The impending election will bring about some significant policy changes in Australia, but perhaps the most publicised is Labor’s proposed changes to negative gearing and capital gains tax.
Labor claims that by reforming negative gearing and capital gains tax arrangements, housing will, in turn, be more affordable and residential construction will be bolstered. Not all pundits agree, but what’s without question is that that if Labor do win office, many investors will take a hit to their hip pocket.
So, exactly what changes are proposed? If elected, Labor will limit negative gearing to new housing only, and as such, investors may only deduct net rental losses from newly constructed dwellings. Under the changes, Labor will honour any investments made before the changes come into effect.
The proposed capital gains tax (CGT) changes will also cause significant ripples. It’s proposed that the capital gains discount on all assets, such as property (new and existing), shares and managed funds be halved. Currently, investors that sell an asset are liable to pay CGT at their marginal tax rate, however, if that asset is held for more than 12 months, a 50 per cent discount is applied. Labor’s proposed change reduces the CGT discount to 25 per cent, so as an investor, you’d be liable to pay tax on 75 per cent of the capital gain. In line with negative gearing, the CGT changes will be fully grandfathered.
Some commentators are suggesting a Labor win at the May election is as good as guaranteed. That’s yet to be seen, but if they are successful, it’s likely the changes may come into effect as soon at 1 January 2020. So, if you’ve been contemplating the purchase of an investment property, and an existing dwelling is your preference, time is of the essence.