Australia's negative gearing rules are changing from 1 July 2027, with the tax treatment of residential property increasingly depending on whether an investment qualifies as a new residential dwelling.

For property investors, that makes the definition of “new” important.

It isn't necessarily enough for a property to be newly purchased, recently renovated or marketed as a new home. The tax rules have their own requirements for determining which properties qualify.

Further legislation introduced in October provides more detail on that definition. If you're considering buying or developing residential investment property, it is worth understanding the distinction before relying on a particular tax outcome. The October legislation remains before Parliament as at 30 October 2026.

Negative gearing is changing from 1 July 2027

From 1 July 2027, negative gearing for residential property will generally be limited to new builds.

Residential properties held before 7:30pm AEST on 12 May 2026 are exempt from the changes.

For established residential properties acquired after the announcement, losses will generally no longer be deductible against non-residential income such as salary and wages from 1 July 2027. Losses may instead be used against other residential property income, including capital gains, with excess losses carried forward.

Eligible new builds can continue to be negatively geared before and after 1 July 2027.

Modoras has previously covered the broader reform and its implications for property investors.

So, what is a 'new residential dwelling'?

This is where the more recent legislative detail matters.

The Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 includes amendments to the definition of a residential dwelling and introduces a definition of a new residential dwelling for CGT and negative gearing purposes. It also contains particular exemptions from the loss-quarantining rules for prescribed housing investments, retirement villages and residential care homes.

Earlier Treasury consultation material explained the policy approach in practical terms: a property would generally be considered new where it genuinely adds to housing supply and is acquired within 24 months of a certificate of occupancy being issued. Treasury said this extended the 12-month period originally announced in the Budget to provide additional time for builders and developers to sell stock.

The October Bill puts the further new-residential-dwelling framework into primary legislation, but it is important to distinguish that from the core negative-gearing reform: these October provisions are not yet law as at 30 October 2026.

Buying a newly built property?

For someone purchasing directly from a developer, it may seem straightforward to assume the property is a new build.

But the proposed rules make timing relevant.

Treasury's consultation material identifies acquisition within 24 months of a certificate of occupancy as part of the general approach to determining whether a dwelling is new.

That means investors should look beyond the purchase date or description in a sales brochure and establish the relevant facts about the particular property.

The eligibility requirements can affect whether residential property losses may continue to be offset against other income after the broader reforms commence.

What about an established property?

Buying an established residential property doesn't necessarily mean a tax loss simply disappears.

Under the broader negative-gearing reform, an investor who acquired an established property after the Budget announcement can still use eligible residential property losses against other residential property income, including capital gains. Excess losses can be carried forward to future years. What changes from 1 July 2027 is the ability to use those losses against non-residential income such as salary and wages.

This can be significant when assessing the cash-flow implications of an investment.

A property shouldn't be judged on its tax outcome alone, but if a purchase has been modelled on the assumption that annual losses will reduce tax on salary or other non-property income, that assumption deserves another look.

Renovating an existing property doesn't automatically answer the question

Another area where investors should be cautious is redevelopment.

The policy underlying the new-build exception is directed towards property that adds to housing supply.

Accordingly, investors considering substantial renovations, redevelopment or more complex property projects should not assume that spending extensively on an existing dwelling will, by itself, make the property a “new residential dwelling” for the purposes of the rules.

The circumstances of the property and the legislation applying to the transaction need to be considered.

Your Modoras accountant can help you assess the tax treatment relevant to a proposed property transaction.

Different rules can apply to particular types of housing

The October legislation doesn't deal only with conventional houses and apartments.

Schedule 5 of the No. 3 Bill also provides for exemptions from loss quarantining for prescribed housing investments and adds exemptions relating to retirement villages and residential care homes.

That reinforces why the distinction cannot always be reduced to “new property versus established property”.

The nature and use of the property, as well as the circumstances in which it is acquired, can affect the outcome.

Look beyond the tax deduction

Negative gearing can affect the after-tax cost of owning an investment property, but it is only one part of the decision.

Purchase price, rental income, interest costs, ongoing expenses, vacancy, borrowing capacity and the property's role within your broader investment strategy can all influence whether an investment makes sense for you.

That distinction is important. A property that qualifies for more favourable tax treatment isn't automatically the better investment. Equally, an established property shouldn't necessarily be dismissed simply because the tax treatment of future losses is changing.

If you are considering borrowing to invest, Modoras' existing gearing material also highlights matters including cash flow, investment risk and the effect of potential changes in income or borrowing costs. Understanding the costs and risks of gearing treats tax deductibility as one consideration alongside the broader financial risks of a gearing strategy.

Property tax and property strategy are different questions

The October legislation provides more clarity on an important part of the tax rules, but the tax classification of a property and whether the property is suitable for you are ultimately different questions.

Before buying, consider the investment in the context of:

• the property's expected income and expenses;
• the amount and structure of any borrowing;
• your capacity to manage changes in interest rates or rental income;
• the tax treatment applying to your circumstances;
• your investment timeframe; and
• how the property fits with your other investments and financial objectives.

This is where accounting and financial strategy can intersect. Modoras positions its offering as Accounting for Wealth, bringing accounting and wealth services together rather than considering financial decisions in isolation.

If you're considering an investment property, your accountant can help you understand the tax implications. Where the purchase forms part of a wider investment or wealth strategy, discussing it with your financial planner can help you consider the decision from both perspectives.