Opposing the abolition of negative gearing and discounts to capital gains tax will be the top advocacy issue for the property sector in the upcoming federal election, a leading property industry lobby group says.
Unveiling its advocacy priorities for 2019, the Property Council of Australia said that opposing Labor’s policy to restrict negative gearing opportunities to newly constructed dwellings and to reduce the discount applied to capital gains tax would be it’s ‘top priority’ in its advocacy activities for the election.
Property Council group executive for policy Mike Zorbas said any abolition of negative gearing in respect of established homes would negatively impact a large number of Australians who use investment properties as a legitimate means through which to build up their assets and financial position.
As well, Zorbas says negative gearing contributes toward meeting the needs of those who rent their homes instead of buying.
“More than two million Australians own an investment property, Zorbas says. “Through this they play a vital role in supporting the private rental market as well as providing for their own financial well-being in retirement.”
“That includes 1.3 million people who use negative gearing – the vast majority of whom are middle income earners with a single investment property.
“These are everyday Australians who are saving for their future and meeting the housing needs of the one third of Australian households who rent,” Zorbas explains.
Commonly mentioned in the media, ‘negative gearing’ as it pertains to residential property refers to a situation whereby expenses which investors occur on items such as interest on loans, property taxes, real-estate management costs and repairs and maintenance exceed the amount of income which they earn on the property through rent.
Where properties are negatively geared, investors essentially occur a net loss in respect of that property in the year in question.
Typically, investors who do this are prepared to wear these losses over the short term amid a belief that these will be more than offset by benefits associated with what they believe will be an appreciation in the capital value of their property over the longer term.
The losses incurred through negative gearing can also be used to reduce the tax bill for investors by offsetting these losses against other income which they may earn in a given year through business, employment or other means.
As part of its election platform, Labor has promised to restrict the ability of investors to use negative gearing to minimise their tax bill to cases where the property in question is purchased off the plan or is a newly constructed dwelling.
Under this policy, investors will only be able to deduct net rental losses where they those losses come from newly constructed housing.
Labor also plans to reduce the discount which can be applied to assets which are held for longer than twelve months from 50 percent to 25 percent (it says small business assets and investments made by superannuation funds will be exempt from these changes).
The measures will not apply to existing investments which are acquired before the changes come into force.
Labor says this will help to ease affordability pressure by redirecting investment activity toward new housing supply.
It also says its tax reform package will improve the budget to the tune of $32.1 billion over ten years.
Zorbas, nevertheless, says the changes will hurt those ordinary Australians who use negative gearing along with those who occupy rental property.
He also says that making such changes at this time risks negatively impacting investor sentiment at a time when the housing market is rapidly cooling.
We know that impact on housing confidence from these changes will be the biggest policy unknown and the biggest risk to this part of the economy this year,” he says.
“With the potential to damage confidence, reduce housing and rental supply and put building jobs at risk, this feels like the worst time in the housing cycle to be increasing the cost of investment.”