As a property owner, you may be wondering what these changes mean for you. In this blog, we break down what negative gearing means, what Labor’s proposed changes are and how the changes could affect property owners.
What is negative gearing?
Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss, which can normally be offset against other income including your wage or salary, to provide a tax saving.
What are the proposed changes?
Labor’s negative gearing policy will mean that from 1 January 2020, investors won’t be able to write off the losses from their property investment against the tax they pay on a wage or salary if they buy an existing property.
Is it the end for negative gearing?
Negative gearing will still be available, even after 1 January 2020, for newly built dwellings and the policy will not be backdated so if you already negatively gear an investment property you can continue to do so.
What are the proposed changes to capital gains tax (CGT)?
Labor is also proposing to halve the capital gains tax discount for all assets purchased after 1 January 2020 from 50% to 25%.
What might these changes mean?
Many experts across the finance and property industries have spoken out against these policy changes. There are concerns that removing the tax concessions will drive down house values and push rents up. Property prices may fall because investors will push for a lower price if the tax breaks are reduced and there will be less competition for existing properties. Rents may increase if investors decide to charge higher rents to recoup the tax offsets they would have otherwise received. There are also concerns for mum and dad investors who use negative gearing as a strategy within their retirement plan.
That said, this policy change is part of the Labor party’s plan to improve housing affordability and support housing construction. Experts who support the changes share the view that the current tax concessions for investors contribute to first home buyers being locked out of the market and that the policy changes will help to level the playing field. The changes are intended to support housing construction to help address Australia’s housing undersupply issues. The negative gearing tax concessions will remain for new properties which may encourage investors to Build to Rent, resulting in access to more long-term tenancies for renters.