The Federal Government's reforms to negative gearing and capital gains tax will significantly alter the taxation treatment of residential investment property from 1 July 2027. The core reforms have been enacted, and further implementation legislation was introduced into Parliament on 14 October 2026.
A key feature of the reforms is the distinction drawn between eligible new residential dwellings and established residential dwellings. The retained tax benefits for eligible new dwellings are intended to encourage investment that increases Australia's housing supply.
For investors, whether a property represents a sound investment must be considered alongside its eligibility for the relevant tax treatment and whether the acquisition has been appropriately structured from the outset.
The commencement date is not the only relevant date. The negative gearing reforms include grandfathering for properties held before 7.30 pm AEST on 12 May 2026, subject to the applicable rules. Acquiring an established property before 1 July 2027 does not, by itself, preserve the existing treatment. Contract and acquisition dates therefore require careful consideration.
Not Every Newly Constructed Property Will Qualify
The expression new build is commonly used by developers and selling agents but does not necessarily correspond with the legislative requirements.
Whether a property qualifies will depend upon the applicable legislation, the development history and the circumstances in which the particular purchaser acquires their interest. The further legislation introduced in October addresses the definition of a new residential dwelling.
Relevant matters to investigate include:
whether the development adds residential dwellings or converts non-residential premises;
the development, ownership and occupation history of the property;
the relevant occupancy approval and the timing of the purchaser’s acquisition;
whether the dwelling can be separately acquired; and
whether the purchaser’s particular ownership interest meets the applicable eligibility requirements.
Investors should not assume that a property marketed as “new” will necessarily attract the relevant tax benefits. Equally, previous occupation or a previous sale should not be treated as automatically disqualifying without considering the applicable provisions. Eligibility must be assessed for the particular purchaser and acquisition.
Negative Gearing and Capital Gains Tax
The reforms preserve access to negative gearing for eligible new residential dwellings. Broadly, eligible owners can continue to offset net rental losses against other income, subject to the rules applying to their ownership structure.
For affected established residential investments, the reforms generally quarantine net rental losses from 1 July 2027. Those losses may be applied against residential property income, including relevant capital gains, with unused amounts carried forward. This is a restriction on the use of losses rather than the removal of all rental property deductions.
The CGT changes operate separately. Broadly, the new arrangements apply to gains accruing from 1 July 2027, with inflation adjustment and a minimum 30% tax on real gains. Eligible new dwelling investors may be able to choose between the 50% CGT discount and the new arrangements, subject to the requirements applying to the taxpayer and the investment.
The 50% CGT discount is not available to every type of owner, and a new dwelling will not necessarily produce the best tax outcome in every case. Eligibility and the comparative outcomes should be considered assessed with the investor’s taxation adviser before a binding contract is signed.
Off-the-Plan Contracts Require Careful Review
Many eligible new developments are sold off the plan.
Unlike contracts for established property, off-the-plan contracts frequently permit the developer to make changes to the development before settlement, including amendments to lot boundaries, floor areas, common property, finishes and completion dates. The extent of those rights will depend upon the drafting of the particular contract and the applicable law.
Purchasers should ensure they understand:
the developer's variation rights;
sunset provisions;
settlement obligations;
default provisions; and
the circumstances in which the contract may be terminated.
These provisions can have a significant commercial impact if market conditions change during construction.
Where the anticipated tax treatment is material to the purchase, the review should also address the evidence supporting eligibility, including the development history, occupancy approvals and relevant dates. Purchasers should consider seeking appropriate information, warranties or conditions. A marketing statement or contractual description of the property as “new” does not determine its tax treatment.
Developer Due Diligence
Purchasers should undertake appropriate due diligence regarding both the development and the developer.
Matters commonly requiring consideration include:
planning and building approvals;
the developer's experience and financial standing;
the builder's track record;
statutory warranties;
owners corporation arrangements; and
any known building defects or rectification works.
The fact that a building is newly constructed should not be taken as an assurance that it is free from legal or construction risk.
Ownership Structure Should Be Considered Before Purchase
The reforms make it particularly important to consider the appropriate ownership structure. Whether property should be acquired personally, jointly or through another legal structure will continue to depend upon matters including asset protection, succession planning, financing arrangements and the investor's broader commercial objectives.
Investors considering a discretionary trust should also take account of the proposed minimum 30% tax on discretionary trust income from 1 July 2028, subject to exclusions and other arrangements. Eligibility for new dwelling treatment does not resolve the separate consequences of holding the property through a trust. A trust’s ability to deduct expenses also does not mean its rental losses can be offset against a beneficiary’s personal income.
Once a contract has been entered into, restructuring the acquisition may trigger additional duty, taxation or financing consequences.
Accordingly, the appropriate ownership structure should ordinarily be determined before a binding contract is signed. Nominations, transfers between related parties and later changes to ownership should be reviewed for their effect on duty, tax eligibility and financing.
Before Committing to a Purchase
The availability of tax benefits for eligible new residential dwellings should not displace careful legal due diligence or assessment of the investment’s commercial merits.
Before committing to purchase a new development, investors should have the proposed acquisition reviewed from both a legal and taxation perspective. Eligibility, supporting evidence, contract terms and ownership structure should be considered together. These matters may each have significant long-term consequences that cannot easily be rectified after the contract has been signed.
The further implementation provisions remain subject to the parliamentary process. Investors should obtain advice on the law applying when they transact and should not assume that future legislative or political developments will produce a particular outcome.
How KCT Legal Can Assist
KCT Legal advises investors on residential property acquisitions, off-the-plan developments, ownership structures and the legal issues arising from the 2027 taxation reforms.
Before you enter into a contract, we can review the transaction, identify legal risks and assist in selecting and implementing an appropriate ownership structure, in consultation with your taxation adviser.
This article is provided for general information only and does not constitute legal, taxation, financial or investment advice. Appropriate professional advice should be obtained having regard to your individual circumstances before acting or relying on any information contained in this article.