Labor’s plans for negative gearing & CGT

By Saeed Mirzakhani | Partner

Recently, Shadow Treasurer Chris Bowen has announced Labor’s proposal to reform Australia’s property tax system – limiting investors’ access to negative gearing and capital gains tax discounts. Labor’s anticipated announcement comes as the Federal Election draws nearer and is aimed at leveling the playing field for Australians, given the benefits of negative gearing & CGT discounts are often enjoyed by high-income earners. Both have been criticised as ineffective in increasing investment in new residential development in order to increase housing supply for Australia’s growing population.

Labor’s proposal is to:

  • Restrict negative gearing to newly-built properties from 1 January 2020;
  • No changes to negative gearing arrangements for existing investments;
  • Halve the CGT discount from 50% to 25% for investments entered into after 1 January 2020; and
  • Revamp the Build-To-Rent scheme, providing institutional investors with a tax concession to encourage the building of new rental properties. This will take the form of a managed investment trust withholding rate from 30% to 15% on tax distributions attributable to investments in Build-To-Rent schemes.
“Federal Labor’s reforms to negative gearing enjoy the support of many independent economists and think tanks like the Grattan Institute and Saul Eslake as well as international economic agencies like the International Monetary Fund,” said Mr Bowen. The Party estimates that this property tax reform will save the budget $32 billion over a decade and would raise $2.9 billion over the forward estimates.

Ramifications for Investor

There are still a number of uncertainties which extend to timing and how the reforms will be executed. People contemplating their tax strategy, around acquiring or disposing of investments in the near future, should be briefed on possible implications so they understand the impact on their individual circumstances. If you believe you are likely to be impacted by changes to property tax reforms or would like further clarity on the proposed changes, then speak with CharterNet today.