Why the 2026 CGT changes matter for homeowners

When the Federal Government announced major capital gains tax (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.

The good news is that the main residence exemption remains intact. For Australians who buy a home, live in it throughout ownership 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. That is where the changes become important.

Why 1 July 2027 matters
From 1 July 2027, the ordinary 50% CGT discount for individuals is generally replaced by cost-base indexation for future gains, together with a minimum 30% tax regime for relevant capital gains. For eligible assets held across the transition, the rules separate gains arising before and after 1 July 2027. A market valuation immediately before that date is the default way of establishing the dividing point, although an alternative statutory apportionment method may be available.

The biggest trap: assuming today’s exemption will last forever
A property can be fully exempt today but later develop a taxable component. Common triggers include moving out and renting it, operating a business from part of the home, relocating overseas, transferring an interest after separation, subdividing the land or redeveloping the site.

This does not mean every homeowner should automatically obtain a formal valuation. The sensible question is whether there is a realistic prospect of a future change that could create CGT exposure. If so, contemporaneous evidence around 1 July 2027 may be easier and more reliable than reconstructing the value years later.

A former home that becomes a rental
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, apart from limited overlap rules.

If the absence rule is not used, another existing rule may reset the property’s cost base to market value when a previously fully exempt home is first rented. Where that occurs before July 2027, two valuations may matter: one when rental use begins and another immediately before 1 July 2027. They perform different jobs and one should not be discarded simply because the other exists.

Holiday homes and homes occupied by relatives
Holiday homes and properties occupied rent-free by family members are often treated as private assets, so owners may not keep the same records they would retain for an investment property. That can be costly when the property is eventually sold.

Non-deductible ownership costs may sometimes form part of the CGT cost base, including eligible interest, rates, land tax, insurance, repairs and maintenance. The transition valuation does not replace those records because the pre-July 2027 gain may still need to be calculated. Keeping costs separated by category is also important because ordinary ownership costs are not indexed under the new regime, whereas eligible capital expenditure may be.

Family law transfers
A qualifying transfer between spouses or former spouses under a family law settlement can generally occur without an immediate CGT bill. However, the recipient usually inherits the property’s relevant tax history rather than receiving a fresh start.

That history may include earlier rental or business use, cost-base records, absence choices and, under the new rules, information about both parties’ tax residency after 1 July 2027. Tax should therefore be considered when the property settlement is negotiated, not only when the property is eventually sold.

Practical action points
• Identify properties that are not clearly exempt for their entire ownership history.
• Consider whether a future rental, overseas move, separation, subdivision or redevelopment is realistically possible.
• Retain purchase records, valuations, renovation invoices, loan statements, rates and land tax records.
• Where a home is first rented before July 2027, preserve both the first-rental valuation and any transition-date valuation.
• Seek advice before changing how the property is used or before transferring an ownership interest.

The bottom line
The 2026 CGT reforms are not only an issue for investors. They matter whenever a home has, or may later develop, a taxable component. The most useful preparation is usually straightforward: understand the property’s history, keep the records that support it and consider whether transition-date evidence is warranted before those records and the original property disappear.