Negative gearing and Capital gains tax under a Labor Government

Recent behaviour in Canberra would make a Game of Thrones’ Machiavellian blush. But like it or not, we have a new PM and, if early polls can be trusted, we also have an electorate keen to pummel the sitting government. This makes a Labor victory at the next federal election a distinct possibility, so it’s a handy time to be reminded of their policies for capital gains tax and negative gearing.

Capital gains tax

Australians love beaches and sunshine and, it seems, owning loss making rental properties. In 1999, buying investment properties suddenly became very attractive when John Howard reduced tax on property sales, by half. If you’d held it for more than 12 months, you paid only 50% tax on your capital gain/profit. Combined with negative gearing, “going broke” never looked so good. But a Labor government will reduce the discount to just 25%. Investments before a date—yet to be decided— won’t be affected and neither will small business assets or investments by superannuation funds. Might be time for the nation to get a new hobby…

Negative gearing

Negative gearing is a strange beast. An investor, who spends more on making payments, doing repairs, buying insurance etc; than they earn from rent, can deduct these costs against their income. And this reduces their tax. It’s like a reward for creating housing.

But, under a Labor government, they’ll only be allowed to negatively gear brand new dwellings. Tax breaks will come only to those who’re adding to overall supply.

In July 1985, when Bob Hawke removed negative gearing entirely, rents went up in Perth and Sydney but stayed flat elsewhere. The property industry blamed this on the end of negative gearing, so in September 1987 Hawke was forced to put the genie back in the bottle.

I hope Aladdin knows what he’s doing this time…These are big policy changes.

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