The Federal Budget and Investor Changes

New build or established? Why the distinction matters more after the Budget

After the Federal Budget, investors will need to look more closely at what counts as a new residential property.

The Government has announced changes to negative gearing and Capital Gains Tax (CGT) intended to apply from 1 July 2027. The measure is not yet law, but the direction is clear: new residential property will be treated differently from established property. The ATO states the changes will limit negative gearing for residential property investments to new builds, with properties held before 7:30pm AEST on 12 May 2026 exempt from the negative gearing changes.

For investors, this makes the detail behind a property purchase more important. A property may look new, recently renovated or newly available for rent, but that does not automatically mean it will be treated as a new build under the proposed rules.

What is considered new?

A key issue will be whether the property genuinely adds to housing supply.

A newly constructed apartment, townhouse or house may qualify where it creates an additional dwelling. A development that replaces one older home with multiple townhouses is a clear example of increased housing supply.

However, a knock-down rebuild that replaces one house with another house would not meet the criteria, because it does not add an extra residence to the market.

The key is to look beyond whether a property appears new and understand how it may be classified under the final rules. Completion dates, occupancy history and whether the development adds housing supply may all become relevant details.

Timing will be critical

The date an investor acquires a property will be central to how the rules apply.

The proposed changes are intended to apply from 1 July 2027. However, properties already held at 7:30pm AEST on 12 May 2026 will be exempt from the changes.

For established dwellings acquired after 12 May 2026, the grace period until 1 July 2027 still applies.

Clear records of contract exchange dates and ownership history will help investors and their advisers determine whether a property is covered by the existing rules, the proposed new rules or any transitional treatment.

Unique scenarios investors should consider

Some situations may require closer review before purchase.

A knock-down rebuild, a dual occupancy, a subdivision, a granny flat or a property that has been completed but occupied for a very short period may all raise questions about how “new” is defined.

For example, if a newly built dwelling has been occupied for less than 12 months, investors may need to confirm whether it still qualifies. If a granny flat is added to an existing property, it typically won't qualify as the primary residence is considered an established property.

These details should be checked before purchase, not after the first tax return is prepared.

Where depreciation fits in

Depreciation remains an important part of property investment cash flow and record keeping.

For new properties that retain full negative gearing treatment, eligible depreciation deductions help offset other income. For affected established properties, depreciation deductions still form part of rental losses that are carried forward instead of being used immediately.

These carried-forward deductions may still provide value in future years, including when applied against future rental income or considered in the property’s eventual CGT position.

Whether a property is new, when it was acquired, whether it adds housing supply and what depreciation deductions are available may all affect an investor’s cash flow and tax records.

BMT Tax Depreciation prepares specialist tax depreciation schedules for all types of investment properties, identifying deductions to provide a clear record of the depreciation that has been or can be claimed. To review the depreciation potential of your investment property, contact BMT on 1300 728 726 or Request a Quote.

Disclaimer: This information is general in nature and does not consider your personal circumstances. Tax outcomes depend on individual situations and current legislation. You should seek independent advice from your accountant before making decisions based on this information.

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