Treasury draft gives new homes 24 months to keep negative gearing

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A home will count as new for negative gearing purposes if an investor buys it within 24 months of its certificate of occupancy, under draft legislation the Treasurer, Jim Chalmers, released for consultation on 4 August 2026. The Budget in May had proposed 12 months. The Treasurer's media release says the longer period is meant to accommodate the stock builders and developers still have to sell.

The exposure draft is the second tranche of the changes to negative gearing and capital gains tax announced in the 2026-27 Budget, and it supplies the definition investors in Queensland have been waiting for: which dwellings will still let a rental loss be deducted against wages and other income once the new rules start on 1 July 2027. Submissions close on 21 August.

Treasurer's media release of 4 August 2026 and the Treasury consultation page for the Tranche 2 legislation. The 24-month figure is a draft and can change before a bill is introduced.

What the draft legislation says

The document is an exposure draft of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, published with explanatory material on the Treasury consultation hub. According to the Treasurer's release, a property will generally be treated as new where it genuinely adds to housing supply and was acquired within 24 months of receiving a certificate of occupancy.

Two tests therefore sit inside the one definition. The first is about the dwelling: it has to be an addition to the housing stock, not an existing home changing hands. The second is about timing: the buyer has to acquire it within two years of the point at which it was certified fit to occupy. The clock runs from certification, not from the date the developer first offers the dwelling for sale or the date a contract is signed.

The Treasury consultation page lists the other questions the tranche covers. They include how the rules apply when a property passes to someone on death or after a relationship breaks down, exemptions for affordable housing, housing under the National Disability Insurance Scheme, public housing and build-to-rent developments, what happens when an owner turns their main residence into a rental, and how a capital gain is calculated on an asset held across 1 July 2027.

Where this sits in the Budget changes

The Budget of 12 May 2026 set out three linked changes, all due to start on 1 July 2027. As summarised on the Treasury consultation page, negative gearing will be restricted to newly constructed residential properties, the cost base of an asset will again be indexed for inflation when a capital gain is worked out, and a minimum tax of 30 per cent will apply to real capital gains.

The first piece of legislation, the Treasury Laws Amendment (Tax Reform No. 1) Bill 2026, was introduced to Parliament on 28 May. An analysis published that day by the law firm Corrs Chambers Westgarth explains its core mechanism. Losses on a residential dwelling acquired after 12 May 2026 are quarantined: they cannot be set against salary or other non-residential income, and are instead carried forward to be used against later residential rental income or capital gains. Dwellings held on Budget day keep their existing treatment.

That first bill left several definitions to be filled in afterwards, and Corrs listed the meaning of a new residential dwelling at the top of the unresolved items. The draft released this week is the Government's answer. The same analysis recorded Treasury's estimate that the additional compliance burden of the package would cost taxpayers $88.4 million a year over at least 10 years, a reminder that much of the detail still to come concerns record-keeping and valuations.

Why the window was doubled

The reason given by the Treasurer is practical. A developer rarely sells every apartment in a building, or every house in a stage of an estate, before construction ends. Some dwellings are finished, certified and still on the market months later. Under a 12-month rule, an investor buying one of those dwellings in the thirteenth month would have been buying a home that had never been lived in and yet did not count as new.

Doubling the period to 24 months reduces that risk for the builder as well as for the buyer. A dwelling that loses its new status loses part of its market, because investors are the buyers who value the deduction. The real estate trade publication Real Estate Business, reporting the release on 6 August, described the change as giving builders and developers an extended timeframe to sell stock.

The Treasurer framed the package in the release as an effort to "level the playing field for first home buyers" while supporting new supply. The two aims meet in this definition. A narrow definition would push more investors out of the market altogether; a wide one would let established homes through. Twenty-four months from certification is the line the draft proposes between them.

What it means for Queensland investors

For an investor in Queensland the definition matters most at the point of choosing between an established home and a new one. Since Budget night, the working assumption has been that a new dwelling keeps the deduction and an established one does not. The draft confirms the principle and widens the group of new dwellings to include completed stock up to two years old.

That is relevant in a state where a large volume of housing is under construction and will be finished over the next two years. An apartment certified in late 2026 could, on the draft's terms, still be bought as a new dwelling well into 2028. A house and land purchase follows the same logic, with the date of certification as the starting point.

Three practical consequences follow, none of which is advice for any particular buyer. The date of the certificate of occupancy becomes a fact worth establishing before a contract is signed, in the same way as the date of a building approval. A dwelling close to the end of its window carries a risk that a delayed settlement pushes the acquisition past the limit, and the draft's treatment of when a dwelling is acquired will need to be read closely once tax advisers have worked through it. And the test is applied to the dwelling, not the buyer: a second investor who later buys the same home from the first is buying an established dwelling.

Owners who already hold rental property are not affected by this definition. Their position was set by the first bill and its 12 May cut-off.

The capital gains measures in the same package

The tranche also deals with capital gains tax, and one measure will reach most long-term investors. For an asset held on both sides of 1 July 2027, the gain has to be divided between the period before that date, taxed under the current discount, and the period after it, taxed under indexation and the minimum tax.

According to the trade publication Accountants Daily, which reported the draft on 6 August, taxpayers will be able to choose between obtaining a formal valuation at the changeover date and using an apportionment method that assumes the asset's value grew evenly over the time it was held. The publication noted that the even-growth method may disadvantage an owner whose property rose strongly before 30 June 2027, since some of that earlier growth would be attributed to the later period.

For a Queensland owner who bought several years ago and has seen most of the gain already, the choice between a valuation and the formula is likely to be one of the more consequential decisions the package creates. It is also one that depends entirely on the individual property, and the draft's rules on what kind of valuation will be accepted are part of what is open for comment.

The Treasurer's release lists further items: negative gearing eligibility is preserved for a property acquired from a spouse through inheritance or separation, gains distributed through testamentary trusts, deceased estates and special disability trusts are exempt from the minimum tax, and the rules are adjusted for people who are Australian residents for only part of a year.

How the tax profession has reacted

The first responses from professional bodies concerned process more than content. Accountants Daily quoted John Storey of The Tax Institute as saying of the staged legislation: "This process is not how good tax policy should be implemented." The publication also reported concern from Jenny Wong of CPA Australia about the short consultation period, particularly on the question of which valuations the Australian Taxation Office will accept.

The underlying point is that the package is arriving in pieces. The main rules were legislated first, the definitions are being consulted on now, and further technical material is still to come. Advisers are being asked to comment on one layer before the next is visible, while their clients are making purchase decisions under rules that are announced but incomplete.

What happens next

Submissions on the exposure draft close on 21 August 2026. After that, Treasury will consider the responses and the Government will decide whether to change the draft before a bill goes to Parliament. Until a bill is introduced and passed, the 24-month window is a proposal.

The date that does not move is 1 July 2027, when the limits on negative gearing and the new capital gains rules begin. Between now and then, investors, lenders and developers in Queensland will be working from a definition that is clearer than it was a week ago and still open to revision.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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