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The 2026 negative gearing and CGT reform — what it means for granny flats, factory-built homes and tiny homes
| Announced | 7:30pm AEST, 12 May 2026, in the 2026–27 Budget[1] |
|---|---|
| Legislation | Treasury Laws Amendment (Tax Reform No. 1) Act 2026, assented 26 June 2026[2][3] |
| Applies from | 1 July 2027[1][2] |
| Negative gearing | Limited to new builds for residential property bought after the announcement[1] |
| Capital gains tax | 50% discount replaced by CPI indexation plus a 30% minimum tax, for gains accruing from 1 July 2027[1] |
| Your own home | Main residence exemption unchanged[1] |
| New build definition | In draft; consultation closed 21 August 2026[4] |
From 1 July 2027, rental losses on an established home bought after 7:30pm AEST on 12 May 2026 can no longer be deducted against wages, and the 50% capital gains tax discount is replaced by CPI indexation and a 30% minimum tax for gains from that date.[1] New builds keep both concessions. Treasury counts any home built on previously vacant land as a new build, but lists a granny flat added beside an established property among its examples of homes that do not qualify.[1] The law's definition of a residential dwelling excludes mobile tiny homes and caravans, and the main residence exemption for your own home is unchanged.[1][3]
The changes were announced in the 2026–27 Budget and passed into law in June 2026.[1][2] They matter on this site because the line they draw — new build or established — runs straight through the housing types covered here. A factory-built home on an empty block, a second dwelling in an existing backyard and a tiny home on a trailer can land on different sides of it.
The reform has also been cited in coverage of the current market. Cotality's national index fell 1.1% in September 2026, leaving values 5.2% below the March 2026 peak, and press reporting attributes the fall mainly to rising interest rates, with the investor tax changes also playing a part.[5] This page does not cover price movements or forecasts; it sets out the rules.
What changes on 1 July 2027 §
Two separate changes start on the same day.[1]
Negative gearing on an affected property is restricted. A rental loss can be used only against income from residential property, including capital gains on residential property. Any loss left over is carried forward to future years rather than lost, but it can no longer reduce tax on salary or wages.[1]
Capital gains tax changes for individuals, trusts and partnerships. The 50% discount is replaced by indexing the cost base to CPI, plus a minimum tax rate of 30% on capital gains. This applies to gains that accrue from 1 July 2027; for an asset already held, the part of the gain made before that date still gets the 50% discount.[1]
Superannuation funds, including self-managed funds, are excluded from the negative gearing change, and commercial property is outside it.[1]
Already held, or bought since Budget night §
What happens to a property depends on when it was acquired.[1]
| When the established property was acquired | Negative gearing | Source |
|---|---|---|
| Held at 7:30pm AEST, 12 May 2026, including a contract signed but not settled | Continues under the old rules until sold | Treasury[1] |
| Bought between the announcement and 30 June 2027 | Old rules until 30 June 2027, new rules after | Treasury[1] |
| Bought from 1 July 2027 | New rules from the start | Treasury[1] |
| An eligible new build, bought at any time | Old rules continue | Treasury[1] |
What counts as a new build §
Treasury describes a new build as a home that genuinely adds to housing supply: a dwelling built on vacant land, or a site where existing homes are demolished and replaced with more dwellings than before.[1] A knock-down rebuild that replaces one house with one house does not qualify, and nor does a substantial renovation.[1]
Only the first buyer gets the concession. At the Budget, Treasury said a new build could not have been sold before, unless the builder first owned it and it was not occupied for more than 12 months.[1] The draft definition released for consultation in August 2026 instead treats a dwelling as new if it was acquired within 24 months of its certificate of occupancy.[6] That draft had not been finalised at the time of writing.[3][4]
An investor in an eligible new build keeps negative gearing and, on sale, can choose either the old 50% discount or the new indexation method.[1]
What it means for each housing type §
A modular or prefab home on vacant land
Treasury's comparison table lists any residential construction on previously vacant land as an eligible new build.[1] The construction method does not appear in the test: a factory-built home on an empty block sits on the same side of the line as a site-built one. What the test turns on is whether the home adds a dwelling and when it is acquired.
A granny flat in an existing backyard
Among its examples of homes that are not eligible new builds, Treasury's table lists a granny flat built next to an established property that is itself not eligible for negative gearing.[1] In other words, adding a second dwelling behind a house bought after Budget night does not, on Treasury's examples, turn that property into a new build.
The draft definition goes into more detail. An industry submission on the draft reads it as treating a granny flat without its own legal title as taking on the tax character of the main house, so it cannot qualify as a new build on its own.[7] That is a reading of a draft, not settled law.
On this site, a granny flat generally sits on the same title as the main house and cannot be sold separately — see can you subdivide a granny flat onto its own title.
A knock-down rebuild or dual occupancy
Treasury lists a duplex built by knocking down a single house as eligible, and a new house built to replace an older single house as not eligible.[1] The difference is the number of dwellings. See knockdown rebuild or modular and dual occupancy or granny flat.
A tiny home on wheels
The Act defines the "residential dwelling" that the new rules apply to so as to exclude caravans, mobile tiny homes and mobile homes, among other categories.[3] A tiny home that is a vehicle rather than a building therefore sits outside the definition. How that affects the tax outcome for any particular owner is not covered by the sources compiled here. See tiny house on wheels or fixed foundation.
Your own home
The main residence exemption from capital gains tax continues.[1] Renting out a granny flat at your home already costs part of that exemption under the existing rules — see renting out a granny flat and capital gains tax on your home.
