Australian property investors face major tax hike

Australian expats returning to Australia and those of other nationalities moving there, who were thinking of piling their savings into Aussie property, may need to think again, as it looks increasingly likely the government will abolish so-called “negative gearing” provisions.

Under current rules, buy-to-let investors are able to write off losses on an investment property against their income. This, combined with a 50% discount on capital gains, means property investment is highly tax efficient.

The left side of politics has long argued that negative gearing encourages wealthy investors to buy property, and thus squeezes lower income investors out of the housing market. But now, with a collapse in commodity prices leaving the Australian government scraping around for any revenue it can get, it looks increasingly likely that negative gearing’s days are numbered.

The Labor Party, which is in opposition, has already committed to limiting negative gearing to new property developments, and cutting the capital gains tax concession to 25% from 50%. Labor will take this policy to the general election later this year.

While rejecting Labor’s specific policy, the ruling Liberal Party – the equivalent of the UK Conservative Party – has made signs it may also tackle negative gearing in some way, with Treasurer Scott Morrison saying earlier this month that he would “keep an open mind” on the subject.

Both parties have also signalled – Labor explicitly, the Liberals non-noncommittally – that they will cut what critics say are incredibly generous tax concessions on superannuation funds, which see the very wealthy paying no tax at all on investment earnings after retirement, even if they have millions of dollars stashed away.

‘The right decision’

Montfort International managing director Geraint Davies, a financial planner who specialises in helping clients move their wealth out of the UK to a number of jurisdictions, said the abolition of negative gearing would require investors to reconsider their investment strategies.

Under Labor’s plan, buying an old property, doing it up, and then selling it would no longer be anything like as attractive a proposition, he noted.

However, he said that despite disadvantaging wealthy investors, the government would be right all-in-all to get rid of negative gearing and excessive super tax concessions.

“Clearly Australia has a need to tighten its belt and it has had it too good for so long now that now the tax coffers need to be replenished,” he said.

“Tax Reform is well overdue – you can’t keep giving money away.  What’s the benefit to the economy if you give gearing benefits on pre-loved, second hand property?

“Labor have got their views in now – it’s likely that some of the Labor policies will be adopted in some form or other.”

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