TAKING NEGATIVES OUT OF GEARING
REFORMS to negative gearing policies could save the Federal Government more than $1.7 billion without harming mum and dad investors, according to a report published by the Australian Housing Urban Research Institute (AHURI).
The income tax treatment of housing assets: an assessment of proposed reform arrangements recommended a progressive rental deduction to cushion less wealthy investors from significant drops in tax savings.
The proposed reform would see investors in the bottom 50 per cent of the income distribution continue to receive a 100 per cent rental deduction, those in the 51st-75th percentiles receive a lower 50 per cent rental deduction, and those in the 76th-100th percentiles (representing ‘sophisticated’ investors) receive zero rental deductions.
Report author Alan Duncan said current negative gearing policies were heavily skewed towards high-income earners and such reform would save the government more than $1.7 billion from the annual $3.04 billion cost of negative gearing deductions each year – a 57.3 per cent saving.
The report found capital gains tax discounts were also weighted towards more affluent investors, who owned on average a property portfolio worth more than $730,000 with a taxable income of $82,000.
Investors are able to claim a deduction for the full amount of rental expenses under current legislation and a 50 per cent discount on a capital gain.
Federal Labor has proposed changes if elected.
Its policy involves limiting negative gearing to new housing from July 1, 2017. All investments made before this date would not be affected.
It also proposed halving the capital gains discount for all assets purchased after July 1, 2017.
This would reduce the discount for assets held longer than 12 months from the current 50 per cent to 25 per cent.
All investments made before this date would not be affected and would be fully grandfathered.
REIWA is not in favour of any changes to negative gearing or capital gains tax.
“Removing negative gearing or only applying it to certain criteria, such as weighting it based on investor income levels, is very risky,” president Hayden Groves said.