The second tranche of negative gearing and capital gains tax legislation is out for consultation. One change in it speaks directly to builders and developers holding completed homes that have not sold.
Treasury has doubled the period in which a finished home counts as new for negative gearing purposes. The window was 12 months. It is now proposed at 24. And Treasury has said plainly why it moved: to give builders and developers time to sell stock on hand.
That line sits inside a technical tax consultation most builders will never open. It is the part worth reading.
What Treasury Released
On 4 August, Treasury published exposure drafts of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 and supporting materials. The numbering can mislead. This is the second tranche of the negative gearing and capital gains tax reforms announced on budget night in May, but it is the third Bill in the tax reform series. The No. 2 Bill, introduced in late June, deals with loss carry back and the instant asset write off and has nothing to do with property.
The core legislation passed Parliament in June and is now law. From 1 July 2027, negative gearing is limited to new residential properties, cost base indexation returns for capital gains tax, and a 30 per cent minimum tax applies to real capital gains.
What that first Bill did not do was define a new residential dwelling. The concession that keeps negative gearing alive for new construction has been sitting in law without a locked definition of what actually qualifies. This draft supplies one.
That definition is the largest single demand lever in the package for residential construction, because two separate concessions hang off it. From 1 July 2027, the new build label is the difference between an investment property whose rental losses can be offset against wages and one whose losses can only be offset against other residential property income. It also determines whether an owner can keep the 50 per cent capital gains tax discount rather than move across to the indexation model.
Consultation closes on 21 August 2026.
The 24 Month Clock
Under the draft, a property will generally be treated as new where it genuinely adds to housing supply and the investor acquires it within 24 months of a certificate of occupancy being issued.
The Budget set that period at 12 months. Treasury extended it, and named stock on hand as the reason.
Read carefully, the number is not the only thing that moved. The parameters released on budget night framed the test around occupation. A newly built property qualified where it had been occupied for less than 12 months before its first sale. Treasury now describes the test as acquisition within 24 months of a certificate of occupancy being issued.
That is a different shape of rule. An occupation test does not run against a home nobody has moved into. A clock starting at occupancy certification does. Which would explain why Treasury named unsold stock as the reason for doubling the period.
If that reading holds once the drafted provisions are examined, the practical effect is that completed and unsold stock now carries an expiry date on its tax treatment. Twenty four months to run, rather than 12.
For apartment and volume residential developers, that changes what the clock is measuring. Occupancy certification is a construction milestone. Sale is a market event. The gap between the two is not fully within a builder’s control, particularly on multi unit projects where certification covers a building or a stage of it rather than each individual sale. In a slow market that gap can run well past a year.
Twenty four months does not remove the cliff. It moves it.
The other detail worth noting is where the clock starts. On Treasury’s description it runs from the certificate of occupancy. Not practical completion, not contract date, not settlement. That places eligibility inside project programming rather than sales.
What Counts as Adding to Housing Supply
The full definition sits in the draft materials. The broad parameters have been public since budget night and were confirmed by the government in June, when it said the definition would be settled in a later tranche of legislation.
Those parameters treat a property as new where it increases the number of dwellings. Newly constructed apartments bought off the plan qualify. So do duplexes or similar developments that replace a single dwelling with more than one. So does residential construction on previously vacant land.
The exclusions were set out at the same time, and for some builders they matter more than the inclusions. A knock down rebuild that does not increase the dwelling count does not qualify. Neither does a granny flat added to an established property. For anyone whose work sits mainly on existing residential footprints, the question is whether the drafted definition carries those exclusions through unchanged or moves the line.
The Rest of the Draft
The materials also set out housing types proposed to sit outside the negative gearing limits entirely. Treasury lists some affordable and social housing, NDIS housing, public housing and build to rent developments.
For anyone delivering into those segments, that is a signal worth noting. It suggests the settings are not only steering investors toward new stock generally, but preserving existing treatment for the housing types the government most wants built.
