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So what are the proposed changes Labor have put forward to negative gearing and how might they affect you?

The Labor government have put forward a proposal to amend negative gearing laws.  The detail is yet to be provided, however the basic outline is that from approx the 1st January 2020 (date yet to be determined), investors will only be able to claim negative gearing on newly built properties (investors with existing properties will not be affected).  In addition they are proposing changes to capital gains tax exemption, halving it from 50% to 25% (meaning you pay even more in tax when selling a property that has grown in capital).  

What is negative gearing?

Negative gearing refers to the situation where investors make an investment (mostly in property) that loses money in the short term (e.g. loan and related costs are greater than rental income), in the expectation of making capital gains in the future.

The investor can deduct any losses associated with the investment from their salary and wage income.

For example:

James buys a unit as investment property, and his expenses for the property are greater than rental income, resulting in a $10,000 loss.  James can use that $10,000 loss to reduce his $130,000 income to $120,000, providing a $3,700 tax subsidy to James.

Why are Labor proposing this change? 

According to the ALP's website on their proposal for negative gearing (read full article here) the primary reasons are;

• to make housing more affordable
• to reduce the tax subsidies on negative gearing (therefore increasing government revenue)
• to keep the economy rolling with more new builds across the state, creating jobs and income for the Government

Why is there so much opposition to the plan?

As with any tax change, there is always opposition.  Industry bodies such as PICA (Property Investors Council of Australia) and REIA (Real Estate Institute of Australia) are concerned that Labor has modelled their policy on flawed data (there is always someone who finds fault in the data!)  They advise the Labor modelling was originally based on data that investors currently make up around 7% of new builds - however they believe it is as high as 43% meaning that if the policy were enforced, it would not provide the boost of new builds to the economy they are relying upon, so would not increase the anticipated government revenue.  They are also concerned that if the proposal proceeds;

• there will be less investors in the market driving up the cost of rent - particularly in suburbs where there is no land to build new investments - meaning tenants will have less choice of where they would like to live
• property values will reduce as investors drop out of the market for existing properties
• the policy will push all investment to newer suburbs, lessening the gain for government on capital gains tax

To understand more of PICA's concerns, you can listen to an article on Money News with Ross Greenwood and Ben Kingsley chair of PICA here.

As with any election it will be an interesting space to watch.