Negative Gearing and Capital Gains Tax again enters the spotlight as we run to an election. The Labour Party is stating they:
- Will allow negative gearing early on new construction from July 2017
- Will drop the capital gains tax concession to 25% (from 50%) after holding a property for 12 months
The Liberal/National Party is yet to set policy but have hinted they will also attack negative gearing as an election issue.
For those who remember, the Hawke/Keating Government was the last to disallow losses from property being deducted against income. Within 18 months, they were forced to abandon the policy.
When we look at what happened, it distorted the supply of housing for tenants. Investors left the property market resulting in a shortage of rental stock available.
Rents climbed dramatically and there was then a call for the Government to assist with rental assistance and to provide more accommodation for those joining the public housing queues.
At the moment, investors provide approximately 25% of the rental accommodation in Australia. With the Government providing approximately 6%.
The risk of making property less attractive, is the need for the Government to supply more housing. At present with a lot of investment properties available in Western Australia, the impact will not be felt in the short term, but will in the medium and long term.
The other fault in the political argument is the concept that we are fixing the inequities in the wealthy claiming deductions.
Over 80% of all investment properties are owned by people earning less than $100,000pa. So this will affect the average man in the street more than the rich.
We recommend now is the time to buy an established property to negatively gear. The real estate market is near the bottom of the cycle and will improve in the short to medium term. A window exists now and prices are low.