With the 2019 Federal Election fast approaching, negative gearing has become a key campaign issue as each of the major parties offer significantly different policies should they win the election.
Here we’ve outlined each major party’s election policies regarding negative gearing and the associated tax concessions.
We’ve also taken a deeper look at what’s driving the debate, some key data to be aware of, what’s happening currently in the property market and the potential impact the changes could have on investors.
In this article we will explore:
- What changes do the major parties propose?
- The impact of proposed ALP negative gearing and CGT changes
- Key facts to be aware of behind the negative gearing policy debate
What changes do the major parties propose?
The Australian Labor Party (ALP) have announced they plan to restrict negative gearing and Capital Gains Tax (CGT) arrangements from the 1st of January 2020. The ALP reforms will:
- Limit negative gearing to brand-new residential housing only from 1 January 2020. All residential property investments made prior to this date will not be affected by the changes and will be grandfathered.
- Halve the CGT discount for assets purchased after 1 January 2020, reducing the CGT discount from assets held longer than twelve months from 50 per cent to 25 per cent. All residential property investments made prior to the 1 January 2020 will be grandfathered.
The Coalition will make no changes to negative gearing or CGT concessions.
The impact of proposed ALP negative gearing and CGT changes
The clear outcome will be that second-hand residential properties will be more expensive for investors to hold. Under this policy, losses can only be used to offset income from the property itself.
Most properties run at a loss, any additional deductible losses over and above the rental income will be of no financial benefit while the property is owned.
When the property is sold, if the CGT discount is reduced, property investors will have an increased CGT liability payable on any capital gain achieved.
Additional economic flow on effects to the property market could include:
- a further decline in housing prices across the board
- less second-hand housing stock available on the market as investors hold on to grandfathered properties
- a possible reduction in the supply of new homes. Although owners of new properties will still be able to negatively gear, these properties when sold to investors will not be eligible down the track and this will affect their capital growth
- an expected decrease in available rental stock for tenants as investors withdraw from the market
- increasing rents as investors seek a higher rental yield to make up for the lack of tax concessions and demand outweighs available rental stock
- many property owners will fall into a negative equity scenario, where the size of their loan outweighs their property value putting them at additional risk of mortgage default.
Key facts to be aware of behind the negative gearing policy debate
The ALP argues property investors and the tax concessions they receive are helping to push up property prices. They believe first home buyers are being locked out of the market as a result.
When considering negative gearing policy changes, it’s important to be aware of fluctuating trends in markets across Australia. Property prices in different cities are known to move at different times and external factors such as employment, infrastructure, population growth, migration, housing stock shortages and changing demographics play a role in property prices and affordability.
Other factors, such as lending restrictions for investors by banks and depreciation legislation changes for owners of second-hand residential properties, are already having an impact on property markets.
While national dwelling values have been high in recent years, CoreLogic has reported the peak occurred back in October 2017. Since this time, there has been a 7.4 per cent fall in national dwelling values to the period to the end of March 2019. This fall translates to a $40,590 decline in national average dwelling values.
The peak (and subsequent fall) in property prices was led by Sydney and Melbourne. In Sydney, values are 13.9 per cent lower than their peak (a decrease of $124,739) and in Melbourne values are 10.3 per cent lower (a decrease of $71,404). Hobart is the only major capital city where values are yet to fall from their peak.
With property values already falling across most of the country, the Coalition argues changes to negative gearing tax concessions would be a sledgehammer to an already struggling property market.
Two other ALP arguments behind the party’s reason for changing negative gearing concessions are also critically flawed. They argue that negative gearing concessions:
- predominantly benefit high income-earners
- are allowing investors to expand their portfolios to buy their fifth, sixth and seventh properties.
The latest Australian Taxation Office (ATO) data shows 71 per cent of landlords had only one rental property for the 2016/2017 financial year. This same data also showed 64.1 per cent of investors had a taxable income less than $80,000 and accounted for 60.5 per cent of negatively geared properties. High income earners with a salary more than $180,000 accounted for just 7.3 per cent of those with negatively geared properties in 2016/2017.
BMT Tax Depreciation data for residential property depreciation schedule requests in the 2017/2018 financial year also shows that 93 per cent of investors ordered a schedule for just one property.
We encourage you to review each of the major party’s policies in more detail and make an educated decision on polling day.
To learn more about negative, positive and neutral gearing, read our negative gearing: basics for beginners article.
