Australia’s negative gearing reforms have taken another significant step forward, with the Federal Government releasing draft legislation explaining how the new rules may apply to newly built homes, established properties, inherited property and certain ownership structures.
One of the most important proposed details is the definition of a “new residential dwelling”. Under the current exposure draft, a property will generally need to genuinely add to Australia’s housing supply and be acquired within 24 months after its occupancy certificate is issued.
This proposed 24-month period is longer than the 12-month period announced in the 2026–27 Federal Budget. It is intended to give builders and developers more time to sell completed stock while allowing eligible investors to retain access to negative gearing.
The definition remains subject to consultation and has not yet been finalised. Nevertheless, property investors considering a purchase should understand how the reforms may affect their transaction before signing a contract.
What Is Changing to Negative Gearing in Australia?
From 1 July 2027, negative gearing for residential property will generally be limited to eligible new residential properties.
Negative gearing occurs when the deductible expenses associated with an investment property, such as interest and certain property expenses, exceed the income generated by the property. Under the existing system, an eligible rental loss may generally be offset against other assessable income, including employment income.
Under the new arrangements, investors who acquire an established residential property after the relevant grandfathering date may no longer be able to offset the property’s net rental loss against non-residential income such as wages.
Those losses may instead be:
- offset against income from residential property;
- applied against certain residential capital gains; or
- carried forward for use in a future income year, subject to the legislation and the investor’s individual circumstances.
Eligible new residential properties will continue to receive more favourable negative gearing treatment.
Are Existing Investment Properties Grandfathered?
Properties held before 7:30 pm AEST on 12 May 2026 are generally intended to be protected by transitional or “grandfathering” arrangements.
This means the negative gearing changes will not generally remove the existing treatment of an eligible property merely because it continues to be held after 1 July 2027.
However, investors should not assume that every later transfer will preserve grandfathered status. Changes in ownership resulting from a sale, inheritance, relationship breakdown or restructuring may need to be considered under the detailed rules.
The latest draft legislation proposes to preserve the existing treatment in certain circumstances, including some transfers between spouses arising from an inheritance or relationship breakdown.
What Will Qualify as a New Residential Dwelling?
The exposure draft proposes that a property will generally be treated as new where it genuinely adds to Australia’s housing supply and is acquired within 24 months after the relevant occupancy certificate is issued.
Whether a property qualifies may therefore depend on more than its marketing description.
A property advertised as “new”, “never occupied” or “recently completed” will not necessarily satisfy the final legislative test. Buyers may need to confirm:
- when the occupancy certificate was issued;
- whether the property has previously been sold;
- whether it has previously been occupied or rented;
- whether it was created through a substantial renovation or redevelopment;
- whether it genuinely adds to the housing supply; and
- whether the acquisition occurs within the required period.
The precise definition and supporting exemptions are still being considered. The Government has indicated that the final rules will be included in primary legislation following consultation.
Why Was the Proposed Period Extended to 24 Months?
The 2026–27 Federal Budget initially referred to a 12-month period for eligible new residential properties.
The latest exposure draft proposes extending this to 24 months after an occupancy certificate is issued. According to the Government, this would give developers and builders additional time to sell completed housing stock.
The extension may be particularly relevant to buyers considering:
- newly completed apartments;
- developer-held stock;
- off-the-plan purchases approaching settlement;
- completed properties that have remained unsold; and
- house-and-land developments.
However, the proposed extension does not mean every property less than two years old will automatically qualify. The property must still satisfy the final definition and other applicable requirements.
What Do the Capital Gains Tax Reforms Mean for Investors?
The reforms also change the taxation of capital gains from 1 July 2027.
The Government plans to replace the existing 50% capital gains tax discount with an inflation-based cost-base adjustment and introduce a minimum 30% tax on real capital gains.
The new treatment is intended to apply only to gains accruing from 1 July 2027 when those gains are eventually realised. Draft rules have therefore been released to explain how gains and losses may be apportioned between the periods before and after that date.
The second stage of draft legislation also considers:
- Attribution Managed Investment Trusts;
- testamentary trusts and deceased estates;
- special disability trusts;
- taxpayers who are Australian residents for only part of their ownership period;
- deferred capital gains; and
- assets for which a market value is not readily ascertainable.
