Negative gearing proposed for new properties only
Negative Gearing has been back in the news again, and this time the Federal Government are planning to cut tax breaks for property investors in the May budget.
There has been much debate about Negative Gearing over the years whether it is a good thing or a bad thing; whether it should stay or be abolished.
This time though, Opposition Leader Bill Shorten has proposed that the law is changed. This means that from July 2017, only new properties would be able to be negatively geared.
On the other hand, Welfare advocates have also called for negative gearing to be scrapped altogether.
Currently negative gearing benefits property investors of any property investment. If the cost of owning a rental property is more than the income it produces each year, this is known as a negatively geared property. This creates a taxable loss which can be offset against your income to provide tax savings.
Negative gearing is a very popular approach for property investors, especially those on a high income who are in the highest tax bracket. It allows them to dramatically reduce their taxable income, often saving thousands of dollars every year. The majority of properties in Australia are also negatively geared so if negative gearing was to be scrapped or restricted then it would have huge effects on the property market and economy.
Interestingly, the majority of people who negatively gear their property earn under A$100,000 a year. However, the proportion of taxpayers who earn above $100,0000 is much higher, which is to be expected as this is where the greatest tax savings are.
This new approach will however limit negative gearing to just brand new and off the plan properties and is thought to raise $7 billion a year in a decade according to unreleased modelling conducted by the Parliamentary Budget Office.
It is also expected that rents will soar if negative gearing is changed and will also make homes much more unaffordable for first home buyers.
With the population in Australia continuing to increase, more new homes are required to meet this demand. Investors planning on buying new off the plan apartments will still be able to benefit from negative gearing. It’s just investors of established properties that will miss out.
Treasurer Scott Morrison has also indicated that the Coalition is thinking about capping negative gearing for high-end investors as they are the ones who receive the greatest tax breaks. This could either be done through limiting the number of investment properties that can be negatively geared, or limit the annual tax deduction which could be claimed from wages income.
Even though there are no confirmed changes to negative gearing, it is thought that investor activity would increase before any changes to negative gearing are made. If Labor’s changes do go ahead then the market is likely to see an influx of new investors looking to purchase new properties instead of established properties to take advantage of the negative gearing benefits.
Negative Gearing and New Property
Even if this change to negative gearing goes ahead or not, investors should be aware of the additional advantages of what a brand new property can mean compared to an established property.
Negative gearing can be claimed for both new and established properties, but if you are looking to reduce your taxable income then depreciation claims are much greater for brand new properties. The highest depreciation is claimed in year one and this reduces year by year. If you buy a property that is much older, there are less years to claim depreciation. Also an older property is likely to have more repairs and maintenance.
Many of the new properties and off the plan apartments that are being built are situated close to key amenities such as train stations, shops, schools and restaurants. This makes the property much more appealing for rental tenants who prefer to have these amenities in close proximity. It also makes the property much easier to sell in the future.
To learn more about the benefits of negative gearing on a new property and what other advantages are available, why not speak to one of our expert Property Consultants at iBuyNew. Our Property Consultants can guide you through buying property off the plan and show you exactly how much you could save.
Call us today on 1300 123 463 or send us an enquiry using our online form.
Published on 18th of February 2016 by Marty Stanowich