Speculation around negative gearing and what it means for potential investors
Negative gearing is a hugely popular strategy in Australia due to the associated tax benefits.
As the election approaches, there has been increasing speculation as to how eliminating negative gearing would affect the Australian housing market. Record housing unaffordability and reducing tax revenue is creating a focus on policy in this area so it‘s likely we will see some changes in the coming years.
LABOR POLICY – at a glance
- Limit negative gearing to new houses only
Negative gearing limited to new houses from 1 July 2017. All investments made before this date will not be affected by this change. By targeting new homes it is proposed that this policy would help increase housing supply and therefore reduce record high housing prices in Sydney and Melbourne as supply side forces are boosted.
- Net rental losses only deductible against other investment income
Rental losses on existing properties will only be able to be deducted from other ‘investment income’. You will not be able to deduct rental losses against your salary and wages, which is currently the strategy of many property investors in Australia.
LIBERAL POLICY – at a glance
The Federal Government is understood to still be working on its plan for a shake-up to negative gearing. It is expected the policy will either cap the number of properties that can be geared by investors, or limit the annual tax deductions that can be claimed.
Overall, the likely outcome of any change is downward pressure on land values. As the CEO of mortgage broker Yellow Brick Road has said, the removal of the scheme “will kill the investment market.” Mortgage brokers like Yellow Brick Road and Mortgage Choice have nothing to gain from the proposed changes.