Current Aussie landlords have been spared a potential budget blow with existing investment properties able to maintain most of the tax advantages of negative gearing as the government ends the arrangement for existing properties in the future.
From July 1, 2027, the federal government is limiting negative gearing for residential property to only new builds.
Net rental losses from established residential properties will only be deductible against rent or the capital gains from residential properties.
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To avoid disincentivising investments in maintenance and improvement of investment properties, landlords can carry forward loses into future years.
The negative gearing changes come alongside a return to an inflation-adjusted discount on the tax of capital gains, with the new policy also including a minimum 30 per cent tax rate on capital gains from July 1, 2027.
“In combination with the return to CGT indexation, limiting deductions for rental losses will reduce the tax advantages of leveraged investment in established residential properties,” the budget papers say.
In his speech in Parliament, Treasurer Jim Chalmers said these changes in the budget “make the tax system fairer and stronger for workers, businesses, first home buyers and future generations.”
When asked by ABC host Sarah Ferguson in the wake of handing down the budget if he is happy about the “two tiered” system now created between current landlords who can continue to enjoy negative gearing and new investors, Chalmers said past decisions had to be respected and new landlords could “invest in new supply” to get the benefits.
Negative gearing reformed after nearly a century
Since the 1930s, Australians have been able to discount losses made on assets, such as an investment property, from the tax paid on wages and salaries.
For example, if someone owns an investment property which earns them $800 a week in rental income from tenants. But they pay $1000 a week in mortgage repayments, council rates, strata levies, water rates and maintenance costs. The landlord can deduct $200 a week from her annual salary of $190,000 a year, saving her $4,856 per year in tax.
Those with higher income levels are more incentivised to pursue the strategy, as they gain the most from reducing their income tax bill.
According to analysis of recent ATO data from the end of the 2022-23 financial year, of the more than 3.2 million property interests held by individual taxpayers, more than 1.5 million or 49.4 per cent were negatively geared. With rising rates, that number is now certainly higher.
