Building a New House and Holding It as a Rental Investment
The 2026 tax reforms deliberately preserved the full suite of investor concessions for new dwellings that add to housing supply. A house-and-land package on vacant land is one of the clearest ways to access those concessions while creating a long-term income-producing asset.
Full Negative Gearing Remains Available
From 1 July 2027, net rental losses on established residential properties acquired after Budget night (12 May 2026) can no longer be offset against salary or other non-property income. Those losses are quarantined and can only be used against future residential rental income or capital gains.
Eligible new builds are exempt. A new house constructed on previously vacant land qualifies as an addition to housing supply. You can therefore continue to deduct the full net rental loss — interest, rates, insurance, management fees, repairs and depreciation — against your other income, including wages. This remains one of the most powerful cash-flow benefits available to high-income investors.
Superior Depreciation Deductions
New builds deliver the largest non-cash deductions. Capital works (Division 43) are claimed at 2.5% of the construction cost for 40 years. Plant and equipment (Division 40) — carpets, appliances, air-conditioning, blinds and similar items — can be fully depreciated over their effective lives because you are the first owner. Established properties generally cannot claim second-hand plant and equipment after the 2017 changes.
A quantity surveyor's depreciation schedule typically produces first-year claims of $10,000–$20,000 or more on a standard new house, depending on construction cost. These deductions increase the size of the tax loss you can offset against other income and improve after-tax cash flow from day one.
Interest incurred on construction progress payments is deductible once you have a genuine intention to use the property for rental purposes (ATO TR 2023/3). Land-holding costs before construction may still need careful treatment.
CGT Advantages on Eventual Sale
When you eventually sell, eligible new-build investors retain a valuable choice: apply the traditional 50% CGT discount (if the property has been held for more than 12 months) or use the new cost-base indexation method with a 30% minimum tax rate. Established properties acquired after the relevant dates do not receive this election.
Depreciation previously claimed reduces the cost base, so the taxable gain is larger than it would otherwise be. The timing benefit of the deductions during the holding period usually outweighs this later adjustment for investors who remain in high tax brackets.
Additional Strategic Advantages
- Brand-new construction means lower maintenance and repair costs in the early years and stronger appeal to quality tenants.
- You capture any capital growth that occurs during the build period on a lower initial land outlay.
- The policy settings actively favour new supply, reducing the risk of future adverse changes that may still affect established stock.
Practical Considerations
Cash-flow modelling should include the construction period (when rental income is zero), realistic vacancy and management costs, and the impact of your marginal tax rate on the value of the negative-gearing benefit. Loan structure matters: keeping investment debt clean and using an offset account for personal funds preserves deductibility.
House-and-land packages on vacant land sit squarely inside the definition of eligible new builds. They therefore offer investors the combination of full negative gearing, maximum depreciation and flexible CGT treatment that is no longer available on most established residential property.
Important disclaimer: This material is general information only and does not constitute tax, legal or financial advice. Tax outcomes depend on your individual circumstances, the precise facts of the transaction and any future legislative changes. Always obtain advice from a registered tax agent or qualified adviser before entering into any property transaction.