Should you have questions, we’d be happy to help as best we can.
It’s the 29th of May and we have a Liberal government for another term, the best of a bad bunch.
Why can’t political parties just present the facts, as BMT have done, rather than spruke their sensationalist spin all the time? We may have more respect for politicians in general if there was less spin and more facts.
I don’t have an issue with the 9 May 2017 changes, claiming depreciation over and over again (every time the property was on sold to an investor) on the same asset was gilding the lily, though not by much. And claiming travel to see your investment property on the Gold Coast twice a year (between tenancies) could have been rorted.
But the governments of either persuasion, and the rental property investment nay sayers, never look at the full situation when asking “Do property investors benefit society generally or are they self serving leaches?”
1. Not everyone wants to buy a house, but everyone needs a house to live in, therefore rentals should be affordable.
2. Negative gearing is only negative because property investors are losing money putting a roof over someone else’s head. If investors weren’t housing people then the government would have to do it, (at much greater expense), and would increase taxation on all of us to fund more public housing.
3. There’s never any mention by the nay sayers now the government gives with one hand just to take much more away with the other. Properties don’t stay negatively geared for long but then when the property is sold the government gets your marginal rate on 50% of your capital gains and the ALP wanted 75%!
4. Does anyone have the data that shows how much the government invests by partially funding the shortfall investors incur (while putting a roof over someone else’s head) vs the capital gains income they receive from investors? e.g. $10K in negative gearing relief vs $50K in capital gains tax! And not having to have a massive social housing portfolio!
5. My 19 year old daughter bought a $400k house in the Canberra market 5 years ago, entirely on her own, while paying rent, entirely through hard work and dedication to the goal. Yes she worked two jobs, but she did it at 19! So don’t tell me it can’t be done.
6. There is going to be a massive transfer of inter-generational property and wealth from today’s baby boomers to the millennial’s. Labor wanted to get their hands on some of that as well!
7. Self funding your retirement is something everyone should aspire to, not having to beg the government of the day for crumbs.
8. If you can’t buy a house to live in where you work, then buy one to invest in (houses range in price all over Australia – there is something for everyone) and rent somewhere close to work. The best of both worlds.
9. Millennial’s, don’t expect to be given everything on a silver platter. Put in the effort and you will be rewarded, but shutting down negative gearing hurts everyone!
I’m in my mid 20s and have never had the opportunity to NG before. What bothers me is that if there is to be an abolishment of NG, it should be one that affects all existing investor properties at all. None of this grandfathering business. Sure, add on a transition plan of phasing it out so it doesn’t destroy retirement plans overnight, maybe phase it out over 5-10 years.
Obviously this won’t be popular with existing investors, but not doing so will mean that the newer generation will not have the opportunity the previous generations had with building a hard earned investment property portfolio. Change it all or don’t touch it.
Hi All
We actually made the mistake of purchasing a rental property, as my husband is a self employed tradie (who is on less wages to 10 years ago) and as the retiring age keeps going up (as well as limits to adding to super fund), decided this was the way to go. We would have been better off taking out a loan putting half in a pile & burning it, rather than trying to be self funded retirees. This way we could have still had holidays and new cars, instead of getting 2nd jobs. People who rent can destroy a home, move on without consequences, go on holidays so can’t afford to pay the rent (agencies seem to support this)-but that’s another story.
Now does everyone realise that it’s our AFTER TAX MONEY going into these properties. If you are negative gearing, life is tough. All the income is added onto any job earnings & is taxed. We spent 40k of our AFTER TAX money completely renovating a property (after tenants destroyed it-yes it was rented through an agency) for someone else to live in. We cannot claim that money in the year we spent it, but can claim depn costs over several years, however any income in the year must be declared, so yes more tax. So we feel it’s a lose, lose situation.
If investors pull out of the market, rents will increase – which for us would be great. I think Rod Colley made a valid point in regards to first home buyers (though don’t think pensioners should be punished-they built the country & super wasn’t around then). My first home wasn’t new, wasn’t in the best suburb and wages and interest rates weren’t what they are today. I certainly wasn’t let off paying stamp duty because it was my first home and had to work very hard and go without to achieve it. Why punish the hardworking people, so the lazy or spoilt ones can have it all. Without investors, they’d be plenty of homeless people as loads of these don’t qualify for Govt housing. Although lots of people rent by choice.
