Labor’s Federal Budget had two big changes that will impact property buyers and owners in Australia: capital gains tax and negative gearing.
The main takeaway is that established investment properties are less attractive and a very small group of investors will be negatively impacted.
A senior economist at Commonwealth Bank has predicted that house prices will continue to grow, but they” be about three per cent lower than they otherwise would have been.
Changes brought in by the new budget
The key changes in the budget are centred around the tax benefits of investment properties. The two big changes are:
- Negative gearing will now only be allowed on new builds
- Capital gains tax discount is reduced from 50% to 30%
Other announcements include:
- A new $2bn local infrastructure fund
- An extension on the ban of foreign purchases of established residential property (until 30 June 2029)
- Additional support for social/affordable housing
New negative gearing rules
Starting on 1 July 2027, investors will only be allowed to negatively gear new builds, including initiatives like affordable housing. From that date, investors who buy established homes won’t be able to immediately deduct rental losses from their income.
Properties that are already negatively geared will be grandfathered in. If these were to be sold, they’d be a lot more desirable to first time buyers than investors.
There’s no stated cap in how many new builds can be negatively geared.
CGT discount rate changed
Also starting from 1 July 2027, the current capital gains tax discount rate of 50% will be reduced to 30%. Taxable gains will be adjusted for inflation and real gains subject to the relevant tax rate.
This only applies to investment properties and not someone’s PPOR.
Predicted outcome of these changes
No crystal ball will reveal the changes 100% accurately, but the general consensus is that:
- Less of an incentive for investors to buy multiple properties, lessening the competition for first time buyers and families
- There may be a few extra properties put on the market this year to make the most of the 50% CGT discount
- Houses prices will still grow but at a slower rate than previously expected
- Apartment prices will be effected more heavily
