What are Labor’s Proposed Tax Reform for Investments?


In a recent announcement, Labor proposed a number of changes to the tax treatment of investments held by Australian tax payers.

The policy has a lot of people talking, Aussie Home Loan founder John Symond says it “could tip Australia into recession”, while other economic commentators have said the policy changes will not impact Australia’s housing market.

So, what is it all about?

The proposed policy directly impacts the tax treatment of capital gains and the availability of deductions associated with rental properties.

Under the current legislation, Australian resident tax payers can reduce the capital gains on investment sold by 50% if they have held the asset for more than 12 months. While the loss incurred on a ‘negatively geared’ rental properties can be used to reduce your taxable income.

What are the proposed changes?

Capital Gains Tax – the proposed measure will see the discount on capital gains for assets held for more than 12 months reduced from 50% to 25%.

As it stands, the changes will not impact assets held by superannuation funds or small business owners.

Negative Gearing – the proposed change will limit the availability to deduct losses generated on ‘negatively geared’ properties to new housing only.

This means you will no longer be able to buy an old property and deduct the loss against your other taxable income. Losses generated on new investments will also be eligible to be carried forward to offset the final capital gain.

What does this mean for my investments?

In its current form, the policy states all currently held investments will not be impacted by the change.

All investments held before the implementation date will not be affected by the changes and will be fully grandfathered.

It is expected that the tax changes would take effect from Budget night, sometime in May 2019.

If the policy were to come into effect, prudent investors would be reassessing their investment strategies to determine if their portfolio is still providing the desired economic benefit. Each individual’s personal situation and goals will be the greatest factor in determining if the policy will have a tangible impact.

What should I do now?

Until more details become available, it’s business as usual.

The changes have the potential to greatly alter the appetite for investment by Australian tax payers.

Alterations to the concessional treatment of investments could redirect people from investing in real estate or shares to investing in other income generating assets, e.g. starting a business.

If you think these changes could impact your future investments, the first step should be to speak to your trusted advisor.

If you have any tax related matters, Lauren Steinheuer has been with UHY Haines Norton for over 15 years and is the Taxation Specialist Partner. If you have any taxation related matters, Lauren is more than willing to assist you. Her contact details are l.steinheuer@uhyhn.com.au or 07 3210 5500.

Disclaimer – this article is unbiased and based facts available to the public. UHY Haines Norton has no intention to influence political views in any way and the opinion on this matter remains with the reader.  

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