Property-investing rules: are they likely to change?

The pressure for the government to curb the tax benefits of tax concessions, such as negative gearing and the capital gains tax discount, is unrelenting. Most recently, independent senators David Pocock and Jacqui Lambie proposed five options for paring back investment property tax concessions, with savings to the Federal budget of up to $60 billion over the next decade.

But as then Labor leader Bill Shorten discovered in the 2019 election, cuts to property tax concessions are electoral poison. (Labor also took the property investment changes to the 2016 election.) In 2021, Labor officially dropped the investment property changes from its policies, and it would seem unlikely they will be resurrected.

THE CONCESSIONS IN SHORT

The arguments centre around two key tax benefits: negative gearing and the capital gains discount.

First, negative gearing. Property investors are allowed under our tax rules to claim a deduction for the costs of their investment, in much the same way that business owners can claim their expenses. So, along with things such as maintenance and agent fees, they can claim the interest paid on borrowings to buy the property.

It’s worth noting that not everyone who owns an investment property is negatively geared. If the rent you get from the property is more than those expenses, you will pay tax on what is left after claiming your deductions. But when you’re making a loss on your investment because your expenses exceed the rent you receive, you can claim the extra deductions against other income, such as salary or wages.

The upshot is that you pay less tax than you otherwise would on your normal income, which has led to claims that taxpayers are helping to fund investment property purchases.