The Government has released a second round of draft legislation outlining further details of its proposed Capital Gains Tax (CGT) and negative gearing reforms announced in the 2026 Federal Budget. While the measures are not yet law, the latest draft provides greater clarity on how the rules may apply to property investors, trusts and inherited assets.

For many investors, the key message is that there is still time to understand the potential impact before any decisions need to be made.

What's changing?

The proposed reforms are designed to limit access to existing negative gearing and CGT concessions in certain circumstances. However, the latest draft legislation includes several important exemptions and transitional measures that may reduce the impact for some taxpayers.

Among the key updates:

• Existing negative gearing treatment may continue in certain inheritance and relationship breakdown situations.
• Some affordable housing, social housing, NDIS housing and build-to-rent developments are proposed to be exempt from the changes.
• A home purchased before 12 May 2026 may retain access to existing negative gearing rules if it is first rented out after that date.
• Certain testamentary trusts, deceased estates and special disability trusts are proposed to be excluded from aspects of the new regime.

What does this mean for property investors?

One of the biggest concerns for investors has been how future capital gains will be calculated if the proposed CGT changes proceed.

The latest draft legislation introduces an apportionment approach that would allow taxpayers to separate gains that accrued before and after the commencement date, rather than requiring a formal property valuation at the transition point. This is intended to simplify record-keeping and reduce compliance costs.

The draft legislation also provides additional guidance for:

• Trust structures;
• Managed investment trusts;
• Part-year Australian residents; and
• Certain deferred CGT events.

What if I'm planning to purchase a property?

The legislation also provides more detail around what will be considered a "new residential dwelling".

For example, a non-residential building that is converted into residential accommodation may qualify as a new residential dwelling. Similarly, a property purchased within 24 months of an occupancy certificate being issued may also be treated as new for the next owner.

These definitions will become important when assessing the future tax treatment of a property investment.

Should I do anything now?

At this stage, the most important thing to remember is that these measures remain draft legislation and could change before being introduced into Parliament.

For investors, business owners and trust beneficiaries, now is a good opportunity to:

• Review existing investment structures.
• Understand how future property purchases may be affected.
• Consider the long-term impact on estate and succession planning.
• Seek advice before making significant restructuring decisions.

While the proposed reforms may represent one of the most significant changes to investment property taxation in recent years, the final shape of the legislation is still being determined. We'll continue to monitor developments and keep clients informed as further details emerge. If you have any questions, please contact us on 1300 667 897.

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