Negative gearing has long been a cornerstone of Australian property investment, allowing investors to offset rental property losses against other taxable income.
However, recent discussions about potential reforms have reignited concerns among property investors. With questions about the sustainability of these tax concessions and their impact on the housing market, it’s vital to understand the latest developments, how they may affect your portfolio, and how to stay ahead of the curve.
At AFP Accounting, we specialise in helping high-net-worth individuals navigate the complexities of property investment. In this article, we’ll unpack negative gearing, explore recent speculation about changes, and offer practical advice for adapting to potential future reforms.
Understanding Negative Gearing and the Capital Gains Tax Discount
Negative gearing allows property investors to claim losses on rental properties against their other taxable income. For example, if a rental property’s expenses exceed its rental income, the loss can reduce the investor’s overall tax bill.
This concession, paired with the capital gains tax (CGT) discount, has made property an attractive investment for Australians. CGT currently offers a 50% discount on profits from selling assets held for more than a year. Together, these policies have incentivised many high-income earners to invest in real estate as a means of wealth building.
Yet, concerns remain. Critics argue these concessions disproportionately benefit the wealthiest investors, with the Grattan Institute finding that approximately 50% of the financial benefits flow to the top 10% of income earners. Additionally, only 10% of negatively geared properties are newly built, raising questions about their role in addressing housing supply shortages.
The Latest Updates: Are Changes Coming in 2025?
In 2024, speculation about reforms to negative gearing and CGT surged after the federal government requested a Treasury review. This sparked debates reminiscent of proposals floated in 2016 and 2019, which included limiting negative gearing to newly built properties and reducing the CGT discount to 25%.
However, as of October 2024, Treasurer Jim Chalmers confirmed that no changes will be made in 2025. The government highlighted concerns about the potential impact on housing supply and property values, particularly as housing price growth slowed during 2024.
What Would Reforms Mean for Property Investors?
While no immediate changes are on the horizon, it’s worth considering how reforms might affect your portfolio:
- Property Values: Limiting negative gearing could reduce investor demand, leading to modest declines in property values.
- Rental Markets: With fewer investors entering the market, rental supply may tighten, potentially increasing rents — but this effect remains debated among economists.
- Tax Savings: A reduction in tax concessions could diminish the profitability of investment properties, especially for individuals with multiple assets.
It’s worth noting that previous governments ultimately abandoned previous proposals due to strong political resistance and concerns about unintended market consequences. These examples underscore the complexity of reforming such entrenched policies.
When to Adapt Your Investment Strategy
Proposed reforms to negative gearing and CGT have been shelved for now, but future changes remain possible — so it’s essential to stay proactive.
Stay informed with policy updates and market trends by subscribing to reliable sources, including AFP’s monthly newsletter. Consider diversifying your investment portfolio to mitigate risks associated with property-specific tax changes. Putting all your eggs in one basket leaves your wealth open to significant damage from tax reforms.
Before making major decisions like buying or selling a property, consult financial experts to evaluate the tax implications and optimise your investment strategy.
At AFP Accounting, we leverage years of experience to help property investors maximise returns while complying with tax regulations.
If you’re concerned about the potential impact of tax reforms on your property investments, you’re not alone. The uncertainty surrounding negative gearing and CGT is a common stressor for investors. However, by staying informed and working with trusted advisors, you can make confident decisions about your portfolio.
At AFP Accounting, we specialise in supporting high-net-worth investors through tailored advice and strategic planning. Contact us today to explore how we can help you optimise your property investment strategy.
For regular updates and insights, follow AFP Accounting on LinkedIn or subscribe to our newsletter. Let us help you stay ahead in an evolving financial landscape.
