Australia’s federal Labor government has taken another key step toward advancing its divisive investor tax overhaul, releasing draft legislation for the second phase of changes just as property prices in major urban centers begin to dip across the country.
Treasurer Jim Chalmers publicly released the exposure draft for the *Treasury Laws Amendment (Tax Reform No. 3) Bill 2026* and accompanying policy documents on Tuesday night. This new round of changes builds on the capital gains tax (CGT) and negative gearing reforms that passed parliament in June, secured via a legislative agreement between Labor and the Greens. Unlike the first, widely debated phase of changes, this tranche targets more nuanced, specific rules affecting niche groups of taxpayers, including addressing criticisms of the so-called divorce and widow’s tax that emerged after the initial reforms passed.
In an official statement outlining the changes, the government confirmed the new draft preserves eligibility for negative gearing and new build tax treatment in specific scenarios, including when a taxpayer acquires a residential property from a former spouse following a relationship separation, or inherits a home after a partner’s death. It also extends existing CGT minimum tax exemptions to capital gains passed to beneficiaries through legitimate testamentary trusts, deceased estates, and special disability trusts — aligning these rules with long-standing exemptions for discretionary trust minimum tax obligations.
Beyond the adjustments to relationship and inheritance-related property transfers, the draft opens a new public consultation period on proposed tweaks to CGT changes for Attribution Managed Investment Trusts (AMITs). The government says the goal of this consultation is to cut unnecessary compliance costs for fund managers, clarify how rules apply to people who only reside part-time in Australia during the relevant tax period, and prevent reforms from prematurely advancing the tax assessment date for deferred capital gains triggered by specific CGT events.
The draft legislation also formalizes a revised definition for new residential dwellings that qualify for negative gearing exemptions, a change designed to boost housing supply. Under the new rules, a property will generally qualify as a new build eligible for exemptions if it genuinely expands Australia’s total housing stock, and is acquired within 24 months of an occupancy certificate being issued. This extends the previous 12-month timeline outlined in the federal budget, giving home builders and property developers extra time to sell completed stock held in inventory.
Included in the draft is also a draft legislative instrument that lays out a clear method for apportioning capital gains and losses for real property and other assets that do not have a readily verifiable public market value.
The entire package of reforms has faced consistent pushback from the opposition Liberal-National Coalition, as well as some segments of Australia’s property and business sectors. The government has defended its phased approach, framing it as a measured way to implement large-scale tax change without disruptive last-minute errors.
“Consistent with other significant tax reforms, the government will continue to finalise implementation of the reforms in further tranches of legislation,” the statement read. Future rounds of legislation will address additional details including interactions between the new rules and existing CGT rollover concessions, remaining ambiguities around how reforms apply to foreign, temporary and mixed residency status taxpayers, and any technical adjustments needed to ensure the rules function appropriately for special cases such as tax consolidated groups.
The exposure draft is open for public submissions and feedback from stakeholders until 21 August, with potential changes to the text expected before it is introduced to federal parliament for a vote.