The draft also proposes preserving existing negative gearing eligibility, or new build treatment, where a residential dwelling is acquired from a spouse through inheritance or relationship breakdown. That is a client issue more than a builder issue. It removes a scenario in which a grandfathered property lost its status because an owner died or a relationship ended.
Beyond housing, the draft covers attribution managed investment trusts, testamentary trusts, deceased estates and special disability trusts, and the position of taxpayers who are Australian residents for only part of the time they hold an asset. A separate draft legislative instrument sets out how capital gains and losses are apportioned for real property and for assets without a readily ascertainable market value.
What Is Still Open
A fair amount.
Treasury has confirmed the final definition and the exemptions only move into primary legislation after this consultation closes. Further tranches are still to come, covering interactions with capital gains tax rollovers, the treatment of foreign, mixed and temporary residents, and rules for cases such as tax consolidated groups.
Susan Franks, tax lead at Chartered Accountants Australia and New Zealand, told Accountants Daily the draft brings clarity in several areas including negative gearing for new builds, while drawing a distinction between clarity and certainty. She argued more work is needed to understand the full impact of the reforms.
That is a fair reading of where things sit. The direction of the policy has been settled since May. The mechanics are still being assembled, in public, less than a year out from commencement.
Where This Leaves Builders
Two things are worth taking from it.
The first is that the eligibility window came in more generous than the Budget indicated, and the stated reason was unsold stock. A government drafting tax law does not often name a construction sector problem as its rationale. Whatever else is contested about this reform, that particular adjustment came from the industry side of the argument.
The second is that eligibility is now partly a programming question. If the clock starts at occupancy certification, the gap between certification and sale becomes a tax variable, not just a holding cost. On staged projects and apartment buildings with slow absorption at the tail end, that gap is better understood early than discovered late.
The demand side effect still runs in one direction. Tax settings that favour new construction over established stock tilt investor capital toward builders. How much of that shows up as actual starts depends on rates, capacity, land supply and approvals timelines, none of which this draft touches.
And none of it is final until the primary legislation lands.
The short version
New build eligibility window: proposed 24 months from certificate of occupancy, up from 12 months at Budget.
Stated reason for the extension: giving builders and developers time to sell stock on hand.
Proposed exemptions from the negative gearing limits: some affordable and social housing, NDIS housing, public housing, build to rent.
Status: exposure draft only. Consultation closes 21 August 2026. Submissions are made through the Treasury consultation hub.
Frequently asked questions
Negative gearing will be limited to new residential properties. Losses on established residential properties acquired after budget night in May 2026 can only be offset against other residential property income, not against wages or other income. Properties held before that date are grandfathered. The change is law, having passed Parliament in June 2026.
Treasury proposes that a property is generally treated as new where it genuinely adds to housing supply and is acquired within 24 months of a certificate of occupancy being issued. The parameters announced at Budget used a 12 month period framed around occupation before first sale. Treasury says the extension is to give builders and developers time to sell stock on hand.
On Treasury’s description of the draft, from the issue of the certificate of occupancy. Not from practical completion, contract date or settlement. Where certification covers a building or a stage of it rather than each individual dwelling, that timing applies across the stock certified at the same point.
Treasury’s consultation materials list some affordable and social housing, NDIS housing, public housing and build to rent developments as proposed exemptions. The final exemptions will only be settled in primary legislation after this consultation.
It is not law. This is an exposure draft of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, released for consultation on 4 August 2026. Consultation closes on 21 August 2026, and submissions are lodged through the Treasury consultation hub. The core reforms it builds on did pass Parliament in June 2026.
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General information disclaimer: This article is general information for construction industry professionals. It is not financial, tax or legal advice. The measures described are contained in an exposure draft released for public consultation and are not law. Individual circumstances vary. Readers should seek qualified professional guidance relevant to their own situation before acting on anything described here.
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