2019 Federal Election –
The budget has been announced and the election date is now set, so what’s in store for the property market?
The budget has been announced and the election date is now set, so what’s in store for the property market? Labor has earmarked some significant signature policies affecting property – namely an overhauling of negative gearing rules and changes to Capital Gains Tax (CGT). These policies will need to pass the Senate so depending on the outcome of the election and the balance of power in the Upper House, it’s unclear how these contentious policies will fare. This article will mainly focus on Labor’s policies as Liberal policy is predominantly ‘steady as she goes’.
Labor and Negative Gearing
If elected, Labor will abolish negative gearing for investment properties with the exception of newly constructed buildings. At present, property investors who make a loss (income from rent is lower than expenses including interest repayments on loans), can offset this loss against their personal income tax. Approximately 1.3 million Australians own investment properties and utilise negative gearing to fund any losses.
These changes are likely to be implemented from January 1, 2020 if Labor is elected. Any investments made before this date will not be affected by these changes – this is called “grandfathering”. Moody’s Analytics forecasters said if these changes were implemented in the first year of a new Labor government “as investor participation had already slowed, national home values would be expected to reach a slightly deeper trough and have a slower recovery, particularly in the markets where investor participation is higher than the national average, including Sydney, Melbourne and Brisbane”. 1
Some media commentators have pointed out wealthy investors owning multiple properties will still be able to deduct interest expenses across their portfolios if they have some negatively geared properties and some positively geared investments.
Labor and Capital Gains Tax
Currently, those who sell their investment property are taxed at 50% less than their marginal personal tax rate. If you are a high-income earner paying 47% tax, you will pay 23.5% tax on your Capital Gain. Labor’s policy is to change this to 25% so the same taxpayer will be paying 35.25% tax on their Capital Gain. If your Capital Gain was $100,000, currently you pay $23,500 in tax but under Labor’s policy you would be paying $35,250 in tax. This will all be applicable for investment properties owned longer than 12 months, however newly constructed properties will stay on the current system.
Those who hold investment property now or purchase before the changes are made, will be taxed at the current rate. This policy only applies to new investments after the changes are made law.
For those Marshall White clients who predominantly purchase property in which to live, Labor’s proposed changes to CGT will not impact the family home.
The Liberal Party and housing policy
Liberal policy on housing remains largely unchanged since the 2017/18 budget which included a number of initiatives. Australians aged over 65 who wish to downsize, can now make a non-concessional contribution of up to $300,000 into their superannuation fund from the proceeds of the sale of their principal home. The First Home Super Scheme allowed younger buyers the ability to access up to $30,000 per person from their superannuation funds for a home deposit. These people are also able to make extra salary sacrifice payments into their super funds to make the proceeds build quicker.