The ALP may change CGT & negative gearing

The Australian Labor Party has proposed to change the negative gearing and capital gains tax rules regarding certain investments including Investment Property and Shares. While the ALP Policy changes are proposals at this stage, the outcome for property investors may be serious. The ALP noted last week, that if elected, the changes would come into effect on 1 January 2020. However, for now, there is no impact on investments acquired before this date. We’ve outlined briefly the changes below.

Changes to investment property negative gearing

The ALP has announced that they will limit negative gearing to new housing. Negative gearing is when the income that you derive from an investment is less than the expenses that you incur. You are currently able to claim any losses against other taxable income. This income currently includes salary and wage income.

Under the proposals, only new properties purchased after 1 January 2020 will be eligible for negative gearing. This means that taxpayers will only be able to deduct losses against other investment income, such as positively geared investments. It is not possible to deduct those losses against wages and salary income (unless the losses have been derived from a ‘newly constructed’ property).

The policy seems to favour mature investors who may have a combination of positively geared and negatively geared properties. Most people, with a single negative geared property purchased after 1 January 2020, will be detrimentally effected by these changes.

Tax concessions for shares may also be affected

The proposed changes to negative gearing will have a significant impact on negatively geared share investments. As with new investment properties, losses from share portfolios (invested after 1 January 2020) will only be offset against tax liabilities relating to investment income. This includes income directly relating to the investment (e.g. dividends, managed trust distributions) and positively geared rental income.

Capital gains tax changes

Under this proposal, the CGT discount for assets held longer than 12 months will decrease from 50% to 25%. This could mean thousands of additional dollars paid in tax on the sale of investments in the future.

The ALP has announced that investments in self-managed superannuation funds will be excluded. In addition, there will be no changes to the existing small business capital gains tax concessions.

These are proposals at this stage and there will be an election. No doubt there will be many iterations before the proposals are legislated.  If you would like more information about how this may affect your future investment strategies, please contact Milestone on 02 6102 4333.

 

 

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