restructure or increase borrowings simply to create additional negative gearing benefits
- there may still be capital gains tax implications depending on how long the property is rented &/or individual circumstances.
Q. If an investor chooses to refinance a property they had negatively geared prior to the Budget night announcement, does this impact negatively gearing?
Based on the announced grandfathering arrangements, simply refinancing an existing investment property should not, by itself, remove access to negative gearing, provided the property was owned prior to 7:30pm AEST on 12 May 2026.
However, the Government has indicated that investors generally will not be able to:
- restructure loans
- significantly increase borrowings for the purpose of generating additional negative gearing benefits under the grandfathering rules.
In practice, this means:
- refinancing an existing loan on similar terms may still retain access to existing negative gearing treatment, but
- increasing debt for unrelated purposes may be treated differently.
As the detailed legislation has not yet been released, the final rules and lender/tax treatment may still evolve. Clients should seek accounting or tax advice before refinancing or restructuring investment lending arrangements based on the proposed changes.
Source: MFAA (Mortgage Federation Assoc of Aust) and NTAA
Seek advice
Speak with the Financially Sorted team about your circumstances before refinancing or restructuring investment lending arrangements.