Most Aussies are always open to a good investment, or an opportunity to make their income work harder.
However, finding the additional funds to invest has become more of a challenge in recent times, with household budgets stretched due to cost-of-living increases.
The good news is that the best investment opportunity most Australians have is the property they already live in.
The family home is often overlooked as a wealth creation engine, but that’s exactly what it is – and has been for several decades.
Apart from rising property prices – the average property in Australia has risen over 400% since 1995 according to most data sources – one of the main reasons that the family home is such a great investment for Australians is the significant tax benefits it affords compared to other investment options.
But what are these benefits, and how do they affect the average Australian?
Capital Gains Tax exemptions
Taking advantage of Capital Gains Tax exemptions is arguably the most significant financial advantage of owning a family home in Australia.
When purchasing a home to live in, the property is classed as your “Principle Place of Residence” (PPR), as long as it is the primary dwelling for you and your family.
Under current Australian tax legislation, your Principle Place of Residence is exempt from Capital Gains Tax (CGT), which can have significant benefits when you choose to sell.
For example, if you buy a house for $750,000 and sell it 20 years later for $1.5 million, the $750,000 you just made in profit is tax-free.
This exemption primarily applies to a single property that you and your family have lived in for the entire period of ownership.
Here are some examples of Melbourne’s top performers over the past 20 years:
| Suburb | Median house | Median house | 20 year change |
| value 2025 | value 2005 | median value | |
| Brighton | $3,180,000 | $1,025,000 | $2,155,000 |
| Malvern | $2,970,000 | $920,000 | $2,050,000 |
| Elsternwick | $2,080,000 | $695,000 | $1,385,000 |
| Kew East | $2,150,000 | $630,000 | $1,520,000 |
| Balwyn | $2,810,000 | $690,000 | $2,120,000 |
| Hawthorn | $2,870,000 | $739,000 | $2,131,000 |
| Surrey Hills | $2,330,000 | $670,000 | $1,660,000 |
| Camberwell | $2,630,000 | $715,000 | $1,915,000 |
| Glen Iris | $2,450,000 | $690,000 | $1,760,000 |
However, there is another ruling that makes this tax exemption even more beneficial..
The ‘six year rule’ allows you to move out of your primary residence but continue to treat it as your main home for up to six years for CGT purposes, provided you use it to produce income.
This rule gives you the option of renting out your home for a period and potentially collect a passive income (the rent) while its value continues to appreciate.
You can even move back in and then move out again – which restarts the six-year clock – all without incurring CGT on the eventual sale (as long as you don’t exceed the total 6-year period of absence).
As you can see from the above, viewing the family home as an investment vehicle has significant tax benefits. And it’s not just on Capital Gains tax either…
Inheritance Tax Benefits
Unlike many other developed nations (UK, USA & Germany to name a few), Australia does not have a federal or state-level inheritance or estate tax.
This means that assets passed down to beneficiaries upon a person’s death are not subject to a specific tax on their value.
When it comes to the family home, this is a big deal for Australian property owners.
Passing on your property assets to your children or other family members when you are no longer around is something most homeowners would plan to do.
And the beauty of owning your own family home is that this asset can be passed down to your loved ones without having to worry too much about the ATO taking a major chunk of the asset’s value.
It’s worth noting at this point that while this type of wealth is completely tax-free, any income generated by an inherited asset (like rental income) is taxable.
However, the absence of a direct tax on the transfer of the asset itself makes the family home an excellent vehicle for intergenerational wealth transfer,
This tax break also gives an extra incentive to keeping your property within the family, which has sentimental value for some.
Location, Location, Location
All that tax effectiveness around creating wealth via your family home is great, but it’s based on the premise that your property actually gains value during your period of ownership.
And despite all the strategies for property success that have been created over the years, the old adage is still true in most cases – it’s about location, location, location.
Put simply, where you live matters.
Access to quality schools, length of commute times and the desirability of neighbourhood you buy into will have huge impact on quality of life.
Most people are willing to pay a premium for this, not just now but likely in the future too, so getting the right location for your principal place of residence will have financial benefits as well as creating peace of mind.
If you want to maximise the potential for capital appreciation on your family home – and the tax benefits that come with it – choosing a property within close proximity to shops, public transport links and good education options is still the best way to do this.
As we have hopefully demonstrated above, the Australian family home can be a great wealth creation asset and can have significant advantages over other types of investment.
For example, directing more of your disposable income into your home – by upgrading your existing property or paying off your mortgage quicker for example – could be more beneficial than an investment property in the long run.
Investment properties are very effective tax vehicles in themselves, but often involve buying and selling more frequently.
This can be an expensive process given agency fees, stamp duty and advertising costs, so buying a place to actually live in and then staying there can be more beneficial (depending on your circumstances.
Yes, you may have to take on a large debt to buy it, but the family home will likely become your biggest asset over time.
So before looking elsewhere for investment opportunities, consider what you already have or whether upgrading the family home might be a better long-term option.
Your kids may even thank you for it one day!
Loanscope has helped hundreds of Australian families get on the property ladder or upgrade their family home. Contact us to arrange an obligation-free discussion on how we can guide you.
