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 and 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?
If you’re considering moving or upgrading your home, the new rules may affect your decision about whether to sell your existing home or retain it as an investment property.
For example, you may need to consider:
- whether your existing home qualifies for the grandfathering arrangements if you later rent it out
- the tax and cash flow implications of converting your home to an investment property
- any potential capital gains tax implications if you eventually sell.
Generally, to access the grandfathering arrangements, the property must have been owned before 7:30pm AEST on 12 May 2026.
There are also limitations around restructuring or increasing borrowings simply to generate additional negative gearing benefits, so it’s important to seek advice before changing your lending arrangements.
Q. What happens if I refinance an existing negatively geared property?
If you owned your investment property before 7:30pm AEST on 12 May 2026, refinancing the existing loan should not, by itself, affect your access to the current negative gearing arrangements.
However, there is an important distinction between refinancing an existing loan and increasing or restructuring the debt.
Under the announced grandfathering arrangements:
- refinancing an existing loan on similar terms may retain the property’s existing negative gearing treatment; but
- restructuring the loan or significantly increasing the borrowing to create additional negative gearing benefits may be treated differently.
If you’re considering refinancing or changing the borrowing against an existing investment property, it’s important to understand the potential tax implications before making any changes.
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.