A top-rate taxpayer with two investment properties would be about $19,000 a year worse off under the Labor Party’s plans to change negative gearing. Consequently, many people believe that property investors should be running for the hills, or that potential investors should buy before the changes applied.
However, the reality is less than satisfactory. Because it’s been suggested any changes would be “grandfathered”, meaning investments existing before July 1, 2017 would be exempt. And it’s looking highly unlikely that Labor will win the next federal election.
Observers inform that any expectation of a Labor win could cause a stampede at property markets as buyers look to snap up investment properties before they lose the grandfathered negative gearing tax and capital gains tax (CGT) breaks. Part of Labor’s plan is to decrease the CGT discount from 50 per cent to 25 per cent. It proposes to limit negative gearing to newly built investment properties. Observers also warn of the impact on existing property investors who, while still being able to make use of negative gearing tax breaks, may lose out when they trade their properties if the proposed changes depress the market and put off buyers. In such a situation, in order to avoid losing money, many investors would probably leave the property market or put up the rent.
But others see positive benefits from Labor’s proposals and have sought to debunk the myths around who really benefits from negative gearing and its influences on rents and housing supply. For example, one of the benefits of changes to negative gearing is that it makes housing more accessible for first home buyers. Also, it is obvious that every time an investor sells a property, a current renter would buy it, so there is one less rental property and less tenant, and no alteration to the balance between supply and demand of rental properties.
Reference: Schlesinger, L. 2016, ‘What negative gearing changes could mean to you’, Australian Financial Review, viewed 22 April 2016,