A surprise loophole in the new negative gearing changes will allow homeowners to convert their primary residence into an investment property while retaining valuable tax benefits.
Treasurer Jim Chalmers‘ office has confirmed that homeowners can turn their family home into a negatively geared property under the changes.
The Australian government announced major housing tax reforms in last week’s Federal Budget, with the measures set to take effect from July 2027.
Under the reforms, negative gearing for residential property will be limited to new builds, while deductions for established properties will be restricted.
However, grandfathering provisions that allow existing negatively geared properties to retain their tax treatment after Budget night will also apply to family homes if the owner moves out and begins renting out the property.
If the property then operates at a loss, homeowners can use those losses to offset their taxable income while continuing to repay the loan.
First-time property investors who were not in before the budget night deadline must now choose between buying a new property to keep negative gearing, or buying existing and losing the tax break.
Ridhwan Hannan, from Hannan Accounting and Taxation Services, told news.com.au that the method could help owners struggling with rising interest rates.
Aussie homeowners can use a loophole to convert their primary residence into an investment property under new rules
Treasurer Jim Chalmers has had his crictics since releasing the Federal Budget last week
‘Instead of selling it and then trying to buy something else, someone might negatively gear it for a couple of years and then see where they land,’ Mr Hannan said.
‘Rates are going up, [property] prices are really going down from a cost-of-living perspective for some people who have bought properties in the last couple of years and have maybe overextended themselves – they might say, OK, I’ve got no option.’
Negative gearing allows property investors to offset operating losses from an investment property against other income, such as their salary.
This means investors can reduce their income tax bill if the rental income they receive does not cover costs such as mortgage interest, maintenance, and council rates.
Homeowners who move out and rent out their property may also avoid paying capital gains tax if they sell within six years, provided they do not nominate another property as their principal place of residence.
‘You can exit your own principal place of residence for a period of six years and you may be exempt from capital gains on an eventual sale if it happened within that six year time frame,’ he said.
‘You can’t take any more debt against that house just to make a negative gearing arrangement work. It’s basically what you bought the property for – that initial debt is where you would get any sort of negative gearing benefits, if any.’
