Labor’s Proposed Negative Gearing Changes

What is negative gearing?

An investment such as property is referred to as negatively geared if the income is less than the interest repayments and outgoing expenses. The investor will be making a cash loss on their investment and is able to offset these losses against other income earned, including their salary. In turn, this reduces an investors’ taxable income, meaning they pay less tax to the Australian Taxation Office.

What are the proposed negative gearing changes?

Labor intends to limit negative gearing to new housing only from a yet to be determined date after the next federal election. This means that investors can only deduct net rental losses from newly constructed properties against their other income. Labor has stated that under the plan, all investments made before the changes come into effect will be fully grandfathered.

What will happen to the losses?

Although losses from investments other than new housing cannot be offset against other income, they can be carried forward to be offset against future investment income. These losses can also be carried forward to offset the capital gains from the disposal of investments. This means that investors will still be able to claim losses from investments, but not necessarily in the financial year that the losses were incurred.

What can be done to minimise the impact?

The proposed changes would apply on a global basis to an investor’s total portfolio value of investments. For example, an investor purchases two properties and shares, with one property and the shares being positively geared, and the other property being negatively geared. The investor will be able to offset the income on the positively geared property and shares with the loss on the negatively geared property. Therefore, this policy will benefit investors with multiple investments rather than investors with a single negatively geared investment.

Managing portfolios in order to have regard to the restrictions on negative gearing will become crucial. Similarly, purchasing investments in the name of the entity/individual best able to manage any negatively gearing restriction will be important.

Please note, the above changes are only a proposal at the time of writing, with the election date yet to be decided. There may be further changes in the future if and when legislation is enacted.

If you have questions on any of the above, or other matters relating to your tax or financial affairs, please do not hesitate to contact our office on (07) 5504 5700 to speak to one of our trusted advisors.

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