Capital gains tax, your home and geared property under new rules

Owning a geared property portfolio is no longer just about picking a suburb and a lender. From 1 July 2027, Australia’s capital gains tax (CGT) and negative gearing rules change sharply, and how you use your home can make a big difference to future tax bills.

In simple terms: your main residence is usually CGT‑free, investment properties are not, and gearing magnifies whatever outcome you get. The trick is understanding where the main residence exemption stops, when the six‑year rule actually applies, and how loan structuring and new CGT rules can quietly erode your after‑tax returns if you’re not paying attention.

1. Big‑picture: what’s changing for CGT and geared property?

Before diving into exemptions and rules, it helps to know the new playing field.

1.1 The new CGT landscape in brief

Based on the 2026 reform bill and Budget papers:

1. The 50% CGT discount for individuals and most trusts will be replaced with CPI indexation of cost base rather than a flat discount.
2. Most resident individuals will face a minimum 30% tax on real (inflation‑adjusted) capital gains from 1 July 2027.
3. Pre‑CGT assets (acquired before 20 September 1985) are brought into the tax net for future gains, using complex deemed disposal rules.
4. Residential rental losses on many established properties bought after 12 May 2026 will be quarantined and cannot offset salary and wages.

Existing holdings and qualifying new builds retain more generous negative gearing settings, but the direction of travel is clear: leveraged property returns will be taxed more heavily.

If you haven’t already, it’s worth pairing this guide with:

• Plain‑English Gearing Basics Every Australian Property Investor Must Know
• How to Restructure Property Loans Before Negative Gearing Shrinks

1.2 Why your home suddenly matters more

Historically, investors took comfort from two big concessions:

• Negative gearing deductions along the way; and
• A 50% CGT discount on sale after 12 months.

The 2026–27 reforms wind both back for many investors, but the main residence CGT exemption remains extremely valuable. That means:

• Decisions about turning your home into an investment (or vice versa) carry more weight.
• Debt recycling strategies need closer attention.
• Using your home as security for investment loans can have bigger long‑term consequences, even when no CGT is triggered immediately.

2. Main residence CGT rules: the working essentials

2.1 What is the main residence exemption?

In broad terms, if a property is your principal place of residence (PPOR) for the entire time you own it, and it’s on land under 2 hectares, any capital gain on sale is usually fully exempt from CGT.

To qualify, the ATO typically expects that:

• You and your family live there.
• Your personal belongings are kept there.
• Your mail is sent there and it’s on the electoral roll.
• It’s connected to utilities in your name.

You generally can’t treat more than one property as your main residence at the same time, with some limited transitional overlap when you move.

2.2 The six‑month overlap rule when moving

When you buy a new home before selling your old one, you may be able to treat both as your main residence for up to six months if:

• The old home was your main residence for at least 3 months in the 12 months before sale; and
• It wasn’t producing income in that final period.

This is handy for upgraders who move into the new property while waiting to sell, without losing the exemption on the old one.

2.3 The six‑year rule (absence concession)

The six‑year rule is one of the most misunderstood (and powerful) concessions.

If you move out of your home and start renting it, you can generally continue to treat it as your main residence for up to six years per absence, so long as you don’t claim another property as your main residence at the same time.

Key points:

• If you move back in, the six‑year clock can reset for the next absence.
• If the property isn’t rented (e.g. left vacant or used as a holiday home), you can usually treat it as your main residence indefinitely while away.
• If you choose to treat another property as your main residence while you’re renting the first one out, you lose (part of) the exemption for the first.

In practice, this rule is central to many rent‑vesting and upgrader strategies.

Understanding how the main residence and six-year rules interact can save substantial CGT.

3. When your home becomes (partly) taxable

Even with generous rules, there are common traps that can make a portion of your home’s gain taxable.

3.1 Mixed‑use: running a business from home

You can usually ignore CGT issues for minor home‑office use under the ATO’s new fixed‑rate methods. But if you:

• Claim depreciation / capital works on a dedicated area; or
• Use part of the home exclusively for business and claim full running costs,

then that portion may become taxable for CGT.