Not sure why everyone is concentrating on investors. I personally don’t know anyone out there who has purchased a property who wants the market to drop anymore. Pretty hard to take when you purchase a property for $400K and is only now worth $320K or less, so it’s not only Investors affected-it’s all home owners.
It’s a myth that Investors are rich (really starting to think we could have been well off if we didn’t invest & worry about the future). Has anyone taken into consideration that negative gearing has increased due to the market crash? So less rent = less income, but it doesn’t decrease expenses like rate rises, insurance or maintenance costs. Rents might be cheaper but all other costs increase. I personally don’t know anyone who invests to make a loss – especially in our income bracket. Steve Bayley’s post 16/5 states it better.
At the end of the day, we are stuck with this property, as can’t afford to chuck away $100K (renovations + value loss). So maybe after 10 years with all the grief, debt and stress we might make $10-20K. Think would have been better off putting the money under the bed………..
Hi Jo,
Thanks for sharing your comment. We certainly hope the market improves for you sooner rather than later. Make sure you claim all the deductions available to you. If you need help with your depreciation claim or have any questions, you can call and talk to one of our specialists on 1300 728 726.
Thanks,
BMT Team
The scare tactics are from the Labor party who demonize investors & property owners. Negative gearing has not been explained properly to the general public. It is not for the “Top end of town”. My daughter is a university graduate who was on about $50k gross when she started and now after 10years is on about $80k gross including superannuation. She moved back to live with us and saved very hard for a deposit, and was able to borrow from the bank to buy a modest property that she negatively geared by renting it out. When she could afford to move into it, she did, & it became her home, to this date. Negative gearing is a great mechanism for someone on a low income to buy their first home, with the small sacrifice of living with their parents. If you don’t have a job due to a badly performing economy, nobody will give you a house and no bank will lend you money. I don’t know what magic wand Labor think they will wave to give young people a house. My parents lived through the depression and saved hard and purchased their first home in their 40s and paid it of before they were 65 with hard saving (as labourers). Many young people are led to believe by Labor their first home will realize without a job. They also want to have the best house in the expensive trendy areas of the inner city, rather than going to more affordable alternatives. Also, investors are not a charity and will not go into risky debt, with high costs such as land tax, maintenance & repairs etc and end up with bad tenants that are generally being supported by the rental unions & tribunals. It could take 6 months to a year to get these out, with the property left in disrepair. The problems are endless, so if Labor gets in, Investors will go elsewhere and even overseas. They will leave property to the public housing system to supply housing. The flow on effects of the destruction of the building industry will affect everyone down to even the local milk bar.If there is no business investment, there is no employment. Look at Singapore with no resources, but a booming economy, due to government tax relief. It is even taking away industry from Australia. Dow Chemicals & others, left Australia to go to Singapore. If industry is not supported, we will end up being a third world country. So if Tax relief is not given to our industry, there will be no industry. Labor can go ahead and provide highly taxpayer subsidised child care other subsidies, that no one needs, as they don’t have a job to go to. If Labor gets in, its time to move to NZ.
Hi Tash,
Thanks for taking the time to share your opinion. We appreciate your perspective.
Thanks,
BMT team
The problem I see with negative gearing is that taxpayers are subsidising an investor’s loss, yet when a taxable gain is made, in many circumstances only 50% of that gain is to be included in that taxpayer’s assessable income. This seems to be a double win for investors, and a double loss for taxpayers. Surely investors should shoulder their own losses if they choose to speculate on future price growth?
The dislocation between deductions and taxable income has added to the inflation of property prices, so unwinding it should deflate prices somewhat. Is that bad? If eating cake makes you fat, do you bemoan the fact that you can’t eat it anymore if doing so improves your health?
I think you screwed up on your wording and your audience.
I read this yesterday, and the two points that stand out in memory are:
* The proposed changes will actually depress housing startups and push up rents. This is a valid point but needs to be well substantiated.
* The demonised group that is buying up tens of properties is smaller than most people think. The changes will impact ordinary people, not just those who are making unfair use of negative gearing.
Unfortunately you’ve come across as being aligned with the top end of town and concerned only with narrow investor interests instead of those of the whole of society. You also started out with a pretence of being “balanced” but ended up coming across as coalition supporters.
You could have done better.
Hi Greg,
Thanks for your opinion, we always welcome feedback. We believe the economic flow on effects to the property market could include a further decline in housing prices across the board, less second-hand housing stock on the market and a decrease in rentals which could increase rent prices for tenants.
