The consultation is closed. The definition is not.

Last Thursday, at close of business on 21 August, Treasury shut the consultation on the second tranche of the negative gearing and capital gains tax reforms. The profession had been given seventeen days to comment on, among other things, the definition of a new residential dwelling: the term on which the entire regime turns, and on which every recommendation involving residential property after Budget night now depends.

The submissions are in. The drafters have them. And advisers are back where they have been since 12 May: giving advice against a regime whose operative terms are final in the middle and provisional at the edges, with the start date now a little over ten months away.

This is the largest change to the taxation of Australian investment property in three decades, and it is being legislated in instalments, a fortnight of comment at a time.

What is settled

The core is law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 received assent on 26 June as Act C2026A00049.

From 1 July 2027, the 50 per cent CGT discount for individuals, trusts and partnerships gives way to cost base indexation plus a 30 per cent minimum tax rate on capital gains, so that investors are taxed on above-inflation profit. Negative gearing on residential property is confined to new builds: losses on established dwellings acquired after 7:30pm AEST on 12 May 2026 become deductible only against other residential property income, including capital gains, from the 2027-28 year, with excess losses quarantined at the portfolio level and carried forward. The government's stated ambition is 75,000 additional homeowners over the decade.

The transitional settings are broader than the Budget-night headlines suggested. Dwellings held at the announcement are exempt from the negative gearing changes, and the CGT reforms reach only gains accruing after 1 July 2027. Late amendments lifted the turnover threshold for the small business 50 per cent active asset reduction from $2 million to $10 million, and investors disposing of new residential dwellings or affordable housing on or after 1 July 2027 may elect between the old discount and the new indexation-plus-minimum-tax regime, with the deemed sale and reacquisition rules switched off where the discount is chosen.

That election is the point advisers should sit with. A choice between two regimes, exercised at disposal, on an asset class defined by a term that left exposure draft less than a week ago.

What the draft delivers, and what it costs

Tranche 2 does genuine work, and it is worth recording that several of the profession's early objections were heard.

The definition of new residential dwelling has been lifted out of a promised legislative instrument and into the primary legislation, as the Tax Institute and others demanded when the first bill went through without it. In the draft, a dwelling is new where it genuinely adds to housing supply: built on vacant land, added to land that already holds a home, converted from a non-residential building, or resold within 24 months of its occupancy certificate. Builders and developers get longer to move stock than the twelve months contemplated at the Budget. Negative gearing eligibility and new build status survive transfer to a spouse through inheritance or relationship breakdown. An apportionment method spares taxpayers a mandatory 1 July 2027 valuation. Testamentary trusts, deceased estates and special disability trusts are carved out of the 30 per cent minimum. And, usefully for a large and unglamorous cohort, the draft confirms that a main residence bought before Budget night keeps its treatment when it is first rented out afterwards: the client who moved house, kept the old place and let it out is protected.

Each of these is an improvement. The difficulty is the method.

The Institute of Public Accountants' Tony Greco has said plainly that sequencing reform of this scale across successive tranches is not how good tax policy is implemented. CPA Australia's Jenny Wong, while accepting that the definition appropriately targets genuine additions to supply, flagged the anti-avoidance rule as broad and self-executing. The IFPA's CGT consultant Kirk Wilson raised the same pair of concerns in different clothes: how the conversion rules operate, and how the anti-avoidance provisions will actually apply. CA ANZ's submission-season refrain, that agents will carry the compliance load and need clear guidance and implementation time, is less a criticism than a forecast.

All of it goes to the same defect. A taxpayer cannot plan against a regime whose operative terms arrive in sequence, and an adviser cannot document a recommendation against rules that were open for comment on Thursday of last week.

What is still in the queue

Treasury has been candid that more is coming. Its own consultation materials flag further tranches covering interactions with CGT rollovers and similar concessions, the application of the reforms to foreign, mixed and temporary residents, and special cases such as consolidated groups.

Three open items deserve particular attention.

The Innovative Business CGT Concession, announced on 18 June after criticism that the reforms punish founders of low cost base companies, remains at consultation stage. It offers eligible founders, employee shareholders and early investors a choice between the discount and the new regime, subject to conditions on turnover, residency and investor type. It was announced after the Senate committee reported, it is not in the enacted Act, and it is expected in a later technical bill. Founders making disposal decisions this financial year are being asked to price in a concession that exists only as a press release.

Entity-held property is the second. As Corrs and others have noted, there is no look-through for membership interests: a gain on selling the units in a trust that holds nothing but a rental property is a non-residential gain, and quarantined losses cannot be applied against it. Clients holding property through companies and trusts face materially different outcomes on an entity sale versus an asset sale, and the trust-specific rules are among the elements still being refined.

The third is simply the calendar. The consultation on this tranche ran seventeen days. The next bill has no announced introduction date. The regime starts on 1 July 2027, and the profession's advice files start accumulating against it now.

What this means for practice

Advisers should be doing three things and resisting a fourth.

Identify affected clients by acquisition date, not portfolio value. The 12 May 2026 boundary is doing more work than any other date in the package, and clients who exchanged contracts in the weeks around the Budget need their position confirmed against the contract, not the settlement.

Document the uncertainty, precisely. Where a recommendation turns on new build status, the file should record that the definition was in exposure draft at the date of advice, that consultation closed on 21 August, and that the final terms may differ. That is not defensive box-ticking. It is an accurate statement of the regulatory position, and it will matter if the enacted definition lands differently.

Watch the next window. The submission opportunity on this tranche has passed, but Treasury has committed to further consultation, including on compliance costs for AMITs. The anti-avoidance drafting is where the profession's remaining leverage lies, and the professional bodies' submissions are the vehicle. Practices that saw the last window open and close in a fortnight should not assume the next one will be longer.

The thing to resist is restructuring ahead of final law. That advice has been consistent since Budget night and nothing in the past three weeks changes it. Clients under pressure from accountants or property spruikers to act on the draft should be told that the cost of restructuring against rules that shift is considerably higher than the cost of waiting, and that the rules have now shifted, in the taxpayer's favour, at least twice.

The broader point

Staged tax reform is not unprecedented, and consulting on the complex elements beats legislating them blind. But the cost of the staged approach is real, and it is borne by advisers and their clients rather than by the drafters. Every tranche resets the planning environment. Every consultation window is measured in weeks while the decisions it governs are measured in decades.

With the second tranche now closed and at least one more to come, the profession's ask should be specific: a consolidated statement of the final regime, enacted and in one place, published far enough ahead of 1 July 2027 that advice given against it can actually be relied upon. Ten months is not a long time to build compliance systems, retrain advisers and re-paper client files. It is a very short time to do all of that twice.