Apr 15, 2019 1:39:48 PM

Changes Ahead: Capital Gains Tax and Negative Gearing

Topics: Selling, Property Investment, Home Loans 0

The 2019 Australian federal election will take place on 18 May 2019 to elect members of the 46th Parliament of Australia. The poll will decide whether the conservative government wins a third term or is replaced by a Labor administration led by Bill Shorten. In the lead up to the election, the ALP has announced a number of proposed changes around capital gains tax and negative gearing. Read on to find out how this could impact you.


Negative Gearing
If the Australia Labor Party gains government, it will begin to make changes in January 2020. One of those changes relates to negative gearing – where investors borrow money to invest and the income received in the form of rent is less than the expenses owing such as loan interest and other costs. Investors making a cash loss are able to claim against other taxable income to lower their overall tax rate and payments.

As Australia needs a large pool of investment properties to provide rental stock, negative gearing has helped many investors struggling to invest in property because of the high costs involved. In the past however, some investors on high marginal tax rates have been permanently negatively geared in order to claim the tax concessions.

Labor is proposing that all existing negatively geared investments will be quarantined and continue under the existing rules. Future negative gearing will be limited to new housing only and losses from negative gearing other investments will not be allowed to be claimed against salary and wage income, but rather against other positively geared assets.

While existing investors will not be impacted by the changes, limiting future property negative gearing to new housing only will encourage new property developments while reducing investor demand for existing properties, which could help reduce house prices helping first home buyers into their own homes.

Capital Gains Tax
Capital Gains Tax is the tax applied to the profit made between buying and selling an asset – after costs are deducted – and is added to your income and taxed at your marginal rate. At present, if you hold the asset for longer than a year, only half the capital gain is added to your taxable income, essentially a 50 per cent discount.

Labor is proposing that all existing investments will continue under the existing CGT rules but that all new investments will be subject to a 25 per cent discount rather than the existing 50 per cent. New investments by superannuation funds and small businesses will be exempt from the changes.

The ALP says that the CGT discount is currently skewed towards high-income earners at the expense of aspiring home buyers, and that changes to CGT and negative gearing concessions could raise $2.9 billion over four years.

If you have questions around the changes to Capital Gains Tax and Negative Gearing and its impact on you as a property investor, talk to one of our team. Likewise, if you are considering investing in property, this may be a good time to talk to one of our brokers about your options for finance.


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Finservice Pty Ltd (Mortgage Express) for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication. A Disclosure Statement is available on request and free of charge.

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