Thanks,
BMT Team
Thanks for the info. I think it will be a quick death to neg gearing by ALP or the death of a thousand cuts by Libs who are well down that road already.
Great article, under Labor’s plan, what happens to the rental losses for tax purposes? Do they get rolled forward to the next year? or do they get added to the cost base for CGT purposes? or do they evaporate?
Hi Brendan,
We will have to wait to see the draft legislation for all the finer details. At this stage, we know Labor’s plan would limit negative gearing to new housing from 1 January 2020. All investments made prior to this date will not be affected by the changes and will be fully grandfathered. The changes will also halve the capital gains tax discount for all assets purchased after 1 January 2020. This will reduce the CGT discount from assets held longer than 12 months from 50 per cent to 25 per cent.
Thanks,
BMT Team
Thanks for the summary.
I purchased an investment property in 2014, rented out for a few years and have since moved into it. If I switch it back to an investment property (post 1 Jan 2020) will it be considered a “new investment”? Or would the grandfathered clause be applicable since it was originally purchased as an investment property?
Hi Matt,
Hopefully because you purchased before 1st of January 2020, you should be free to claim deductions using negative gearing legislation. However, as we’ve seen before there is often detail around this in legislation once it’s been finalised. When the draft legislation is released, we will publish an update on the finer details.
Thanks,
BMT Team
“increasing rents as investors seek a higher rental yield to make up for the lack of tax concessions and demand outweighs available rental stock”. Really BMT? Have you heard of supply and demand? Investors cannot get a higher rental yield than the market demand will deliver, reduced supply will increase rents, so you are 1/2 right and 1/2 wrong.
Does Labour’s policy discuss what “brand-new residential housing” is? Does this include high density residential built on former low density sites? If it does, then Labour’s policy may help increase the density of housing in inner city suburbs as negatively gearing these properties will be less attractive than redeveloping them into higher density living. So, their policy may increase supply and reduce rents in the areas where zoning allows this to occur.
Hi Simon,
Thanks for your feedback. Property investors build wealth mostly via capital growth, under Labor’s policy we are not sure that investors will buy in new residential projects knowing very well that when they go to sell the investor purchaser cant negatively gear. Do you think that will influence the market? Or more importantly capital growth?
Thanks,
BMT Team
Not interested in what you ‘believe’ or what you think ‘could’ happen.
There are too many tax exempting features in Australia’s property market. They have inflated prices of an essential commodity (real estate), distorted the market against owner occupiers, and privatised the provision of rental housing to the less fortunate.
All these measures have provided estate agents and property investment specimens with s rich vein to mine, and distorted the tax system in the process.
Basic government welfare and services are always the first to be cut when tax revenues fall. Naturally the property industry is little affected by this as that is where the lost tax revenue due to the existing negative gearing and CGT measures accumulate.
So your views and opinions are biased, unhelpful and self-serving.
I’ve been a home owner and a property investor for 40 and 20 years respectively. I deliberately invested in NEW builds. I’ve benefited from both NG and CGT measures in that time but am an ALP voter and fully support the rolling back of both ‘benefits’.
Regards,
Mike
Hi Mike,
Thanks for your post. One of the great things about being in a country like Australia is that we are free to express our opinions and engage in respectful debate. We appreciate your feedback.
Thanks,
BMT Team
Just wondering why the discussions about negative gearing do not mention that at the end of the mortgage term, the investor has a huge asset at their disposal? (albeit minus CGT). If a portion of the rental income an investor recieves contributes to paying off the prinicpal of the loan, then why should it not be taxed? I may be missing something but that seems obvious to me.
Hi Bradley
I am not sure if I am missing something here but those that choose to invest in property or shares for that matter are doing so to save for their retirement so that they can live a comfortable lifestyle and not be a burden on the tax system. I know we are we are investing so that we don’t have to draw a pension from the government which in turn places no burden on the government, yet they choose to make it difficult to invest. Therefore people will not invest and end up relying on the government for support, surely it would be beneficial to encourage people to invest so to alleviate the burden on the government. Regards Vanessa
Hi Vanessa,
Yes it seems like some parties would prefer to fund retirement rather than support self-funded retirement.
Thanks,
BMT Team
Morning,
I am a customer of yours, my wife and I have a number of investment properties and you have saved us thousands of dollars over the years so we thank you.
