Income Tax Assessment Act 1997
View history note
Hide history noteGeneral rule
26-155(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
26-155(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.
Note:
If you have a net gain from your non-quarantined residential dwellings for an income year: see subsection (6) .
[ CCH Note: S 26-155(2) will be amended by No 71 of 2026, s 3 and Sch 4 items 1 and 2, by inserting note 1 and substituting " Note 2 " for " Note " in the note, effective 1 October 2026 and applicable in relation to the 2027-28 income year and later income years. Note 1 will read:
]Note 1:
See also sections 26-156 , 26-157 and 26-158 for extensions to these exceptions in certain circumstances.
26-155(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.
[ CCH Note: S 26-155(3AA) and (3AB) will be inserted by No 71 of 2026, s 3 and Sch 4 item 3, effective 1 October 2026 and applicable in relation to the 2027-28 income year and later income years. S 26-155(3AA) and (3AB) will read:
]
26-155(3AA)
For the purposes of paragraph (2)(a) , in determining when an * ownership interest in a * residential dwelling was last * acquired, disregard the effect of subsection 118-192(2) .
26-155(3AB)
For the purposes of paragraph (2)(b) , if a * residential dwelling would cease to be a * new residential dwelling in relation to you because of the operation of subsection 118-192(2) , disregard the effect of that subsection.
26-155(3A)
Before determining an activity or purpose for the purposes of paragraph (2)(c) , the Minister must be satisfied that determining the activity or purpose will assist in achieving one or more of the following objectives: (a) improving availability of social or affordable housing; (b) improving housing outcomes for one or more of the following:
(i) Aboriginal or Torres Strait Islander persons;
(ii) persons with a disability;
(iii) aged persons;
(iv) another class of persons suffering disadvantage.
Exception for certain kinds of entities
26-155(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.
Exception for fringe benefits
26-155(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
26-155(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
26-155(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
26-155(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.
26-155(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.
[
CCH Note:
S 26-156 to 26-159 will be inserted by No 71 of 2026, s 3 and Sch 4 item 4, effective 1 October 2026 and applicable in relation to the 2027-28 income year and later income years. S 26-156 to 26-159 will read:
See also section
26-159
(application of extended new residential dwelling exception for capital gains purposes).
SECTION 26-156 Extension of exceptions for non-quarantined residential dwellings
-
dwelling acquired by surviving spouse
26-156(1)
This section applies if:
(a)
your
*
spouse holds an
*
ownership interest in a
*
residential dwelling; and
(b)
your spouse dies and you
*
acquire the ownership interest (or part of the ownership interest) in the residential dwelling, either as a surviving joint tenant or because the interest
*
passes to you as beneficiary in the estate of your deceased spouse.
Residential dwelling originally acquired before 2026 Budget time
26-156(2)
If your deceased
*
spouse
*
acquired the
*
ownership interest before the time referred to in paragraph
26-155(2)(a)
, then for the purposes of that paragraph you are taken to have acquired the ownership interest (or the part of the interest) before that time.
New residential dwelling
26-156(3)
If the
*
residential dwelling was a
*
new residential dwelling in relation to your
*
spouse just before dying, then for the purposes of paragraph
26-155(2)(b)
, the residential dwelling is taken to be a new residential dwelling in relation to you for the
*
ownership interest you
*
acquire.
Note:
Disregard other timing rules for surviving joint tenants and beneficiaries
26-156(4)
For the purposes of subsections (2) and (3) , disregard the effect of subsection 128-15(2) or 128-50(2) (as applicable) in relation to the timing of the acquisition of the ownership interest.
SECTION 26-157 Extension of exceptions for non-quarantined residential dwellings - co-owner of dwelling dies
26-157(1)
This section applies if:
(a) you and another individual, who is not your spouse, each hold an * ownership interest in the same * residential dwelling as either joint tenants or tenants in common (whether or not there are others who also hold ownership interests in the residential dwelling); and
(b) the other individual dies and you * acquire that deceased individual ' s ownership interest (or part of the ownership interest) in the residential dwelling, either as a surviving joint tenant or because the interest * passes to you as beneficiary in the estate of the deceased individual.
Residential dwelling originally acquired before 2026 Budget time
26-157(2)
If:
(a) you * acquired your existing * ownership interest before the time referred to in paragraph 26-155(2)(a) ; and
(b) the deceased individual had also acquired the deceased individual ' s ownership interest before that time;
then for the purposes of that paragraph you are taken to have acquired the deceased individual ' s ownership interest (or the part of the interest) before that time.
New residential dwelling
26-157(3)
If:
(a) for your existing * ownership interest, the * residential dwelling is a * new residential dwelling in relation to you; and
(b) for the deceased individual ' s ownership interest, the residential dwelling was a new residential dwelling in relation to the deceased individual;
then for the purposes of paragraph 26-155(2)(b) , the residential dwelling is taken to be a new residential dwelling in relation to you for the ownership interest you * acquire from the deceased individual.
Note:
See also section 26-159 (application of extended new residential dwelling exception for capital gains purposes).
Disregard other timing rules for surviving joint tenants and beneficiaries
26-157(4)
For the purposes of subsections (2) and (3) , disregard the effect of subsection 128-15(2) or 128-50(2) (as applicable) in relation to the timing of the acquisition of the ownership interest.
SECTION 26-158 Extension of exceptions for non-quarantined residential dwellings - relationship breakdown
26-158(1)
This section applies if, as a result of an order, agreement or award of a kind mentioned in paragraphs 126-5(1)(a) to (f) involving you and your * spouse (or former spouse), you * acquire an * ownership interest in a * residential dwelling from your spouse (or former spouse) (the transferor ) or a company or trustee (also the transferor ).
Residential dwelling originally acquired before 2026 Budget time
26-158(2)
If the transferor * acquired the * ownership interest in the * residential dwelling before the time referred to in paragraph 26-155(2)(a) , then for the purposes of that paragraph you are taken to have acquired the ownership interest in the residential dwelling before that time.
New residential dwelling
26-158(3)
If the * residential dwelling is a * new residential dwelling in relation to the transferor before you * acquire the * ownership interest in the residential dwelling, then for the purposes of paragraph 26-155(2)(b) the residential dwelling is taken to be a new residential dwelling in relation to you for the ownership interest you acquire.
Note:
See also section 26-159 (application of extended new residential dwelling exception for capital gains purposes).
SECTION 26-159 Application of extended new residential dwelling exception for capital gains purposes
26-159
If you * acquire an * ownership interest in a * residential dwelling that is taken to be a * new residential dwelling in relation to you under subsection 26-156(3) , 26-157(3) or 26-158(3) , then for the purposes of subsection 115-102(2) the residential dwelling is also taken to be a new residential dwelling in relation to you for the ownership interest you acquire. ]
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