Note: In this Division, a reference to Subdivision 115‑C of the Income Tax Assessment Act 1997 includes a reference to that Subdivision as it applies because of Subdivision 115‑CA of that Act (which extends the application of Subdivision 115‑C in certain circumstances to trusts that would have net capital gains if indexation were disregarded): see subsection 115‑255(5) of that Act.
73 Subsection 115‑228(1) (definition of net financial benefit)
After “losses” (wherever occurring), insert “and quarantined amounts”.
74 Subsection 115‑228(1) (paragraph (b) of the definition of share of net financial benefit)
After “losses” (wherever occurring), insert “and quarantined amounts”.
75 At the end of section 115‑228
Add:
(4) In this section:
quarantined amount means a quarantined amount referred to in paragraph 26‑155(1)(b) (about using or holding residential dwellings as residential accommodation).
76 Section 152‑1
Omit “step 4”, substitute “step 6”.
77 Section 152‑1
Omit all the words after “against your capital gains”, substitute “and quarantined amounts to first reduce your capital gains (under steps 1 to 4) before you can use those 3 concessions to further reduce them”.
81 Subsection 12A‑110(5) in Schedule 1 (method statement, step 2)
Omit “step 3”, substitute “step 5”.
Part 4,Application of amendments
82 Application of amendments,Division 102
The amendments made by:
(a) Part 1 of this Schedule of Division 102 of the Income Tax Assessment Act 1997; or
(b) Part 3 of this Schedule that relate to Division 102 of the Income Tax Assessment Act 1997;
apply in relation to assessments for the income year that includes 1 July 2027 and for later income years.
83 Application of amendments,section 115‑125
The amendments made by Part 1 of this Schedule of section 115‑125 of the Income Tax Assessment Act 1997 apply in relation to CGT events happening on or after 1 July 2027.
84 Application of amendments,Subdivision 115‑C
(1) Subject to subitem (2), the amendments of Subdivision 115‑C of the Income Tax Assessment Act 1997 made by Part 1 of this Schedule apply in relation to assessments for the income year that includes 1 July 2027 and for later income years.
(2) Section 115‑235 of the Income Tax Assessment Act 1997, as inserted by Part 1 of this Schedule, applies in relation to the income year that includes 1 July 2027 and later income years.
(3) Subdivision 115‑CA of the Income Tax Assessment Act 1997, as inserted by Part 1 of this Schedule, applies in relation to assessments for the income year that includes 1 July 2027 and for later income years.
Schedule 2,Limit negative gearing for residential property to new builds
Income Tax Assessment Act 1997
1 At the end of Division 26
Add:
26‑155 Using or holding residential dwellings
General rule
(1) If the amounts relating to the using or holding of *residential dwellings as residential accommodation that you could otherwise deduct for an income year exceed your assessable income from using or holding residential dwellings as residential accommodation for the income year, this Act applies to the amount of the excess as follows:
(a) it is not deductible for that income year;
(b) it is an amount (a quarantined amount) that could be applied in accordance with the method statement in section 102‑5 (about working out your net capital gain) for that income year;
(c) to the extent any part of it remains after applying that method statement,it is treated as an amount relating to using or holding residential dwellings as residential accommodation for the next income year.
Example: Henrietta acquires an established residential dwelling in July 2028. For the 2028‑29 income year Henrietta has assessable income of $50,000 from renting out the residential dwelling as residential accommodation. For that year, Henrietta has (but for this subsection) $65,000 in deductions for the residential dwelling, including interest, insurance and strata costs. She can only deduct $50,000 and the remaining $15,000 is carried forward to the next income year.
For the 2029‑30 income year, Henrietta has (but for this subsection) $70,000 in deductions and $52,000 of assessable income from renting out the residential dwelling as residential accommodation. She can deduct $52,000 and $33,000 is carried forward to the next income year (comprising the $15,000 carried forward from the 2028‑29 income year and $18,000 from the 2029‑30 income year).
For the 2030‑31 income year, Henrietta has $20,000 in deductions and $72,000 of assessable income from renting out the residential dwelling as residential accommodation, having reduced her mortgage following an inheritance. She has net rental income from the residential dwelling of $52,000 for this income year and can fully offset the amount of $33,000 that has been carried forward from the previous income year.