Your article was very informative and you are correct these changes will effect everyone not just property owners.Jock #23 why even replay to the article.
I lean right, I have a Negative property myself, however as soon as we see these two points to argue for the retention of NG, you know its wrong and time for it to go,
– Collectively all NG housing looses money (read subsidy from taxpayer to prop up a failed investment strategy that cannot survive on its own two feet.
– Removal of NG will lower house prices. Read make the housing market for affordable for the next generation. Yes there will be a one off hit, but the rise should never have happened to the first place.
So removal of NG appears to
– Save the taxpayer a few billion a year
– Lower house prices longterm and hence allow for more money to flow into the non-housing economy supporting jobs and large retirement nest eggs.
– Allow many existing renters to buy rather than rent thus reducing demand on the rental market
If the rental market does in fact rise for the lower income earners, then there are other ways deal with this more directly as the data from the 1980’s demonstrated no link between the two so unlikely it will happen today.
If I could vote on individual policy, cancelling NG on existing property would be gone.
Hi Shane,
Thank you for your post, we appreciate your opinion. We believe restricting negative gearing could have a negative effect on the property market and the economy. For example, Labor’s proposed policy is expected to decrease the available rental stock for tenants as investors withdraw from the market and therefore could increase rental prices as remaining investors seek a higher rental yield to make up for the lack of tax concessions. This would have a negative impact on both rental tenants and investors.
Thanks,
BMT Team
Thank you for a great article and a fair one.
I struggle to understand people’s comments about property investors buying a property to make a loss.
Investors don’t buy investment properties to make a loss!
It’s an investment, it’s to make money!
With the high capital and ongoing running costs of a property investment, the rental income would have to be much higher then they are now, to make the investment worthwhile, especially if there was no ability to offset some of the initial losses of the investment. Plus when the investment is making a profit and the investor pays extra tax or GST, will the government rebate the investor back?
Negative gearing provides an incentive for the average mum and dad to provide private residential rental accommodation instead of the government/taxpayer and this is who will be impacted the most by the removal of it. The “super Rich” that BS quotes will and already have company, trusts and other vehicles that they can move their profits around to achieve the same result, with or without negative gearing.
Hi Bradley
Cheers for update,
I have enjoyed the benefits of negative gearing and hope they continue for everyone in the future.
Thanks for your article Brad. It sets out some facts that have been dishonestly misrepresented by Labour (Bill). When will Aussies learn that a Labour Gov stands for overspending and a stressed economy. Just look at the history. Hawke / Keating maybe excluded.
Negative gearing offers first home buyers access to the property market but also offers the Aussie battler (not the big end of town) the opportunity to invest in their future and avoid the reliance on gov pension.
Labour policies clearly are a grab for higher tax from minority groups that will have less impact on the attempt to buy their way into government.
More groups like you need to be heard and understood to counter the misinformation and simple arguments put forward by political debate.
Hii
I am a tradesman who works 6 days a week and has 9 investment properties in the inner city of Sydney
Irrespective of who wins this election I have no intention of ever selling any of them but will soon parcel them thru a trust somehow to my children where they will derive an income but not be able to sell them
I am in the highest tax and medicare bracket and pay about $110,000.00 a year in land tax as well as PAYG on top of my normal weekly wages tax
I believe that rents will increase because there will be a shortage due to investors putting their money elsewhere
Hi Bradley and team great article just wondering how the new laws would affect investors who already own a old property and decide to knock down and rebuild a duplex. Which method would be used. Thanks Charlie
Hi Charlie,
We understand Labor’s proposed policy would limit negative gearing to brand-new residential housing only from 1 January 2020 so the duplex will be fine. All residential property investments purchased prior to this date will not be affected by the changes and will be grandfathered. ‘
Thanks
BMT Team
Thanks so much for the article Brad. I am finding it hard to understand about these young home buyers not being able to get into the market for their first home. Almost all of the young people I know either family or friends just want to buy a brand new place for top dollar & have the biggest most expensive car. My advice to them is do exactly what I did. Buy a place that is a bit run down but still liveable. Pay it off as fast as they can. That way they can renovate after they have paid off their mortgage or chip away slowly during paying it off. I now have 2 investment properties as a result of this. I have worked very hard to get where I have & am determined to be a self funded retiree. As for the Labor government targeting the top end of town. Most of us started from the bottom & worked hard to get there. Labor is penalising so many hard workers & supporting a lot of people who aren’t prepared to work hard. Also a large percentage of pensioners who are whinging about low pensions may not be in that position if they invested wisely & didn’t squander their money. Bottom line : Don’t penalise hard workers that don’t ever want to be on a pension & young people be prepared to do it a bit tough for a while instead of wanting the best of everything straight from the start!