Example:

• You buy a house for $1,000,000 and use 20% of it exclusively as a clinic, claiming building write‑off on that section.
• Ten years later, you sell for $1,600,000.
• Ignoring selling costs and indexation, the $600,000 gain may be 80% exempt and 20% taxable.

In a world where the 50% CGT discount is being replaced by indexation and a 30% minimum tax, even a small taxable slice can matter.

3.2 Exceeding the six‑year rule

If you rent out a former home for more than six years (without moving back), the main residence exemption is time‑apportioned.

Simplified example:

• You own a property for 15 years.
• First 3 years: you live there.
• Next 9 years: you rent it out and claim it as main residence under six‑year rule for first 6, then it becomes an ordinary investment for the last 3.
• Final 3 years: you move back in and live there.

Here, 12 of 15 years are counted as main residence, 3 years are taxable. Roughly 3/15 of the gain could be taxable (actual calculation is more nuanced but the concept stands).

3.3 Owning your home through an entity

For most households, holding the family home in a company or trust is a serious CGT own‑goal.

• Companies and most trusts do not get the main residence exemption.
• They also face tighter land tax and, from 2027, higher minimum tax rates on some income.

As we’ve covered in more detail in /insights/buying-home-personal-vs-company-vs-trust-australia, owning your PPOR in your own name (often the lower‑risk spouse) usually produces much better long‑term tax outcomes.

4. Gearing, CGT and the six‑year rule in practice

The interaction between gearing and the main residence rules becomes critical once CGT concessions tighten.

4.1 Turning your home into an investment (rent‑vesting and upgraders)

Common scenario:

• You bought a unit in your 20s, lived in it for 5 years.
• You now want to upgrade to a house, but keep the unit as an investment.

Your choices:

1. Use the six‑year rule and continue treating the unit as your main residence while renting it (no CGT on sale within the six‑year window, but your new house won’t get main residence status during that time); or
2. Nominate the new house as your main residence and accept that part of the unit’s future gain will be taxable.

With new CGT rules, the trade‑off tightens: locking in a tax‑free gain on the earlier property (the unit) might be less valuable than protecting the bigger, long‑term gain on your new family home.

This is exactly the sort of decision we unpack in /insights/mum-and-dad-investors-protecting-plan-under-new-rules.

4.2 Worked geared example under new CGT settings

Assume:

• 2027: You buy a house for $1,200,000 as your home, with a $900,000 P&I loan at 6.5%.
• 2034: You move to a bigger home. You keep the first house as an investment, renting it out.
• You choose to treat your new home as your main residence from 2034.
• 2040: You sell the first house for $1,900,000.

Total nominal gain: $700,000.

Time‑based apportionment (simplified):

• 2027–2034 (7 years): main residence
• 2034–2040 (6 years): investment, no main residence coverage

Total ownership: 13 years. Taxable fraction: 6/13.

Taxable gain (ignoring indexation mechanics):

• $700,000 × 6/13 ≈ $323,000.

Under the old 50% discount, you’d include ~$161,500 in your taxable income. Under new rules, CPI indexation by itself may reduce the nominal gain less than 50%, and a 30% minimum tax can apply to the real gain.

With a 39% marginal tax rate (including Medicare), the effective tax bill could be materially higher than many investors are used to.

Gearing amplifies this:

• Interest and other holding costs reduce your after‑tax cashflow while you own it.
• But when you finally sell, more of the gain may be taxable.

Net result: leveraged upgrading plus rent‑vesting still works, but you need to model both cashflow and likely CGT under the new rules, not just assume the tax office will be kind in retirement.

5. Debt recycling, redraw and offsets: does it affect CGT?

CGT is about the asset; interest deductibility is about the loan purpose. But the way you shuffle money around can affect both.

5.1 Key principle: loan purpose, not security

The ATO focuses on what the borrowed money is used for, not which property secures the loan.