Exceptions for non‑quarantined residential dwellings
(2) For the purposes of subsection (1), disregard amounts you could otherwise deduct, and amounts of assessable income, to the extent those amounts relate to the using or holding of the following:
(a) an *ownership interest in a *residential dwelling you last *acquired before 7.30 pm, by legal time in the Australian Capital Territory, on 12 May 2026;
(b) a residential dwelling that is a *new residential dwelling in relation to you;
(c) a residential dwelling for an activity or purpose determined by the Minister by legislative instrument for the purposes of this paragraph;
(d) a residential dwelling for a business or enterprise of a kind determined by the Minister by legislative instrument for the purposes of this paragraph.
Note: If you have a net gain from your non‑quarantined residential dwellings for an income year: see subsection (6).
(3) Despite subsection 118‑130(2), for the purposes of paragraph (2)(a) of this section, for a *residential dwelling that you *acquire under a contract, you have an *ownership interest in the residential dwelling from the time when you enter into the contract.
Exception for certain kinds of entities
(4) Subsection (1) does not apply to you if you are:
(a) a widely held unit trust as defined in section 272‑105 in Schedule 2F to the Income Tax Assessment Act 1936; or
(b) a *complying superannuation entity; or
(c) an entity in a class of entities determined by the Minister by legislative instrument for the purposes of this paragraph.
Exception for fringe benefits
(5) For the purposes of subsection (1), disregard amounts you could otherwise deduct, and amounts of assessable income, to the extent those amounts relate to *providing a *fringe benefit.
Modification in relation to certain gains
(6) Reduce the amount of an excess referred to in subsection (1) for an income year (before applying any of paragraphs (1)(a) to (c)) by the sum of the following:
(a) any amount by which your assessable income covered by subsection (2) for the income year exceeds your deductions covered by that subsection for the income year;
(b) any gain you *realised for income tax purposes for the income year from a *realisation event occurring in relation to a *residential dwelling that is a *revenue asset.
Modification in relation to beneficiaries of trusts
(7) If:
(a) you are a beneficiary of a trust estate; and
(b) an amount is taken to have been included in your assessable income for an income year under Division 6 of Part III of the Income Tax Assessment Act 1936 in relation to the *net income of the trust estate;
to the extent that the amount is referable (either directly or indirectly through one or more interposed partnerships or trust estates) to using or holding *residential dwellings as residential accommodation, the amount is taken to be included in your assessable income from using or holding residential dwellings as residential accommodation for that year.
Modification if you become bankrupt
(8) The modification in subsection (9) has effect if:
(a) in an income year (the current year) you become bankrupt or are released from a debt by the operation of an Act relating to bankruptcy; or
(b) you became bankrupt before the current year and:
(i) the bankruptcy is annulled in the current year under section 74 of the Bankruptcy Act 1966 because your creditors have accepted a proposal for a composition or scheme of arrangement; and
(ii) under the composition or scheme of arrangement, you have been, will be or may be released from some or all of the debts from which you would have been released if you had instead been discharged from the bankruptcy.
(9) This Act applies to you as if any amount that:
(a) is an amount that you cannot deduct for the current year in accordance with paragraph (1)(a); and
(b) has not been applied in accordance with the method statement in section 102‑5;
were not an amount relating to using or holding *residential dwellings as residential accommodation that you can deduct for the current year or a later year.
26‑160 Meaning of residential dwelling and new residential dwelling
Meaning of residential dwelling
(1) A residential dwelling means a *dwelling other than any of the following:
(a) a caravan, mobile tiny home, or other mobile home;
(b) a hotel, motel, inn, hostel or boarding house;
(c) a dwelling providing accommodation to students in connection with a school or an education institution that is not a school;
(d) a boat or other marine vessel;
(e) a dwelling in a class of dwellings determined by the Minister by legislative instrument for the purposes of this paragraph.
(2) For the purposes of subsection (1), a residential dwelling is taken to include any of the following things to the extent that the thing is available for use by an occupant of the *dwelling:
(a) land adjacent to the dwelling;
(b) a garage, storeroom or other structure associated with the dwelling.
Meaning of new residential dwelling
(3) A *residential dwelling is a new residential dwelling in relation to you if the requirements determined under subsection (4) are met in relation to you and the residential dwelling.
(4) The Minister must, by legislative instrument, determine requirements for the purposes of subsection (3). Without limiting this subsection, the requirements may include requirements relating to one or more of the following:
(a) the kind of *residential dwelling;
(b) the kind of interest you hold in the residential dwelling and the circumstances in which you acquired your interest (such as whether you were the builder or a subsequent purchaser of the residential dwelling);
(c) circumstances relating to the creation of the residential dwelling (such as whether the residential dwelling was built on vacant land, was created through substantial renovations of an existing building, or was built to replace a demolished residential dwelling);
(d) whether the residential dwelling has a separate title, equitable title or similar legal interest that can be acquired by an entity;
(e) whether the residential dwelling genuinely adds to the supply of residential dwellings in Australia.