If an existing property (not new) is bought prior to 1 Jan 2020 as a primary residence and at a later date, say July 2022 rented out. Would you still be able to sell it (within 6 years) and not pay CGT?
Hi Tony,
Labor’s proposed policy will halve the capital gains tax discount for all assets purchased after 1 January 2020, reducing the CGT discount from assets held longer than twelve months from 50 per cent to 25 per cent. All residential property investments made prior to the 1 January 2020 will be grandfathered.
Thanks,
BMT Team
hi, this really helps to make me understand why my children are apprehensive about Labor’s policies, rightly so.
No, we’re not well heeled and have earned our means to exist without handouts, rented for the most part and had a mortgage on a home lost it when the interest hit 17.5% (1990’s).
As some noted this to be a pro Liberal piece, it did sound that way to me, as a past Labor voter/member and a once off Green voter ….it makes little sense to follow/adhere to a party because it makes you believe it is their for ‘workers rights’….it isn’t, this was lost back in 50’s when Labor diverged from the Australian first political Labour Party. Now back to negative gearing and CGT the changes alongside sliding RE values thanks to greedy banks ( counteracting lost in risky deals) will greatly affect the up coming tax payer belt… the working men and women, young and middle aged. This policy is aimed at ‘election grabbing’ by any means.
Real estate values across the Sydney and Melbourne are clear victims of Real Estate Industry that uses ‘media’ values for homes rather than proper valuations, these ‘used car salesmen’ are prone to overstate values just to get the deal and then steamroll you into giving it away for hundreds thousand less, I know as they almost succeeded to do that to my elderly mum’s property, unfinished business here as the bureaucracy has a lot to answer to.
Some people are not great money managers and in that lies a lot of bankruptcy problems, then there are ‘dodgy finance men and women’, etc.
Real estate will balance out mainly due to demand which hasn’t abated but it should allow for those who have the means to buy their first homes BUT not where they want it but where they can afford it.
Cheers
Great article. Labour policies are scary for those of us who have worked hard to build equity in property.
Hi Bradley – hope you don’t mind I shared your article (which I think is great) on the Commsec (Shares) forum.
Cheers and thanks for all your help along the way when I did have an investment property (which we now live in happily – thanks to renting it out and using negative gearing to help pay for our property which we now own outright). It allowed us to retire early and reap the benefits of over 37 years hard work in our chosen industries. We now live happily in Palm Cove Paradise.
Great article, spot on! Would I be able to feature this article on my website in my News and Advice section?
Hi Alex,
Thank you, we’d be happy for you to feature our article.
Thanks,
BMT Team
Are commercial properties affected?
Hi Ed,
No. At this stage, the proposed negative gearing changes do not mention commercial properties, so we are expecting them not to be affected. However, we will have to wait to see the draft legislation.
Thanks,
BMT Team
I understand the positions of both Labor and Liberal parties on the negative gearing changes. However what is not clear is the impact on property prices, as each party has a contrasting and self-serving narrative. What will be the impact as per the property sector, independent of what the other party is saying?
My view? No-one _really_ knows what the impact on the economy; or individuals/families, may be, regardless of whether those individuals/families are FHBs, downsizers, upsizers, investors or speculators.
It’s a very, very complex situation.
We can, however, predict what individuals _might_ do… given the range of possibilities.
Here’s what we’ll _probably_ do; as fully-independent self-funded retirees:
1.) Cease building (affects supply negatively, if this is a common response).
It may not be, as NG will apply to new builds. But new CG rules may limit new builds(?)
2.) Cease buying (affects supply positively, if this is a common response);
3.) Hold our fully paid-off rentals… and sell (without agents) to tenants. This _may_ assist FHBs;
4.) Draw down on wife’s Super, until it’s gone;
5.) Move to ETFs when any major correction or crash occurs…
(ETFs through Vanguard (non-Super), or HostPlus (Super.)
