Let’s be real, we’re not here to talk politics, we don’t have time to be sparking online debates BUT we do know that many of our Landlords have been wondering what this Saturdays’ election means for them and their investments. So below we have highlighted the differences between the two major party policies, broken down to basics.
Negative Gearing, as it stands, enables us to deduct losses on our investment properties from our annual taxable income.
The Liberal party has expressed no desire to alter the current negative gearing policy. The Labor party has voiced that they plan to limit negative gearing on newly built properties as of the 1stJanuary 2020, in alignment with their support for the Build-to-rent scheme (below). All investment properties purchased prior to this date will be unaffected (we can continue to claim their losses), but anything purchased after this date will come under the new limitations.
Capital Gains Tax is the tax we pay on the profits made from the sale of an investment asset; it forms part of your taxable income for the year. In 1999 the Howard Government introduced a CGT discount of 50%, on the profits of all assets that have been owned for over 12 months. Significantly reducing your taxable income.
The Liberal party have expressed no plans to adjust this discount however Labor has proposed a reduction of the discount down to 25%, raising your taxable income. Again, in this case, any property purchased prior to the 1stof January 2020 will be unaffected and still receive the 50% discount.
The Build-to-rent model is a proven success over in the US and UK, this model sees developers building apartment buildings with the explicit purpose of renting them out, opposed to profiting from sales. This model spurs from the growing population’s demand for more rental housing.
In this case, both parties support the roll out of this model, agreeing upon no change to the negative gearing and CGT policies for developers that embrace the build-to-rent model. Labor also plan to lower the managed investment trust withholding rate on tax distributions attributable to rental investments down to just 15%, further encouraging developers to get onboard the build-to-rent model.
Essentially, in summary, all of your CURRENT investments will be unaffected by Labor’s proposed changes, but any investments purchased after the 1stof Jan 2020 will have new negative gearing limitations and a reduced CGT discount upon sale. It is predicted that this may spur a “mini-boom” in property sales towards the end of 2019, in order for investors to take advantage of current CGT discounts and negative gearing policies.
Disclaimer- We as a company have no political bias and are simply reporting on the information that is available and how it may affect you and your investments. We encourage you to do your own research on the proposed policy changes and form your own views. The content in our blog is for general information purposes only and should not be relied upon for your specific situation. Please speak to your financial advisor/accountant before making any investments decisions.