This year there will be an election, and at this moment in time things aren’t looking good for the Liberal National Party (LNP). Two messy leadership spills reminiscent of the Australian Labor Party (ALP) fiasco concerning the Rudd/Gillard/Rudd era of politics have lead to news polls pointing at a Shorten ALP government in 2019, and with this should come ALP promises to change negative gearing. This prospect sounds scary to some and confusing to others. To fully wrap our heads around the changes we need to breakdown what negative gearing actually is, what the ALP policy promises are and how this will affect anyone buying an investment property.
One of ALP’s proposed changes is to remove the tax benefits offered by negative gearing. A very simple way to describe negative gearing, is when you buy a house as an investment, when tax time comes around you will be eligible for an income offset if your investment costs are greater than the rental income. There is also discussion around Capital Gains Tax (CGT) and a reduction in the discount offered on CGT. Currently, if you sell a property you’ve owned more than 12 months, there is a CGT discount of 50%. ALP has plans to cut that discount to 25% after the next election (assuming they win).
The Journos and Newspapers are beating up what this amendment to negative gearing will do. LNP are pushing the opinion that it will increase rental prices, and that the housing market might crash. Some of these outcomes could come from the banks, immigration, foreign investment and investors selling to beat the crash. The list is long with too many variables and hypothetical’s based on market forecasts to bother trying to pinpoint one specific aspect before the next election.
Despite the fears, there are many upsides to the changes in negative gearing both for the economy and prospective buyers. The CGT discount only started in 1999 boosting a massive amount of claims since then which have been an economic drag that benefited mostly high income earners. At the moment the top 20% of earners are the ones who benefit most from negative gearing with the top 10% receiving nearly 70% of that benefit. According to the ATO the top beneficiaries of negative gearing are lawyers, anaesthetists and surgeons. But there are many people on lower incomes who manage to invest in property and negatively gear, and since the negative gearing changes won’t affect investments owned prior to the changes, now would be a great time to invest in real estate.
These amendments should also lead to an opportunity for first home buyers. Previously First Home buyers were typically in their 20’s and now the majority are in their 30’s; with these new changes it will decrease some advantages held by investors have and give first home buyers a better opportunity to get into the market. If you are a First Home buyer or an investor contemplating expanding your Property Portfolio, now is an advantageous time to do so. However, if you are looking to buy your first home then waiting for the election might be the way to go.
The important thing to do is research the market, keep an eye on the forecasts and don’t be afraid to talk to a real estate agent. They will be able to help you with any confusion and assist you with a personal plan for your future.