It seems to us that fully-independently self-funded retirees are the (fortunate) but forgotten few. Not bitching about this, but we get zero help with medical and pharmaceutical expenses, etc. Nor do we complain that others receive old-age pensions, or proposed increases, etc. A fairer Australia _is_ a better Australia. We just won’t subsidise others’ rent any more than we _already_ do… .
We’ll simply get out of housing, during the next decade or so… .
Very thorough examination of the issues. Thanks!~
It’s important to remember that the LNP quite recently abolished lessors’ rights to claim detailed, legitimate travel. In our case, we’re positively-geared, but this treachery leaves us out-of-pocket, when we travel from one rural area to another, to undertake gardening, repairs, etc.
Response to our plea to our local WA Lib, was basically:
1.) It’s difficult to assess whether travel claims are legit.;
2.) Hire a contractor to do this work.
OK, we realise this throwaway response serves small businesses before (entirely) self-managed retirees… and often property managers who attract a percentage from their Work Orders… but this grubby decision did not take into consideration the rules in existence at the time we built these rentals; nor does it take into account the high precedence of politicians’ own questionable travel claims. (Watching Morrison wax lyrical on the importance of ‘scrutiny’ while typing this.)
Bottom line? We’ve stopped building rentals. We’ve stopped buying rentals. We’ll continue to hold, until tenants buy ‘their’ homes from us (as they do! And we’ll case voting LNP. Never, ever again.
Question I have investment apartment which I negatively gear I am only on the average annual wage with labors policy with grandfathered properties If a grandfathered property is sold and the new owner is an investor can the property still be grandfathered if the new owner immediately continues to rent property after settlement
Hi Andrew,
No, under Labor’s proposed policy the grandfathering only protects people who owned properties prior to the 1st of January 2020. Properties sold after this date will not be able to claim additional losses using negative gearing legislation.
Thanks,
BMT team
This is a simplistic, partisan and unjustified contribution. Most of your predictions are controversial. Running Australia must be done considering the public good over a large range of issues and for the long term, not just on what is best financially for some.
Why is it good that most investments run at a loss? If companies and the whole society operated like this we would be stuffed!
I will not use your services again.
Hi Eric,
Thanks for your feedback. While we appreciate your point of view, we believe the proposed changes will have a negative flow-on effect for the economy. We hope you understand our opinion.
Thanks,
BMT Team
So, 71% of investors with only one rental property isn’t considered a majority? And these people are investing for their RETIREMENT! What about the flow on effects for renters (higher rents and poorly maintained properties). The flow on effects to small business? The plumbers, electricians, maintenance people of all types? Don’t these people count? I’m actually surprised that the ALP has not considered flow on effects to the community at large. It seems substantial for the majority of people. I think it’s a terribly blind and poorly thought out policy.
All property developers do is knock down old properties (on 1/4 acre blocks) and put up units or flats and crowd people into a smaller spaces. They buy the land at hugely inflated prices which allows the State Government, via the council, to commit extortion through land tax for anyone with an investment property in an area where that has occurred. I doubt whether they are going to stop doing that. It’s because they’re getting away with it.
Has anyone done a Net Present Value (NPV) calculation versus the capital gains discount percentage offered by the ATO comparison?
I did this around 2000 when the 50% rate was introduced and based on the allowable indexation rate (CPI) at the time, the NPV was still positive for a property investment I purchased early 1990s. The sweet point was around 40%, where NPV was zero.
With the proposed 25% discount, I suspect that the NPV would be negative using the average numbers (property price increase, loan rates, rentals rates) over 7/10/20 years. Hence not worth investing in property at all.
It appears that the older indexation calculation method would be fairer. i.e. all the profit in real terms would be taxed.
Hi Peter,
Thank you for your comment, we always welcome respectful discussion at BMT. We don’t support Labor’s proposed negative gearing policy because we feel it would have a damaging effect on our economy.
Thanks,
BMT Team
An excellent article, very facts based. Glad to have far better understanding of changes that may come and affect us.
Many thanks!
Ratko
Dear Bradley,
Thanks for your analysis. It reads like an endorsement for the Liberal Party.
Please consider that not all of your clients are motivated by self-interest alone.
It is clear that for young people (those without rich parents) to have any chance of home ownership there must be a sustained fall in house prices. Whether that comes about from changes to tax policy or increased supply is a matter for discussion. However the fact is someone (existing investors) must lose a little in order for younger people to win.
I personally am prepared to be in the losing side if it means my children and other young Australians have the same opportunity as I did to afford their own home.