(5) To avoid doubt, the Minister may determine requirements under subsection (4) relating to matters or circumstances existing before the commencement of this section.
2 After subsection 110‑38(8)
Insert:
(8A) Expenditure does not form part of any element of the cost base to the extent that section 26‑155 prevents it being deducted.
Note: Section 26‑155 denies deductions for the excess of residential dwelling related expenditure over residential dwelling related income.
3 After subsection 110‑55(9J)
Insert:
(9JA) Expenditure does not form part of the reduced cost base to the extent that section 26‑155 prevents it being deducted.
Note: Section 26‑155 denies deductions for the excess of residential dwelling related expenditure over residential dwelling related income.
4 Subsection 995‑1(1)
Insert:
new residential dwelling: see subsection 26‑160(3).
residential dwelling: see subsections 26‑160(1) and (2).
5 Application of amendments
The amendments made by this Schedule apply in relation to the 2027‑28 income year and later income years.
Schedule 3,Working Australians tax offset
Part 1,Amendments
Division 1,Main amendments
Income Tax Assessment Act 1997
1 After Subdivision 61‑D
Insert:
Subdivision 61‑E,Working Australians tax offset
Guide to Subdivision 61‑E
61‑150 What this Subdivision is about
You may be entitled to a tax offset if you earn certain labour income.
Table of sections
Operative provisions
61‑155 Entitlement to the working Australians tax offset
61‑160 Amount of the working Australians tax offset
Operative provisions
61‑155 Entitlement to the working Australians tax offset
(1) You are entitled to a *tax offset for an income year if:
(a) you are an individual who is an Australian resident at any time during the income year; and
(b) in the income year, the amount worked out for you under subsection (2) (about your net labour income) exceeds the tax‑free threshold (within the meaning of the Income Tax Rates Act 1986).
Net labour income
(2) Work out the amount for an income year using the formula:
where:
labour amounts means the sum of the following amounts included in your assessable income for the income year:
(a) an amount of *assessable labour income;
(b) an amount you *derive from carrying on a *business as an individual (not including assessable income you derive from a business carried on by a partnership or trust);
(c) an amount of *personal services income;
(d) an amount included in your assessable income under section 83A‑25 (about discounts given in relation to an *ESS interest included in assessable income);
(e) an amount that is a payment from which an amount must be withheld (even if the amount is not withheld) under section 12‑60 in Schedule 1 to the Taxation Administration Act 1953 (about payments under labour hire and certain other arrangements).
labour deductions means the sum of the following amounts you can deduct in relation to the income year:
(a) an amount of a loss or outgoing that you incurred in gaining or producing an amount mentioned in paragraph (a) or (c) of the definition of labour amounts;
(b) an amount of a loss or outgoing that you necessarily incurred in carrying on a *business as an individual (not including a loss or outgoing necessarily incurred by a business carried on by a partnership or trust);
(c) an amount you can deduct under section 25‑130;
(d) an amount you can deduct under section 40‑25 (other than an amount equal to the decline in value of a *depreciating asset that you allocate to a low‑value pool under section 40‑425), to the extent that the deduction arises for a depreciating asset that you use to:
(i) derive an amount mentioned in paragraph (b) of the definition of labour amounts; or
(ii) gain or produce an amount mentioned in paragraph (c) of the definition of labour amounts;
(e) an amount of a deduction mentioned in paragraphs 25‑130(2)(d) to (g) (standard deduction for work‑related expenses);
(f) an amount you can deduct under Subdivision 328‑D, to the extent that the deduction arises for a depreciating asset that you use to derive an amount mentioned in paragraph (b) of the definition of labour amounts.
(3) If more than one paragraph in the definition of labour amounts or labour deductions covers an amount, include the amount only once.
61‑160 Amount of the working Australians tax offset
(1) The amount of your *tax offset for an income year is the lesser of:
(a) $250; and
(b) the amount calculated using the method determined by the Minister under subsection (2).
(2) The Minister may, by legislative instrument, determine a method for the purposes of paragraph (1)(b).
2 Subsection 63‑10(1) (before table item 5)
Insert:
3
*Tax offset under Subdivision 61‑E (working Australians tax offset)
You cannot get a refund of it, you cannot transfer it and you cannot carry it forward to a later income year