Property investors using negative gearing have been warned that their ability to do so will be significantly curtailed if a Labor government is elected later this year.
A policy announcement on negative gearing released during the recent NSW Conference of the Australian Labor Party said that a future Labor government would limit the use of negative gearing to new housing. {See below for the government’s response}
This announcement is Labor’s latest tax policy initiative that follows the recent escalation of debate over the possible increase of the goods and services tax as a part of any tax reform package.
The plan to end the application of negative gearing to new housing would begin on 1 January 2017.
This change will mean that those investing in existing properties after that date will not be able to claim losses incurred in that investment process from their regular income.
All investment properties that have been negatively geared by taxpayers prior to that date will be grandfathered under the approach outlined by opposition leader Bill Shorten.
Shorten said the objective of the proposed policy change was to refocus the attention of investors on the building of new properties rather than the purchase of existing dwellings.
He said that investing in existing properties does little to contribute to economic growth, and there is more to be gained in encouraging the development of new properties.
A further implication of the Labor plans announced by the opposition leader, is a change to the capital gains tax discount on all assets purchased after July 1, 2017.
The current 50% discount will be slashed to 25% for assets that are held for more than a year. Investors holding assets bought prior to the July 1 deadline prescribed in the policy would retain the 50% discount.
There is a carve out in the Labor policy for superannuation fund investments and small business assets.
It is noted in the Labor policy document that the opposition will consult with relevant stakeholders such as industry groups and state governments to hash out the details of the policy design and implementation of the proposals.
February 18, 2016
Treasurer: Sparse tax policy, nothing on negative gearing
Federal Treasurer Scott Morrison revealed no new policies regarding taxation reform or any position on negative gearing during his first National Press Club address for 2016 on February 17.
The Treasurer instead spent his 45 minute address reiterating the key themes of the country having a spending problem and that growth and jobs are the pathway to Australia’s future economic prosperity.
He did, however, rule out any changes to the goods and services tax. The Treasurer said that the Federal Government would not seek to alter the goods and services tax without an electoral mandate from the Australian people.
It was noted by the Treasurer that the research presented to the government demonstrated that changing the GST could not provide enough revenue in its own right to assist with fixing the budget. The removal of the GST from the tax reform debate follows extensive public debate sparked by a nationwide campaign by the opposition aimed at discouraging any change in the rate or base of the tax.
“This is a long road, our fiscal challenge that we inherited, there is no quick fix to it, there is no one statement, there is no one budget,” Morrison said.
“This is a Test match, not Twenty20 Big Bash when it comes to fixing the budget and to improving the budget. It requires Test match patience. It requires Test match tactics. It takes Test match endurance.”
Morrison declined to outline a government policy on negative gearing, but said that he thought the opposition’s proposals to change the negative gearing rules indicated that Labor did not understand the underlying reason why people engaged in negative gearing.
The opposition released its negative gearing plans days earlier (as reported above), which includes limiting the use of negative gearing to new properties and also halving the current capital gains tax discount for those who invest. These plans would be implemented from July 2017 if it wins government later this year.