How To Use Equity Release To Rebalance Safely After Budget Reforms

Using equity release to rebalance after the Budget reforms means three things: (1) paying down expensive, non-deductible debt, (2) reshaping your mix of property, shares and business assets, and (3) doing it all so the numbers work before tax and under APRA-style stress tests. If a strategy only works because of old negative gearing rules, park it.

Step 1: Know what’s changed – and what that means for equity release

The 2026–27 Budget reforms tighten negative gearing and increase capital gains tax (CGT) on some residential property from the start date.

Key implications for using equity:

1. Rental losses are often quarantined, not fully offset against salary.
2. CGT concessions on future property gains are less generous.
3. Discretionary trust income may face minimum tax rates.

So any equity-release plan now has to stand on:

• after-tax and before-tax cashflow; and
• realistic growth assumptions, not speculative tax benefits.

If you’re looking at debt recycling, read this alongside /insights/debt-recycling-after-negative-gearing-rule-changes.

Clear, purpose-based loan splits make equity release safer under new tax rules.

Step 2: Decide your rebalance goal this week

Before you touch your home loan, be clear on the job you want equity to do now:

• Reduce risk – pay down your own home loan or clear bad consumer/business debt.
• Shift the mix – less leveraged property, more diversified shares/super/business.
• Rebuild buffers – move from redraw/credit cards into clean offset cash.

A simple order of operations for most households:

1. Kill non-deductible debt (home, cards, personal loans) first.
2. Then consider new deductible investment or business debt.
3. Maintain or increase your cash/offset buffer.

Remember: loan purpose, not security, drives deductibility.

Step 3: Use equity release to reduce non-deductible debt first

If you’re carrying non-deductible debt at higher rates (credit cards at 18–20%, personal loans at 10–15%), using cheaper home-equity debt can be smart—if you don’t re-spend it.

Example:

• Home value: $1.4m
• Current home loan: $700k (50% LVR)
• Other debts: $60k cards/personal loans at ~16% blended
• New equity split: $60k at 6.5% over 25 years (illustrative only)

You could:

• release $60k in a separate non-deductible split;
• clear all other debts; and
• cut interest costs materially.

But two rules:

1. Close or heavily reduce old limits immediately (see consolidation risk insight above).
2. Keep total repayments affordable if rates were 3% higher (APRA-style buffer).

If business debt is involved, compare this with options in /insights/using-home-equity-clear-ato-debt-business-overdraft-risks.