In the end this is a “priorities” question. Property investment should always sit below home ownership when it comes to social policy and tax settings.
I know my position is not what you would like to hear since your whole business is based on asset depreciation but you don’t need to be concerned as many (including myself) will continue to invest in property after the proposed changes. It will still represent a sound investment and an important part of any balanced portfolio.
Best regards,
Mark.
Hi Mark,
Thanks for sharing your thoughts on this topic. Negative gearing doesn’t discriminate and is available for anyone to use. It often creates a good opportunity for people to get a foot in the door as an investor. At BMT, we believe the proposed negative gearing changes are likely to have a negative impact on our economy.
Thanks,
BMT Team
Totally agree that it reads like an endorsement for LNP. My understanding is they are grandfathering existing investment properties anyway so won’t affect people who already own investment properties. So I find it hard to believe the doom and gloom you put forward. If housing prices drop to be more affordable this is excellent for young people and those who don’t own yet. This article seems to be reflecting privilege and wanting to hold onto privilege instead of encouraging equity for people
Hi there,
Thanks for sharing your opinion. We believe the proposed negative gearing changes would see a further decline in housing prices across the board and decrease the available rental stock for tenants as investors withdraw from the market. This could increase rental prices and negatively impact both investors and tenants.
Thanks,
BMT Team
totally flawed analysis. its not the percentage of people and there incomes that is important here; tell me the $ amount perspective of the NG benefit. as ALP pointed majority of the money is enjoyed by high income earners, even-though low income earners do NG for 1 or 2 homes; the scale in terms of $ is much less.. I know BMT has vested interest in investments. please accept it and leave the people decide.
Hi Harry,
Thanks for your feedback. We understand that there are different numbers to consider, however we believe this policy will negatively impact the economy. For this reason we have pointed out the details of the policy.
Thanks
BMT Team
BMT, I am a customer of yours and own an investment property.
If you want to provide a proper opinion of the impacts of negative gearing you should look at pre tax income. Most investors (as you state 64.1% of investors) have after profit incomes of less than $80,000 BECAUSE they use the losses in real estate investment to reduce their taxable income.
I am a self funded retiree and I am prepared to see housing prices fall (and lose the franking credit give away to people who do not pay any income tax) in order to bring some equity into the market and give my children a change to but a home for their growing families.
The exceptional benefits of these laws have benefitted a small proportion of our community at the expense of the majority who are struggling to buy a home. The laws must become more equitable
Hi Keith,
Thanks for your feedback. We’re lucky enough to live in a country where we are able to freely share our opinions, irrespective of the difference.
Thanks,
BMT Team
Thanks for the article Brad and team! If these scaremongering tactics from the ALP work, it will my make it more difficult for the average person to self-fund their retirement, meaning more people would have to claim the maximum pension.
Also, I just had a look at the proposed Negative Gearing policy from the ALP: https://www.alp.org.au/negativegearing , I quote:
“Generous property tax concessions mean that first home buyers are being locked out of the housing market, having to compete with investors looking for their fifth, sixth and seventh homes. Under the Liberals, the cohort of investors with five investment properties is growing at six times the rate of those with one property.”
Unfortunately the 2016–17 statistics on the ATO web site are the most current, however they tell a completely different story. The table is located here: https://bit.ly/2E6yn3h
– Approximately 2 million individuals put down 1 or 2 properties on their tax return.
– Approximately 40,000 individuals put down 5+ properties on their tax return.
40,000 people out of a population of 25 million doesn’t sound like much of a cohort to me.
Well who cares about investors, obviously you do as you stand to lose money, but my belief is housing is a basic essential and not to bd used as an investment tool, by into commodity companies or the like , it is absolutely selfish to think that tax payers should subsidise one gamble into home investing when some poor people struggle to get even a dream of entering the over inflated market , greed is not good.
Hi Jock,
Thanks for your comment, we appreciate your feedback. We believe that the proposed negative gearing policy could have a negative flow-on affect for our economy, which is why we have outlined the details of Labor’s policy.
Thanks,
BMT Team
Jock – Even more fascinating than your solution for housing affordability, is your take on investing generally.
Incidentally, not everyone wants to buy a house to live in. There are many reason why people don’t want or cannot commit to a long-term home purchase (eg students, ex-pats etc). Rental properties are still very much a “basic essential” as you put it. Imagine trying to find a house to rent if there were no investors..