Peter Bembrick
Many Australian believe their family home is safe from the Federal Government’s capital gains tax (CGT) reforms, but that assumption could lead to surprises down the track, says Peter Bembrick, tax partner at HLB Mann Judd Sydney.
“When the Federal Government announced major CGT reforms in the 2026-27 Budget, many homeowners assumed they would not be affected. After all, the family home is generally exempt from CGT,” Bembrick says.
“But it would be easy to assume the reforms are only an issue for investors. They matter whenever a home has, or may later develop, a taxable component.
“For Australians who buy a home, live in it and eventually sell it, the reforms may have little practical effect. However, many properties sit somewhere between a fully exempt home and a fully taxable investment property, and that is where the changes become important.”
From 1 July 2027, the 50 per cent CGT discount for individuals will generally be replaced by cost-base indexation for future gains, alongside a minimum 30 per cent tax on relevant capital gains.
For eligible assets held across the transition, gains arising before and after 1 July 2027 will be treated separately. A market valuation immediately before that date is the default way to set the dividing point, although an alternative statutory apportionment method may be available.
Common situations that can create a taxable component for an otherwise exempt home include moving out and renting it, running a business from part of the home, and subdividing or redeveloping the site.
“A homeowner who moves out and rents the property may be able to continue treating it as the main residence for up to six years, provided the relevant conditions are met and another property is not treated as the main residence for the same period,” Bembrick says.
“The tax-exempt period may include time spent working overseas as a non-resident provided the expat returns to Australia within the six year limit before selling the home, although if they were overseas after 1 July 2027 and there ends up being a taxable component this can affect access to cost base indexation under the new rules.”
“Holiday homes and properties occupied rent-free by family members also need careful assessment. These are often treated as private assets, so owners may not keep the same records they would for an investment property, and that can be costly when the property is eventually sold.”
Bembrick says there are practical steps you can take now to prepare.
“It’s extremely important that homeowners identify any property that has not been clearly exempt for its entire ownership history,” Bembrick says.
“In practical terms, that means always retaining purchase records, valuations, renovation invoices, loan statements, and rates and land tax records. Owners should also consider whether transition-date evidence, such as a valuation, is warranted before those records and the original property disappear.
“Before you make any changes to how you use your property or transfer ownership, it’s worth having a conversation with a professional adviser.”