• Borrow against your home and use the funds to buy shares or an investment property: interest is generally deductible.
• Use an investment loan to renovate your home kitchen: that portion of the interest becomes non‑deductible.

This is why good structures tend to:

• Keep loans for different purposes in separate splits; and
• Use offsets rather than redraw when you might later repurpose funds.

We go deeper on this in /insights/designing-flexible-investment-loan-structures-geared-investors.

5.2 Does debt recycling change your CGT on the home?

If you never rent out the home, recycling debt against it (e.g. paying down the non‑deductible home loan, then re‑borrowing for investments) generally doesn’t change its CGT‑free status.

CGT exposure arises more from use of the property (living vs renting, business use) and ownership structure (personal vs entity) than from what the loan was used for.

Where people get into trouble is when:

• They redraw from an existing home loan account for mixed personal and investment purposes; then
• Later convert that home into an investment.

At that point, it becomes very hard to separate deductible and non‑deductible portions. That’s a loan deductibility problem, not a CGT problem—but it can cost you thousands in extra tax each year.

5.3 Offsets vs redraw – CGT and gearing implications

In short, offsets and clean splits give you more flexibility for future moves (like turning your home into an investment) without messy loan histories.

Offsets and clean loan splits give more flexibility for future investment moves.

6. Ownership choices: home vs investment under the new rules

6.1 Why most people should keep the home in personal names

Given the post‑2027 world:

• Your main residence is one of the last big CGT shelters.
• Entity ownership (company/trust) usually forfeits that shelter and can increase land tax.

For most:

• Own the home in personal names (often the lower‑risk spouse).
• Own investment properties in structures that balance tax, borrowing power and asset protection.

If you’re weighing structures for a new purchase, read:

• How to choose the right ownership structure for new property now
• How to structure high‑end property purchases the smart way

6.2 Keeping versus selling when upgrading

Upgraders constantly face the “keep and rent vs sell” decision.

Factors now include:

• Size of the embedded tax‑free gain if you sell your current home while it clearly qualifies as main residence.
• Prospects for capital growth and rental demand.
• Impact of new CGT rules on a partially taxable future gain.
• How much non‑deductible home debt you’ll carry on the new place.

Often, you’ll be better off:

• Selling the first home CGT‑free.
• Using the proceeds to reduce the new non‑deductible home loan.
• Building an investment portfolio with deliberately structured, fully deductible debt on separate securities.

But there are exceptions, especially in tightly held, high‑growth pockets.

6.3 Pre‑retirees and long‑held homes

For pre‑retirees with:

• A large, mostly paid‑off home with significant CGT‑free gain; and
• Several geared investments facing harsher future CGT and reduced negative gearing,

it can make sense to:

• Deleverage risky investments; and
• Consider downsizing sooner, crystallising tax‑free gains while rules are clearer.

Our detailed guide for this group is /insights/pre-retiree-downsizer-smsf-property-heavy-strategy.

Pre-retirees should review CGT, gearing and downsizing options before new rules commence.

7. One‑week action plan: tidy your CGT and gearing risks

You don’t need to solve a decade of strategy in one meeting, but you can make progress this week.

7.1 Day 1–2: Map your properties and usage history

For each property, write down:

• Address and purchase date.
• Who owns it (names, entities, SMSF).
• Periods it was:
  • Your main residence (with dates); and
  • Rented or used for business.
• Major renovations and approximate costs.

This is your starting CGT map.

7.2 Day 3: Match loans to purposes

List every loan and split, and mark:

• Which property secures it.
• What the funds were used for (home, investment, business, mixed).
• Whether it has an offset or redraw.

Highlight any mixed‑purpose loans (personal + investment) for future clean‑up.

7.3 Day 4: Identify main residence decisions to make

For each property you’ve lived in and then rented (or plan to), work through:

• Do you want to use the six‑year rule or protect your current home’s exemption instead?
• Are you close to exhausting the six‑year period on any property?
• Would selling now lock in a tax‑free gain you’re comfortable with?

