– Negative gearing is a hugely popular strategy in Australia due to the associated tax benefits.
– There is a lot of political chatter about changes to this as an election approaches.
LABOR POLICY – Proposed
1. Limit negative gearing to new houses only
Negative gearing limited to new houses from 1 July 2017. All investments made before this date will not be affected by this change.
Targeting new homes it is proposed that this policy would help increase housing supply and therefore reduce record high housing prices in Sydney and Melbourne as supply side forces are boosted.
2. Net rental losses only deductible against other investment income
Rental losses on existing properties will only be able to be deducted from other ‘investment income’. You will not be able to deduct rental losses against your salary and wages, which is the strategy of many property investors currently.
These losses could be carried forward to reduce the taxable capital gain when assets are sold; this could result in investors being forced out of the property market to make way for first home buyers and occupiers, with a potential flow on effect being increases to rent prices!
3. Capital gains tax discount reduced to 25%
Labor plans to reduce the capital gains tax discount from 50% to 25%. This would likely mean existing assets would need to be grandfathered or it is expected the reduction in the discount would be phased in.
FEDERAL GOVERNMENT POLICY
The Federal Government is understood to still be working on its plan for a shake-up to negative gearing. It is expected the policy will either cap the number of properties that can be geared by investors, or limit the annual tax deductions that can be claimed.
Record housing unaffordability and reducing Tax revenue is creating a focus on policy in this area so it likely we will see some changes though they will kick in after July 2017 I would predict.
Please contact me on 02 8207 6721 to discuss, David Jepsen.