Election 2019: Negative gearing restrictions under a possible Labor government.
INCOME TAX FACTSHEET
As a Federal Election looms in May 2019, the Federal Opposition has announced its plans to introduce restrictions on negative gearing for investors, aiming to save more than $32 billion over a decade.
While property has attracted the most attention in Labor's policy, the changes to negative gearing would, in fact, apply across the board to all investments. The commencement date of these changes has not yet been announced.
Labor has laid out a plan to phase out negative gearing on property as well as the capital gains tax benefit, with the family home not subject to capital gains tax. Additionally, Labor has also said that the changes won't be retrospective.
So if you are an investor, how are these changes likely to impact you and your investment strategy?
1. Restrictions will apply to all investments, not just property
Labor's restrictions will apply globally across investment vehicles, be it property, shares, or other forms of investment. It will apply by looking at a taxpayer's overall investment income against their investment interest expenses.
Under current rules, when the expenses of the investment exceed the income, the excess can be used to offset other income earned by a taxpayer.
Under the proposed rules, it cannot be used to offset income but must be carried forward for offset in future years against future investment income or capital gains from the disposal of the investment assets.
2. How could this impact investment planning?
An investor's position will need to be looked at afresh each year as their circumstances change.
One example of how this may impact investment and tax is if, for example, a previously negatively geared property becomes positively geared because of an interest rate fall. The investor may again buy new assets with better gearing ratios, which may again reduce the problem (or eliminate it).
Another example might be investors who borrow to buy property, invest in shares, and invest in bonds.
For example, an investor with $75,000 interest expenses and $75,000 investment income will not face a negative gearing problem. In this instance they will be able to fully utilise losses made through a negatively geared property and the shares if the bond investments are positively geared.
3. Managing your portfolios will become essential
It's impossible to predict performance, however careful management with an understanding of negative gearing will be vital. While the detail of the policy is still to be fully explained, the Labor party has made its commitment to negative gearing changes abundantly clear.
Watch this space
The 2019 Federal Election has yet to be called however is increasingly looking like a May poll.
The details of Labor's negative gearing changes and legislation will undoubtedly evolve in the lead-up, so while it's not yet possible to fully examine the impact, it's vital for investors to fully understand how their portfolio is currently geared to measure any potential impacts.
For more information or guidance, contact us on 02 9957 4033.
Download Factsheet: Negative Gearing Restrictions Under a Possible Labor Government
Last updated November 2018. This factsheet is provided for information purposes only and is correct at the time of publishing. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.