Where it stands now §
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received royal assent on 26 June 2026, and the ATO describes the measures as law, applying from 1 July 2027.[2][3] A second Act, extending the old-rules treatment of properties held at Budget night to some properties transferred on relationship breakdown or death, received royal assent on 26 August 2026.[3]
The definition of a new residential dwelling is being made separately. Treasury released exposure drafts on 4 August 2026, including that definition and the types of housing investment exempt from the limits, with consultation closing on 21 August 2026.[4] As at mid-September 2026 the ATO had not issued detailed guidance on how the rules operate.[3]
This page will be updated when the definition is finalised.
What is not covered here §
Not covered by the sources compiled here: how a granny flat added to a property already held at 7:30pm AEST on 12 May 2026 is treated; how the rules apply where an owner builds on land they already hold, as opposed to buying a completed home; how the partial main residence exemption interacts with indexation and the minimum tax; depreciation; companies, trusts and self-managed super funds beyond the points above; and state taxes such as stamp duty and land tax. Interest rates and price forecasts are outside this site's scope. None of this is tax advice — the ATO and a registered tax agent are the places to confirm how the rules apply to a particular property.
Related guides:
- Tax deductions when you rent out a granny flat or second dwelling
- Renting out a granny flat and capital gains tax on your home
- Granny flats, tax and Centrelink
- Does a granny flat add value?
- The 5% Deposit Scheme and a factory-built home
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References §
- Australian Government, Budget 2026–27 — Tax explainer, Negative Gearing and Capital Gains Tax Reform. Changes apply from 1 July 2027; properties held at 7:30pm AEST 12 May 2026 (including contracts entered into but not settled) can continue to be negatively geared until sold; properties bought between the announcement and 30 June 2027 can be negatively geared only until 30 June 2027; established properties bought from 1 July 2027 cannot be. Losses on affected properties can be used only against residential property income, including capital gains, with excess carried forward. The 50% CGT discount is replaced by cost base indexation and a 30% minimum tax for individuals, trusts and partnerships, applying to gains accruing from 1 July 2027. New builds are dwellings built on vacant land, or where existing properties are demolished and replaced with a greater number of dwellings; knock-down rebuilds and substantial renovations that do not increase supply are excluded; a new build cannot have been previously sold unless first owned by the builder and not occupied for more than 12 months. Investors in new builds keep negative gearing and can choose the 50% discount or indexation on sale; later purchasers cannot. The main residence exemption continues. Table 2 lists examples of eligible and ineligible new builds. budget.gov.au/content/factsheets/download/tax-explainers-negative-gearing-capital-gains-tax.pdf
- Australian Taxation Office — Tax reform — Boosting home ownership — Reforming negative gearing and capital gains tax, last updated 29 June 2026. States the measures are now law under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026, and apply from 1 July 2027. The page does not define a new build. ato.gov.au/about-ato/new-legislation/in-detail/individuals/tax-reform-boosting-home-ownership-reforming-negative-gearing-and-capital-gains-tax
- King & Wood Mallesons — Law firm commentary, 18 September 2026. The Tax Reform No. 1 Act received royal assent on 26 June 2026 and inserts section 26-155 into the Income Tax Assessment Act 1997; section 26-160 defines a residential dwelling to exclude caravans, mobile tiny homes and mobile homes, among others; the Tax Reform No. 2 Act received royal assent on 26 August 2026; which dwellings count as new residential dwellings depends on a ministerial determination still being finalised; as at the date of the article the ATO had not issued detailed administrative guidance. Commercial legal commentary, used here for legislative status only. mallesons.com/au/en/insights/latest-thinking/gearing-up-for-a-new-era-of-negative-gearing-what-investors-need-to-know-now.html
- Treasurer of Australia — Media release, 4 August 2026 — Consultation on next tranche of tax reform legislation. Exposure drafts of the Treasury Laws Amendment (Tax Reform No. 3) Bill 2026 released, including the definition of a new residential dwelling and types of housing investment exempt from the limits on negative gearing; consultation open until 21 August 2026. ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/consultation-next-tranche-tax-reform-legislation
- The New Daily (AAP), citing Cotality — Report, 1 October 2026. Cotality's national index fell 1.1% in September 2026, leaving values 5.2% below the March 2026 peak; the report attributes the fall mainly to rising interest rates, with the Budget's curbs to investor tax breaks also having an effect. thenewdaily.com.au/finance/housing/2026/10/01/house-prices-september-2026
- Real Estate Business — Report, 6 August 2026, on the tranche 2 exposure drafts — the draft treats a dwelling as new where it genuinely adds to housing supply and was acquired within 24 months of a certificate of occupancy being issued, rather than the 12 months set out at the Budget. Trade media summary of a draft. realestatebusiness.com.au/industry/32287-government-opens-consultation-on-property-tax-shake-up
- Financial Advice Association Australia — Submission to Treasury on the tranche 2 exposure drafts, 21 August 2026. Reads the draft material as confirming that a granny flat without a separate legal title takes on the tax characteristics of its host dwelling and cannot independently qualify as a new residential dwelling, and recommends changes. An industry submission describing a draft, not the law. faaa.au/wp-content/uploads/2026/08/20260821-FAAA-Submission-on-four-Tax-Papers-Package_Final.pdf
Figures are as published by the sources above at their respective dates and are paraphrased summaries, not verbatim reproductions. Verify current pricing and rules directly with builders, lenders and planning authorities.