The Barefoot Investor has urged investors to think twice about buying a home as speculation mounts over drastic changes to the capital gains tax discount.
Scott Pape said the ‘bonehead’ policy was ‘bad news’ for property investors after the Albanese government hinted at cutting the tax from 50 per cent to 25 per cent.
‘There’s a good chance the Treasurer is floating this now to soften people up. Whether it actually happens in May will depend on how loud the backlash is over the next few weeks,’ Mr Pape wrote in his weekly newsletter.
‘That said, I’ve always thought the CGT discount was a bonehead policy. It pushed property prices higher.
‘And if this change only hits property (rather than shares), then owning an investment property will become less attractive after Budget night: Good news for first home buyers. Bad news for property investors.’
It comes as a government source told the Australian Financial Review that possible changes to the tax break are being discussed for inclusion in the May Budget.
Labor previously spruiked plans to halve the CGT discount to 25 per cent in the lead-up to the 2016 and 2019 elections, but the party lost both campaigns.
Those losses prompted Anthony Albanese to rule out any changes to CGT after becoming party leader.
Barefoot Investor Scott Pape (pictured) said the proposed tax cut would mean ‘bad news’ for property investors across Australia
Prime Minister Anthony Albanese (pictured) has flagged significant budget reform in May
Under the current rules, those with an investment property for more than 12 months only pay tax on half the profit when they sell (pictured, homes in Sydney’s wealthy eastern suburbs)
But the issue now appears to be back on the table.
Mr Pape said while he doesn’t make investment decisions on proposed tax changes, he believes that in the long run, Australian shares are ‘likely to deliver better income, stronger growth, and fewer hassles than being a landlord’.
Under rules introduced by the Howard government in 1999, investors who hold an asset, including an investment property or shares, for more than 12 months only pay tax on only half the profit when they sell.
Previously, CGT worked differently, with profits adjusted for inflation instead of investors automatically receiving a 50 per cent discount.
Property owners can also move out of their principal place of residence and rent it out for up to six years while still being exempt from CGT when the home is later sold.
