Labor's proposed tax changes on housing will begin at the start of next year, if it wins the election

Ian Waldie/ Getty Images.
  • The Australian Labor Party’s proposed changes to negative gearing and capital gains tax on existing housing will begin on January 1 next year, if it wins the upcoming Federal election.
  • The changes will limit the ability to negatively gear existing properties purchased after this date. It also will cut the capital gains discount for properties held for at least 12 months from 50% to 25% from this date.
  • The proposed changes were introduced three years ago, when housing market conditions were very different to what they are today. Some analysts have expressed concern the tax tweaks could amplify the downturn in prices and construction, at least in the short-to-medium term.
  • Shadow Australian treasurer Chris Bowen will also announce today a new program to increase the level of Australian rental properties.

The Australian Labor Party’s proposed changes to negative gearing and capital gains tax on existing housing will begin on January 1 next year, if it wins the upcoming Federal election.

According to a report from Phillip Coorey at the Australian Financial Review, Shadow treasurer Chris Bowen will use a speech to the Financial Services Council on Friday to announce January 1, 2020 as the start date for the policies, designed, according to Bowen, to provide investors adequate time to plan and invest before the new curbs come into force.

The Labor Party has proposed that negative gearing on investment properties will be limited only to new dwellings from this date, with arrangements for existing negatively geared properties to be left unchanged.

It also plans to limit the capital gains discount for properties held for a period of at least 12 months to 25% from January 1, below the 50% level currently legislated. Like the changes to negative gearing, existing arrangements will apply to those homes bought before the end of this year.

The proposed changes, first disclosed three years ago when conditions in the housing market were very different to today, have sparked fierce debate among analysts as to what impact it will have on both home prices and rental costs.

Some warn the changes will accelerate the downturn in prices and housing construction, at odds with view from others that suggest it will encourage new home building given the tax advantages for investors. Some have also cautioned the changes will create a two-tier housing market given homes bought under existing arrangements will eventually be sold to buyers who will not be able to receive the same tax advantages on their personal income.

Along with announcing the start date for the proposed tax changes, the AFR says Bowen will also use his speech to announce a Build-to-Rent scheme that will provide tax breaks to institutional investors to encourage the construction of new rental properties.

According to the report, the managed investment trust withholding tax rate will be halved from 30% to 15% in a bid to encourage new housing supply.

In addition to the Build-to-Rent scheme, the Labor Party announced in December that it would pay $8,500 a year to investors who build new homes, as long as they offer them to low-and-middle income tenants at rents 20% below the prevailing market rate.

The $6.6 billion program is expected to lead to the construction of 250,000 rental properties over a 10-year period.

The AFR has more here.

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