With the federal election approaching, negative gearing has been appearing more frequently in the media. Many investors will be wondering how Labor’s proposed changes will affect them if elected to power.
Robert Rich from Endorphin Wealth Management believes that a timeline for the changes being introduced will be difficult to determine, though if Labor wins convincingly they’ll be moving swiftly to make their mark on the political landscape, meaning we can expect the new laws to be pushed through quite quickly.
In a recent blog post, Robert outlines that currently, “Australian tax law allows investors to claim a deduction for an expense incurred in the course of generating their taxable income. This reduces their taxable income and therefore their tax payable.
“Labor’s proposed negative gearing policy, should they win at the next election, will end negative gearing on all properties except new builds. Labor has also proposed to halve the capital gains discount from 50% to 25%.
“Their intention was to level the playing field for first homebuyers competing with investors, improve housing affordability and strengthen the Commonwealth Budget position through limiting these subsidies.”
Robert continues on to explain how the changes to negative gearing could impact you, “should Labor’s policy come into effect, your options for purchasing a negatively geared property will be reduced to new builds only.”
If you are already claiming the deductions of a negatively geared property, you should be able to continue doing so as the laws would apply to new arrangements.
Robert suggests that the abolition of negative gearing will have a downward impact on house prices, he proposes “the potential benefit of decreased demand is reduced property prices in some segments of the market.” This may help first-home buyers get into the market at lower price points.
As the rental market continues to strengthen with rents consistently rising across Melbourne, properties that were previously negatively geared could become positively geared in the future, increasing rents may give owners additional cash flow (whereby negative is not applicable).
You can read the full article by Robert Rich from Endorphin Wealth Management here. If you would like Melbourne Real Estate to assist you with a free rental health check, please contact us on 03 9829 2900.