Negative gearing limited to new builds
This tax setting, which allows property investors to claim a deduction on their income tax for losses generated by their properties, has been scrapped for future sales.
Negative gearing will still be available for investors who purchase new homes.
The reform has been introduced with grandfathering – meaning if you already own negatively geared investment properties, these changes will not affect you.
Capital gains under the new rate will also only be calculated from gains made after July 1, 2027. Gains made before then will still atract the 50 per cent discount.
The government has argued investors with negatively geared properties are paying too little income tax despite making a nominal profit. The tax paid is generally much less than they would if they did not own their investment.
They also believe retaining the tax setting for investments in new housing will help stimulate a steady supply of new homes.
Changes to the Capital Gains Tax (CGT) discount
The government has scrapped the CGT discount, and replaced it with a minimum 30 per cent base rate for sales of investments that deliver a profit.
Capital gains are the profit made from selling an asset which has appreciated in value over at least 12 months, and those gains previously attracted a 50 per cent tax discount.
This change will come into effect next year, from July 1, 2027. It will only apply to investors who sell an asset and make a gain.
For example, if you buy a home for $200,000 and later sell it for $1 million, the gross capital gains before deductions is $800,000.
This 30 per cent base taxation rate will also apply to profit made from trusts.
There is a bright spot for people receiving the age pension or other forms of income support, who will not have to pay the minimum 30 per cent rate.
There is also a carve-out for investors who purchase new builds, or create additional homes on existing investments (for example, by subdividing). They will still be able to access the 50 per cent CGT discount.
The government believes the changes will make investors and trust holders pay similar tax rates to those paid by workers in income tax.
