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.