Negative gearing, capital gains and a possible Labor victory

With the recent leadership spill - many questions have been raised. What does it mean for Australians and the housing market? Two things come to mind….

Negative gearing

To "gear" a rental property means you borrow to buy it. It’s "negatively" geared if your expenses— interest payments, repairs, land taxes, rates etc—cost more than rent coming in. You can deduct these losses from your income and that can help cut your tax bill. But, if Labor wins, they’re proposing that you’ll only be allowed to negatively gear new houses, dwellings, units and apartments. Existing housing will no longer qualify.

Capital gains tax

If Labor form government, they’re talking about halving the capital gains tax discount from 50% to 25% on assets owned for more than 12 months. Investments made before a particular date (not chosen yet) won’t be affected; neither will investments made by superannuation funds or the purchase of small business assets.

Changing negative gearing and halving capital gains discounts could be a housing game changer. But, lest we forget—Bob Hawke interfered with negative gearing in 1985. He was forced to quickly put the genie back in the bottle, when things didn’t go as expected.

And with this political uncertainty, now is the time to talk to a Loan Market broker about what your options are so you can be prepared.