You don’t need an exact CGT calculation yet—just a sense of which properties are:

• Safely exempt;
• Partially exposed; or
• Intentionally fully exposed as investments.

7.4 Day 5–6: Tidy structures and records

With your accountant and broker, consider:

• Splitting mixed‑purpose loans into clean, single‑purpose splits.
• Redirecting surplus cash into offsets attached to non‑deductible home debt.
• Confirming entity ownership matches your long‑term plan.

For self‑employed clients and small business owners, it’s also worth revisiting the broader strategy in /insights/self-employed-business-owners-high-income-professionals-negative-gearing-cgt-strategy.

7.5 Day 7: Book a joined‑up review

The new rules make joined‑up tax and lending advice critical.

Aim to have your CPA / tax adviser and mortgage broker on the same page so:

• Your loan structures match your tax strategy.
• You know which properties you’re prepared to have fully taxable.
• Your main residence exemption is protected wherever possible.

FAQs: CGT, main residence and geared property

1. Does using my home as security for an investment loan affect CGT?

No, simply using your home as security for an investment loan does not, by itself, affect its CGT‑free status. CGT is driven by how the property is used (main residence vs rental/business) and who owns it. The key issue with using your home as security is usually risk and flexibility, not CGT.

2. Can I still claim the six‑year rule after the 2027 reforms?

Yes. The six‑year absence concession is a separate part of the law from the reforms to CGT discounts and negative gearing. As at the 2026–27 Budget settings, the six‑year rule still applies, but the tax cost of any taxable portion of a gain may be higher under the new minimum 30% rate. Good records of when you lived in the property are more important than ever.

3. If I refinance my home loan to buy an investment, is the interest deductible?

Usually yes, but only for the investment portion and only if it’s clearly traceable. The ATO looks at what the borrowed funds are used for, not which property secures the loan. In practice, that means using a separate loan split for the investment portion and avoiding mixed‑purpose redraws. Refinancing alone doesn’t make interest deductible.

4. What happens if I rent out rooms in my home on Airbnb?

Occasional, small‑scale letting of rooms may have limited CGT impact, but more substantial or long‑term Airbnb use can create a partial CGT exposure on sale. You may also reduce or lose some main residence exemption if the ATO considers that part of the home is used to produce income. With CGT concessions tightening, it’s important to get advice before turning a large part of your home into a quasi‑commercial operation.

5. Should I keep my first home as an investment or sell it tax‑free?

There’s no one‑size answer. You’re trading off:

• A guaranteed tax‑free gain now; against
• Potential future after‑tax gains (and risks) as an investment, under stricter CGT and gearing rules.

The right choice depends on your future housing plans, risk tolerance, borrowing power and how heavily geared you’d be overall. Running side‑by‑side scenarios with your tax adviser and a CPA‑grade broker is the best way to decide.

6. Do the 2026–27 changes affect commercial property the same way?

Most of the headline negative gearing restrictions are targeted at residential property. Commercial property appears less affected on the gearing side, though the broader CGT reforms (indexation and minimum 30% tax on gains) still matter. If you use commercial property in your business or SMSF, make sure you get tailored advice on how the new CGT rules interact with your structure.

Key takeaways

• The main residence exemption is one of the last major CGT shelters; protect it deliberately under the new rules.
• The six‑year rule remains powerful, but choosing which property is your main residence can materially change future tax bills.
• Gearing amplifies both gains and tax; under post‑2027 CGT settings, after‑tax returns on leveraged property will be tighter.
• Debt recycling and loan restructuring mostly affect interest deductibility, but clean structures help you use main residence rules more flexibly.
• Entity ownership of the family home usually forfeits the exemption and can be costly, especially once the 30% minimum CGT rate applies.

If you’d like a joined‑up view of your tax, loans and property strategy, book a free 15‑minute strategy call at https://localknowledge.finance. In one conversation, you get the perspective of a CPA, registered tax agent and mortgage broker so you can check your CGT exposure, tidy your loan splits and plan your next move with confidence.

General advice only.