Australia's new negative gearing limits are already law, but draft legislation released by Treasury in August would carve several types of housing out of them: some affordable and social housing, NDIS housing, public housing and build-to-rent developments. With the loss quarantine rules due to start on 1 July 2027 and the next bill yet to reach Parliament, investors, developers and housing providers are watching closely to see how wide those exemptions end up.

The carve-outs are not yet law. But they signal where the government wants investment dollars to keep flowing, and they could shape which projects stack up financially over the next few years.

The rule these projects are being carved out of

The core change sits in the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026.

From 1 July 2027, net rental losses on residential dwellings acquired after 7:30pm AEST on 12 May 2026 (Budget night) will be quarantined. Those losses can only be deducted against residential property income and residential capital gains. Unused amounts carry forward, but they can no longer reduce wages or other income.

Properties held on Budget night keep the existing treatment indefinitely. Genuinely new builds are also exempt. Established dwellings bought between Budget night and 30 June 2027 can be negatively geared during that interim window, but not from 1 July 2027. According to the Budget explainer, around 1 per cent of taxfilers, about 230,000 people in 2022–23, acquire negatively geared properties each year.

What the draft exemptions cover

The exemptions sit in the second tranche of legislation, released as the draft Treasury Laws Amendment (Tax Reform No. 3) Bill 2026. Treasury's consultation opened on 3 August 2026 and closed on 21 August 2026.

Treasury's consultation page describes the government as "exempting some affordable and social housing, NDIS housing, public housing and build-to-rent developments from the negative gearing changes". One of the four sets of draft documents is titled "New residential dwelling and negative gearing activity exemptions".

The word "some" matters. The draft does not suggest that every property with an affordable or social housing link is automatically exempt. Eligibility conditions will determine which arrangements qualify, and those details could still change before a bill is introduced.

Why these housing types fit the government's logic

The government has framed the whole reform around housing that genuinely adds to supply. The enacted Act lets the Minister set the requirements for a "new residential dwelling" by legislative instrument, and the Minister must be satisfied the rules help achieve "genuinely adding to the supply of residential dwellings".

Build-to-rent developments are large, purpose-built rental projects, so they sit naturally within a supply-focused policy. Social, public and NDIS housing serve tenants who can struggle to find suitable homes in the private market, and applying the quarantine to them could discourage investment in exactly the housing governments are trying to expand.

The groundwork is already in the law. The Act gives the Minister a power to exempt certain social and affordable housing from the quarantine by determination. The draft sets out a broader list of exempt activities, including build-to-rent and NDIS housing.

Treasurer Jim Chalmers has described the overall package as levelling "the playing field for first home buyers, while preserving the gains for investors", according to Smart Property Investment's report of his 4 August release.

Who already sits outside the limits

Some owners do not need a new exemption at all. Under the enacted Act, widely held unit trusts and complying superannuation funds, including self-managed super funds, fall outside the quarantine rule.

That matters for build-to-rent, because institutional projects can be held through widely held structures. The proposed activity exemption is likely to be most relevant to owners who do not fit those categories, although the final design will decide who benefits.

SMSF trustees should note a separate change. Since 10 August 2026, SMSFs can no longer enter new limited recourse borrowing arrangements to buy residential property, although existing arrangements are grandfathered.

On the capital gains side, the 60 per cent CGT discount for qualifying affordable housing is fully retained under the Act, even as the general 50 per cent discount is replaced by indexation and a 30 per cent minimum tax from 1 July 2027.

A worked example: what an exemption could be worth

The following is a hypothetical illustration only, and assumes the final rules would treat the property as exempt.

Sam, an individual investor on a $120,000 salary, buys an established dwelling in October 2026 and leases it. In 2027–28 the property makes a net rental loss of $12,000, and Sam has no other residential property income or gains.

Under the quarantine, that $12,000 cannot reduce Sam's salary. It carries forward to be used against future residential rental income or residential capital gains.

If the dwelling instead qualified under a final exemption, the loss could reduce Sam's taxable income to $108,000. At a 30 per cent marginal rate plus the 2 per cent Medicare levy, that is a tax saving of around $3,840 in that year, ignoring other offsets and levies.

The quarantined loss is not lost forever, so the difference is partly about timing. For a highly geared project with years of losses, that timing can still be significant.

What to watch before July 2027

The next milestone is the Tax Reform No. 3 Bill's introduction to Parliament, which will show whether the exemption list and the conditions attached to it have changed since consultation.

Investors should also watch how the exemptions interact with the draft new-build test, which would treat a property as new if acquired within 24 months of a certificate of occupancy.

The quarantine starts on 1 July 2027. Given how much depends on draft detail, a registered tax agent or adviser may help investors assess their own circumstances.