Negative gearing and capital gains tax changes explained


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5/24 Conrad St, St Albans is for sale after investor Darren Arandez renovated it.


If you borrow money to invest and then the income from the investment is less than the expenses, you can negatively gear the property. This only makes sense as an investment strategy if the property is expected to rise in value. Essentially it means you can claim your losses as they occur — meaning a lower income, which means paying less tax at the end of the financial year.


Capital gain is the difference between what it costs to buy a property and what is received when it sells. It is added to assessable income and can significantly increase the tax that needs to be paid. At the moment individuals can get a 50 per cent discount on the capital gains they make when they sell an asset they’ve held for at least 12 months.


— Limit negative gearing to new housing from January 1 2020 (all investments made prior to this date will not be affected). This is to boost housing supply and jobs.

— Halve the capital gains tax discount for assets bought after January 1, 2020. Will reduce the capital gains tax discount from 50 per cent to 25 per cent for properties held longer than 12 months.

Potential negative gearing and capital gains tax changes have been the talk of the property world in the lead up to today’s election.

But what does it all actually mean?

If Labor win the federal election, from January 1, 2020 it plans on limiting negative gearing to new housing and halving the capital gains tax discount for all assets purchased.

It means investors won’t be able to write off their losses from negatively geared properties and they will have to pay more tax if they sell a property.

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Negative gearing changes could prompt investors to raise rents to make up the shortfall from lost tax benefits and because there could be less rental properties available.

If Labor is successful, Advantage Property Consulting director Frank Valentic expects there to be a mad rush of investors before January 1.

“There will be a surge in investor activity for older style properties, I do not think there will be a surge for newer style properties because they will still have negative gearing deductions afterwards,” Mr Valentic said.

“Many investors are holding off before the election.

“Some prefer to know the certainty of their future and political party in power.”

Darren and Michelle Arandez with their kids Jerome (18), Tristan (12) and Shae (21) at the investment property they own in St Albans. Picture: Andrew Henshaw

He expected units less than $600,000 and houses less than $800,000 to be in demand with investors.

Mr Valentic said he had quite a few clients that were gearing up to buy property in the next few years but were trying to sort out their finances to make sure they were ready to buy before January 1.

“Investors I know feel like they have been dealt the rough end of the stick,” he said.

“For investors after capital growth and wanting to get properties that are older style, established or period style, they’re the investors that are definitely against the changes.”

However, he said for some investors it wouldn’t mean any change.

He said it wouldn’t bother investors interested in buying new properties that focused on getting the depreciation benefits rather than capital growth.

Inside the St Albans property Mr Arandez is flipping.

He said it might have been a good policy seven years ago when the property market was booming and it was hard to buy and there was the five-year growth period from 2012-2017.

“This strategy might have worked well to try and slow the market down and get first-home buyers into the market which is what Labor is saying they would like to achieve, but not in this current climate,” he said.

“The Melbourne market has already seen some areas dropping 20-50 per cent in the last couple of years so I think it is a policy that is not in keeping with the times and current market conditions.”

Hodges Sandringham director Angus Graham said if Labor did get in it would be interesting.

“A lot of people will be wanting to buy before the end of the year and if you do buy in the next six and a bit months your negative gearing won’t be touched,” Mr Graham said.

“Fifty per cent of my buyers are looking for an investment.”

11 Henrietta St, Hampton East sold to an investor for $797,000.

He took 11 Henrietta St, Hampton East to auction earlier this month and it sold for $797,000 to an investor.

The house was on 558sq m of land and was in poor condition.

“Investors are out there looking and if they can get the money they will purchase before the end of the year,” Mr Graham said.

Bill Shorten has proposed these changes to improve housing affordability and support housing construction.

His party says current arrangements predominantly benefited high-income earners.

However, its policy says it will help support the construction of 250,000 new affordable homes and encourage more build-to-rent housing construction.

The Labor policy aims to be good for the budget and good for first-home buyers as it would help put them back on a level playing field with investors.

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