Negative Gearing

The Labor parties proposed negative gearing changes are part of their overall strategy to make housing more affordable for working and middle-class families. Labor contends their proposed change to negative gearing is also designed to boost jobs and grow the economy.

The Labor party believes the current negative gearing legislation has not achieved the aim of boosting housing supplies and encouraging the building of more new houses. Instead they consider it to only increase the demand and price of existing homes, allowing investors to use tax subsidies to
outbid owner occupiers and first home buyers from existing properties.

According to Labor’s press release, the following is their proposal for negative gearing.

“Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election. All investments made before this date will not be affected by this change and will be fully grandfathered.

This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.

From a yet-to-be-determined date after the next election losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.”

To provide an example of the above, Mr Smith purchases a second-hand house in 2019 for $450,000. The investment property is negatively geared each year for $10,000. Under the current legislation, Mr Smith can apply the $10,000 loss each year against his other income to reduce his tax. Under the
Labor party’s legislation, Mr Smith would need to carry forward the $10,000 losses each year. Then when he sold the property each $10,000 loss would be added to the $450,000 purchase price to reduce any capital gain.

The above advice is general advice and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances.


Kim Jay