TL;DR: The federal government has released draft tax legislation aimed at fixing the "widow tax" anomaly for inherited properties. Crucially for the disability sector, the proposed laws contain permanent carve-outs that exempt NDIS Specialist Disability Accommodation (SDA), public housing, and community-run affordable housing from newly introduced negative gearing restrictions, preserving vital incentives for disability housing investors.
Fixing the 'Widow Tax' and Grandfathering Rules
The Albanese government has moved to address an unintended and highly criticized consequence of its recent housing tax changes. In its federal budget, the government decided to restrict negative gearing tax benefits exclusively to newly built homes, effective from July 2027. Under these rules, existing investment properties owned prior to May 12 were grandfathered, allowing current owners to continue using rental losses to reduce tax on other income.
However, a significant flaw in the draft legislation meant that if a person inherited their partner's share of a jointly owned investment property after the budget cut-off, they would be legally treated as having acquired the asset after the grandfathering deadline. This would cause them to lose their existing negative gearing access. Dubbed the "widow tax," critics—led by ACT Senator David Pocock—pointed out that this loophole would disproportionately and negatively impact women, domestic violence victims, and divorcees during highly vulnerable life transitions.
To resolve this, Treasurer Jim Chalmers released updated draft legislation on Tuesday for a two-week public consultation period closing on August 21. The new rules ensure that Australians who inherit an ownership stake in an investment property from a spouse, or who receive property as part of a divorce or separation, will keep the exact negative gearing treatment that applied before the transition.
Protecting NDIS Specialist Disability Accommodation (SDA)
Beyond fixing the inheritance loophole, the proposed legislation introduces critical carve-outs to ensure that negative gearing restrictions do not dry up capital for essential specialized housing sectors. Most notably, the government has explicitly exempted Specialist Disability Accommodation (SDA) from the established home restrictions.
Under the new framework, negative gearing remains fully available to investors purchasing established properties, provided those properties are being actively used for:
- NDIS Specialist Disability Accommodation (SDA)
- Affordable housing provided through eligible community housing providers
- Public housing
This carve-out represents a strategic decision by the government to safeguard the financial feasibility of disability housing. Because building and maintaining specialized accommodation is highly capital-intensive, the retention of negative gearing on established SDA assets is designed to encourage private investors to remain in the sector, ensuring that participants with high support needs do not face housing shortages.
Redefining 'New' Homes to Support Developers
To further prevent a drop-off in housing supply, the government is also consulting on changes to the definition of a "new" home. Under the proposed draft, a property will maintain its status as a "new" home for up to 24 months from the date its occupancy certificate is issued.
This means that if an initial investor or developer sells a freshly built property within two years of its completion, the subsequent buyer can still treat the property as "new" and claim full negative gearing benefits. This change is intended to give property developers and disability accommodation builders a more flexible window to secure sales without the threat of immediate tax penalties for secondary purchasers.
Key Takeaways
- Widow Tax Resolved: Draft legislation ensures that negative gearing grandfathering rights are preserved for spouses who inherit investment properties, as well as those navigating divorce or separation.
- SDA Carve-Out: Established properties utilized as NDIS Specialist Disability Accommodation (SDA) are completely exempt from negative gearing restrictions, protecting investment in disability housing.
- 24-Month New Home Status: Properties can be treated as "new" for up to two years post-occupancy certificate, allowing subsequent buyers to access negative gearing benefits.
- Consultation Window: The public and sector stakeholders have until August 21 to provide feedback on these draft legislative changes.
