Download Current Negative Gearing Policy

HM BLOG
Negative Gearing Tax Reform: A Negative or Positive for Investors?
A Federal Election is looming on the horizon and Prime Minister Malcolm Turnbull is expected
to announce we are going to the polls for a double dissolution election on the 2 nd July this
year. Among all of the campaign promises and hyperbole from politicians about why we
should vote for them, there are and will be policy announcements that warrant a high level
of attention and scrutiny.
Negative Gearing is shaping as a major issue for the election as the Coalition and Labor are
proposing completely different policies. The property market could be affected by the
outcome of the election and HM Finance we will be watching the campaign very closely for
the impacts it poses for its customers.
Current Negative Gearing Policy:
The current negative gearing policy provides generous concessions for investors to reduce
their tax burden and maximize return on investment. Under the current arrangement, any
short term loss an investor makes on a property is offset by a reduction in their taxable
income. If the cost of owning the property is greater than the income it generates the
difference is deducted from the investor’s taxable income.
There is no limit on the amount of properties an investor can negatively gear and no means
testing on whether an investor qualifies for negative gearing. Essentially being a landlord is
the only qualifiable criteria to be met.
Pros of Currency Policy:
Negative gearing encourages investment in the property market, which creates rental stock
in the market - thereby lowering demand for rental properties.
Negative gearing enables investors who couldn’t otherwise afford an investment property to
enter the market.
Negative gearing improves an investor’s return on investment.
HM Finance ABN 19 981 762 954 | Australian Credit License 395508 | PO Box 278 Balmain NSW 2041 | Tel 1300 046 346
media enquiries 0407 892 476 | [email protected]
The Coalition’s Negative Gearing Policy:
The Coalition wants to keep the existing negative gearing policy in place and have announced
there will be no reforms if they are elected to another term of government.
Pros:
No planned reforms indicate the Coalition wants stability and is happy for market forces to
dictate property market conditions.
As demand and supply of rental properties maintain a good balance, rents won’t increase.
Investors will be encouraged to continue investing in new and existing properties.
Cons:
First Home Buyers and Residential Buyers struggle to compete against investors who can
potentially afford to pay higher prices for property.
The current policy has no limit on the amount of properties that can be negatively geared and
subsidizing the cost of negative gearing is a significant burden on the tax payer.
Negative Gearing puts upward pressure on property prices and housing affordability is an
issue, particularly in Sydney.
Labor’s Negative Gearing Policy:
Labor are proposing a significant change to the current negative gearing policy that will impact
the market if they are elected to form government.
Negative Gearing would be removed from existing properties and an investor would only
qualify for the tax concession on the purchase of a new property.
The policy change will not be applied retrospectively to the purchase of existing properties
before July 1st 2016.
Pros:
The cost of negative gearing to the tax payer will be reduced in the medium to longer term.
The policy is designed to encourage investment in the construction of new properties to
increase supply and improve housing affordability.
A levelling of the playing field between owner occupiers and investors competing for existing
properties.
HM Finance ABN 19 981 762 954 | Australian Credit License 395508 | PO Box 278 Balmain NSW 2041 | Tel 1300 046 346
media enquiries 0407 892 476 | [email protected]
Cons:
A lack of evidence that reforming negative gearing will improve housing affordability for First
Home Buyers. The reform may just shift competition from existing to new properties and not
have any real impact on housing prices
Over-investment in construction of new properties could have an adverse effect on the
market. Potential buyers would love to see prices come down but an over-supply of
properties will reduce rental returns and lower property values too much. Lower capital
values may threaten the capacity of owners and investors to service their loan and maintain
an acceptable Loan Value Ratio (LVR) for the lender. People may be discouraged from
investing in the property market at all if there isn’t enough value in the investment.
The perceived impact of the reform could disrupt the property market if investors are
spooked and want to sell their existing investment properties. Labor’s reform will not affect
existing investors but may cause people looking to enter the market to re-evaluate their
decision to invest in property. It is important for Labor politicians to effectively communicate
this aspect of negative gearing reform to prevent a disruption to the market if they win power.
At HM Finance we’re not here to pass political judgement or issue our own “How to Vote”
cards for the Federal Election. What we want to do is keep our customers and anyone out
there who is interested in the property market, informed about the current state of the
market. Negative gearing has been staked out as an Election battleground by both major
parties and this key point of difference between them could influence the outcome of the
Federal Election. The main point we want to make is that reforms to negative gearing may
disrupt the market after the election, but for investors concerned about keeping their existing
investment properties, you can rest easy knowing that the tax concessions you receive now
will remain regardless of who forms government after the Federal Election.
For potential investors in the market now is the time to act if you have been thinking about
purchasing an existing property. You are running out of time to exchange and settle before
June 30th!
For advice about a loan application or just want to talk about the property market don’t
hesitate to call HM Finance on 1300 046 346.
HM Finance ABN 19 981 762 954 | Australian Credit License 395508 | PO Box 278 Balmain NSW 2041 | Tel 1300 046 346
media enquiries 0407 892 476 | [email protected]