For property investors, whether a dwelling counts as a "new build" now decides whether rental losses can still be offset against wages after 1 July 2027. Draft rules released by Treasury in August would treat a property as new if it genuinely adds to housing supply and is bought within 24 months of a certificate of occupancy. That is double the 12-month builder window flagged in the Budget, but it is not yet law.

Why the label matters so much

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026, limits negative gearing for residential property from 1 July 2027.

For established dwellings bought after 7:30pm AEST on 12 May 2026, net rental losses will be quarantined against residential property income and gains. New builds are exempt, so investors in them can keep deducting losses against other income.

The stakes are highest for investors who expect early losses, such as those with large loans relative to rent. For them, the difference between offsetting losses against a salary each year and carrying them forward can be significant for cash flow.

The label also matters for capital gains tax. When the 50% CGT discount is replaced by cost-base indexation and a 30% minimum tax from 1 July 2027, investors in new builds will be able to choose between the old discount and the new method. Depending on inflation and how much a property grows, that choice may allow an investor to use whichever method produces the lower taxable gain.

From a ministerial instrument to the Act itself

The enacted law does not define a "new residential dwelling". Under section 26-160 of the Act, the Minister sets the requirements by legislative instrument, and must be satisfied they help achieve "genuinely adding to the supply of residential dwellings".

Treasury's tranche 2 exposure draft, the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026, would change that.

Consultation opened on 3 August and closed on 21 August 2026.

Putting the test in the Act itself would give investors and lenders a fixed reference point, rather than a definition that could be varied by a ministerial instrument. It would also mean any later change requires Parliament's approval.

Separately, the enacted Act already allows the Minister to exempt certain social and affordable housing by determination. The draft goes further, listing proposed exemptions for build-to-rent, NDIS, public, social and some affordable housing.

How the 24-month window would work

Treasurer Jim Chalmers' release of 4 August said a property would generally be "new" if it genuinely adds to supply, "provided the property was acquired within 24 months of a certificate of occupancy".

The Budget explainer had set a tighter test. It said a new build "cannot have been previously sold, unless first owned by the builder and not occupied for more than 12 months". The draft window is longer, giving buyers of recently completed stock more time.

The document that starts the clock is issued under state and territory building laws, and its name varies between jurisdictions.

Here is a simplified, hypothetical illustration based on the draft. An apartment block receives its certificate of occupancy on 1 March 2027, so the 24-month window would end on 1 March 2029.

An investor who acquires an apartment on 15 February 2029 would be inside the window. One who acquires on 15 April 2029 would be outside it, and the property would likely be treated as established under the draft, with losses quarantined.

How the final law will treat dwellings that have already changed hands, or been occupied, within the window is a detail to check once the bill is introduced.

What adds to supply, and what does not

The Budget explainer described eligible dwellings as those "constructed on vacant land" or "where existing properties are demolished and replaced with a greater number of dwellings".

It also drew a firm line: "Knock-down rebuilds or substantial renovations that do not increase supply will not be eligible."

That rules out a common renovation strategy. An investor who buys an older house and spends heavily on upgrading it would not create a new build, however extensive the works, unless the result is more dwellings on the site.

The Explanatory Memorandum to the No. 1 Act gives a simple illustration, as summarised by PwC. Knocking down one house and replacing it with one house fails. Replacing one house with two separately titled duplexes passes.

New-build status can also travel. Under the Tax Reform No. 2 Act, assented on 26 August 2026, a new dwelling keeps that status when it passes to a surviving spouse or co-owner, or between former partners after a relationship breakdown, from 2027–28.

What to watch next

The Tax Reform No. 3 Bill had not been introduced to Parliament as of late September. The National Tax and Accountants' Association has said a further tranche is expected before the end of 2026.

Until a bill passes, the legal framework remains the ministerial instrument power in the No. 1 Act, and the 24-month window, the treatment of conversions and the build-to-rent, NDIS and social housing exemptions all remain draft.

The practical deadline is 1 July 2027, when quarantining begins. Buyers weighing off-the-plan or recently completed dwellings may want to confirm a property's likely status with a registered tax agent or adviser, as outcomes depend on individual circumstances and the final wording of the law.