Many families rely on selling an investment property as part of their aged care funding plan when a loved one moves into aged care. From 1 July 2027, the tax treatment of that sale may look different to what you expect. The government’s 2026-27 Budget reforms to capital gains tax and negative gearing are now law, and while the changes are aimed at property investors generally, they carry real consequences for anyone using an investment property to fund a residential aged care lump sum or ongoing fees.
| Quick summary
The 2026-27 Budget’s capital gains tax and negative gearing reforms are now law, and here’s what they mean if you’re funding aged care through property.
|
This article sets out what has actually changed, what hasn’t, and what it means if aged care is on the horizon for you or someone you love.
What changed in the 2026-27 federal budget
On 12 May 2026, the government announced reforms to capital gains tax and negative gearing as part of the 2026-27 Budget. The changes were legislated through the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received royal assent on 26 June 2026. There are two separate elements to be aware of:
- Capital gains tax discount: the current 50% capital gains tax discount for individuals, trusts and partnerships is replaced with cost base indexation and a minimum 30% tax for the portion of capital gains that accrue from 1 July 2027. Gains that accrued before that date continue under the previous rules.
- Negative gearing: from 1 July 2027, negative gearing will be limited to new residential builds for properties acquired after 7:30pm AEST on 12 May 2026. Investors who buy an established residential property after that date will no longer be able to offset rental losses against salary or other personal income. Losses can instead only be offset against rental income or future capital gains from residential property, and unused losses can be carried forward to future years.
Key facts at a glance
| Scenario | How it’s treated |
| Family home sold to fund aged care | Main residence exemption applies, unaffected by the reforms |
| Investment property bought before 7:30pm AEST, 12 May 2026 | Keeps current negative gearing and CGT discount treatment |
| Investment property bought after 7:30pm AEST, 12 May 2026 | New negative gearing restrictions apply to established property; eligible new builds retain concessional treatment |
| Capital gain accruing after 1 July 2027 | Subject to the new CGT calculation method using cost base indexation and the minimum 30% tax rules |
| Eligible Age Pension or certain income support recipients | Exempt from the new minimum tax |
What has not changed
It is worth being clear about what these reforms do not touch, because this is where confusion tends to creep in during aged care planning:
- The main residence exemption is unchanged. Selling the family home to fund an aged care lump sum still generally receives the same capital gains tax treatment it always has.
- Properties held before the announcement time of 7:30pm AEST on 12 May 2026 are exempt from the negative gearing changes, so an existing investment property that a family already owns is not affected by the new negative gearing rules.
- Eligible Age Pension and certain income support recipients are exempt from the new minimum tax.
Where capital gains tax intersects with aged care funding
Aged care in Australia is funded through a mix of government support and personal contribution, with the personal contribution based on a means assessment of income and assets. For many families, an investment property held for some years is the most straightforward asset to sell to raise a lump sum, whether that is a refundable accommodation deposit for residential care, or simply to free up cash flow.
Whether these changes affect your family’s situation largely comes down to when the property was bought and when any gain accrued:
- Investment property bought before 7:30pm AEST on 12 May 2026: the negative gearing changes do not apply, and any capital gain that accrued before 1 July 2027 keeps the current tax treatment. The practical impact for most families selling an established investment property to fund aged care today is limited.
- Investment property bought after 7:30pm AEST on 12 May 2026: investors purchasing eligible new residential builds continue to receive the concessional tax treatment available under the new rules, while established properties purchased after Budget night are subject to the new negative gearing restrictions.
- Any capital gain accruing after 1 July 2027, regardless of purchase date: this portion of the gain is taxed under the new cost base indexation and minimum tax rules rather than the current 50% discount.
The changes become most relevant for anyone considering purchasing an investment property after 12 May 2026 as part of a longer term aged care or estate plan, or for a portion of a gain that accrues after 1 July 2027 on a property sold some years from now. In those cases, the capital gains tax rules applying to future gains may reduce the after-tax proceeds available for a lump sum accommodation payment.
A worked example
John and Susan bought an investment property in 2015. In 2027, Susan needs to move into residential aged care, and the couple decides to sell the property to help fund her refundable accommodation deposit. Because the property was bought well before 7:30pm AEST on 12 May 2026, the negative gearing changes do not apply to it, and any capital gain accrued before 1 July 2027 keeps the current 50% discount. If part of the capital gain accrues from 1 July 2027, that portion would be taxed under the new cost base indexation and minimum tax rules. For John and Susan, this means the sale largely proceeds under the tax treatment they were already expecting, with only a small, time-limited adjustment to plan around.
