Big Changes For Property Investors Expected After Federal Election
Property investors can expect substantial changes to the tax and legislative environment in which they operate after the federal election. Based on current polling and betting markets, a strong Labor majority is expected. Labor’s stated pre-election policy is that they will substantially roll back negative gearing should they be elected. Opposition trade spokesman Jason Clare said his party would clamp down on negative gearing “within the first 12 months of a Labor government”, in order to improve housing affordability.
According to the ATO, rental property is negatively geared if it is purchased with the assistance of borrowed funds and the net rental income, after deducting other expenses, is less than the interest on the borrowings. This net loss can then be deducted against other income, such as a salary. For many property investors, particularly high income earners, this tax concession is a major incentive for owning property and expanding their portfolio.
Labor’s policy has several components. For newly built properties, negative gearing will still apply. However, for existing properties, negative gearing would be removed. The policy would be ‘grandfathered’, meaning that properties sold prior to the legislative change will still attract the negative gearing concession so that the policy is not retrospective. When an existing property is sold, the buyer would no longer be able to negatively gear. Additionally, Labor has proposed lowering the capital gains discount from 50% to 25%, increasing the tax payable when a property is sold.
In considering the implications of such a policy, it is important to note that economists widely disagree on the impact of negative gearing on property prices, and also rental prices. Proponents of negative gearing have long argued that it reduces rents, however there is not substantial evidence to support this. Both major parties talk about ‘affordability’, but by definition housing affordability is the inverse of rising property prices. Property cannot be simultaneously increasing in value (the cost to purchase) and be more affordable.
Certainty Property does not have a political view, or a position on whether the suggested changes are beneficial for the country as a whole. Our job is simply to keep our clients informed of upcoming legislative changes. What is clear however, is that under the proposed changes, investors can expect substantially lower tax concessions from their property portfolio.
If you’re interested in discussing how Certainty Property can assist you, please give us a call on 1300 577 298, or send an email to email@example.com.