The application of these rules can depend heavily on the taxpayer, ownership structure and history of the asset. Buyers and property owners should obtain advice from a qualified accountant or registered tax adviser.
Are Any Types of Housing Exempt?
The exposure draft includes proposed exemptions for certain forms of housing investment that contribute to housing supply or serve a broader community purpose.
These may include qualifying:
- affordable and social housing;
- public housing;
- specialist disability or NDIS housing; and
- build-to-rent developments.
The availability of an exemption will depend on the final legislation and whether the investment satisfies the relevant eligibility requirements.
What Should Property Buyers Check Before Signing?
The tax treatment of a property can materially affect an investor’s expected cash flow and long-term return. Buyers should avoid relying solely on statements made in advertisements or by selling agents about whether a property is a “new build” or is eligible for negative gearing.
Before signing a contract, an investor should consider obtaining:
- Legal advice on the contractA property lawyer can review the contract, disclosure documents, title, settlement provisions and any conditions relevant to the transaction.
- Evidence of the property’s completion dateThe occupancy certificate and other completion documents may become important when determining whether the property falls within the proposed 24-month period.
- Confirmation of the property’s historyPrevious ownership, occupation, leasing or development history may affect whether the property meets the final new residential dwelling definition.
- Independent tax adviceA registered tax adviser or accountant can assess how the negative gearing and capital gains tax rules may apply to the buyer’s income, residency, ownership structure and investment strategy.
- Appropriate contractual protectionDepending on the transaction, a buyer may wish to discuss whether additional enquiries or properly drafted contract conditions are appropriate. Any condition should be prepared before the contract becomes binding.
The Draft Rules Are Not Yet Final
The core negative gearing and capital gains tax reforms have progressed through Parliament, but several detailed aspects of their operation are still being developed.
The current 24-month new dwelling test forms part of an exposure draft released for consultation. Consultation closes on 21 August 2026, and the final definition or available exemptions may change before the legislation is enacted.
Property buyers should therefore distinguish between:
- reforms that have already been legislated;
- proposed rules contained in the exposure draft; and
- individual tax outcomes that require professional advice.
How Ensure Legal Can Assist
Ensure Legal assists buyers and investors with residential and commercial property transactions in Queensland.
We can review your proposed contract, explain your legal obligations, identify relevant transaction risks and help ensure that appropriate enquiries are made before you become legally bound.
Tax eligibility and investment structuring require separate advice from a qualified accountant or registered tax adviser. Where a purchase may be affected by the negative gearing or capital gains tax reforms, coordinated legal and tax advice should be obtained as early as possible.
To discuss a Queensland property purchase or arrange a contract review, contact Ensure Legal before signing.
Frequently Asked Questions
When will Australia’s negative gearing changes begin?
The new negative gearing arrangements are scheduled to apply from 1 July 2027. Transitional protection generally applies to properties held before 7:30 pm AEST on 12 May 2026.
Will negative gearing be completely abolished?
No. Eligible new residential properties can continue to receive negative gearing treatment. Different rules will apply to established residential properties acquired after the grandfathering date.
How long can a completed property still qualify as new?
The exposure draft proposes a period of 24 months from the issue of the occupancy certificate. This is not yet the final statutory definition, and other eligibility requirements will also apply.
Does “never lived in” automatically mean a property is new?
Not necessarily. The final legal test may consider the property’s ownership, occupancy, leasing and development history, as well as whether it genuinely adds to housing supply.
Should the contract include a condition about negative gearing eligibility?
That will depend on the transaction and what the seller is willing to provide. Buyers should obtain legal and tax advice before signing rather than relying on an agent’s description of the property.
Can Ensure Legal advise whether I can claim a tax deduction?
Ensure Legal can advise on the legal aspects of the property transaction and contract. Advice about deductions, capital gains tax and the buyer’s individual tax position should be obtained from a qualified accountant or registered tax adviser.
This article provides general information only and does not constitute legal, financial or taxation advice. Legislation and eligibility requirements may change. You should obtain advice specific to your circumstances before entering into a property transaction.
Sources:
- Australian Treasury, “Capital Gains Tax and Negative Gearing – Tranche 2 Legislation”, consultation opened 3 August 2026.
- The Hon Dr Jim Chalmers MP, “Consultation on next tranche of tax reform legislation”, 4 August 2026.
- Australian Treasury, “Budget 2026–27 tax system changes”.