A note on jointly owned property
One area to watch, particularly relevant to couples where one partner moves into residential care, concerns jointly owned property. Media reporting following the bill’s passage through Parliament noted that jointly owned properties purchased before the budget could lose their grandfathered capital gains tax and negative gearing treatment if one co-owner passed away or the couple separated. The government has indicated it intends to address this in a second tranche of legislation later in the year. This has not yet been finalised, so anyone with a jointly owned investment property and an aged care decision approaching should keep a close eye on further updates rather than assume the current grandfathering will automatically carry through in every circumstance.
Why the timing of a property sale matters more than ever
Aged care means assessments, Age Pension entitlements and now capital gains tax treatment can all be affected by exactly when a property is sold and when a person enters care. A sale timed to align with a means assessment date, or structured to make use of the pre-1 July 2027 tax treatment, can materially change the after-tax funds available for accommodation costs. Getting this timing right is a key part of any aged care funding plan, and it is not something to work through without professional advice.
Frequently asked questions
Does selling the family home to pay for aged care attract capital gains tax?
Generally, no. The main residence exemption is unchanged by these reforms, so selling the family home to fund an aged care lump sum still receives the same capital gains tax treatment it always has.
Do the new rules affect an investment property I already own?
If you owned the property before 7:30pm AEST on 12 May 2026, the negative gearing changes do not apply to it, and any capital gain that accrued before 1 July 2027 keeps the current tax treatment.
When do the capital gains tax and negative gearing changes actually start?
The practical tax changes begin from 1 July 2027, although the legislation has already received Royal Assent.
Will buying a new build still allow me to use negative gearing?
Yes. Eligible new residential builds continue to receive unrestricted negative gearing and the choice between the traditional capital gains tax discount and the new indexed method, unlike established properties bought after 12 May 2026.
What happens if my investment property is jointly owned and my co-owner passes away?
This is an area still being finalised. The government has indicated it intends to address issues affecting jointly owned property following a co-owner’s death or separation in a second tranche of legislation, but this has not yet been passed.
Should I get advice before selling a property to fund aged care?
Yes. Aged care means assessments, Age Pension entitlements and capital gains tax now interact in more complex ways, and the timing of a sale can materially change the funds available for accommodation costs. Professional advice is strongly recommended before making a decision.
Getting the right advice before you decide
Every family’s situation is different, and the right funding strategy depends on the assets involved, the means assessment outcome, and what matters most to the people involved, whether that is preserving the family home, supporting a partner who remains at home, or protecting an inheritance. Our aged care financial planning process is designed to walk you through exactly this. If aged care is a decision your family is facing now or in the near future, our team can help you work through the numbers and the timing well before you need to commit to anything.
Contact our Financial Advisers at Paris Financial today to learn more about planning your aged care funding strategy.
Source:
My Aged Care: https://www.myagedcare.gov.au/understanding-aged-care-home-accommodation-costs, https://www.myagedcare.gov.au/aged-care-home-costs-and-fees, https://www.myagedcare.gov.au/how-do-aged-care-costs-work
Australian Government – Department of Health, Disability and Ageing: https://www.health.gov.au/our-work/residential-aged-care/charging/basic-daily-fee, https://www.health.gov.au/our-work/residential-aged-care/charging/accommodation-payments-contributions
Australian Taxation Office: https://www.ato.gov.au/about-ato/new-legislation/in-detail/individuals/tax-reform-boosting-home-ownership-reforming-negative-gearing-and-capital-gains-tax
Federal Register of Legislation: https://www.legislation.gov.au/C2026A00049/asmade
Budget 2026-27: https://budget.gov.au/content/04-tax-reform.htm
Paris Financial Services Pty Ltd is a Corporate Authorised Representative (No. 357928) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL No. 223135
General Advice Disclaimer:
The information in this article is general information only and is not intended to be a recommendation. We strongly recommend you seek advice from your financial adviser as to whether this information is appropriate to your needs, financial situation and investment objectives. Whilst every care has been taken in the preparation of this article, Paris Financial Services Pty Ltd, its directors, authors, consultants, editors and any persons involved in the construction of this article, expressly disclaim all and any form of liability to any person in respect of this article and any consequences arising from its use by any person in reliance upon the whole or any part of this article.
