Negative Gearing & Capital Gains Tax (CGT) Discount: What Changes Could Mean for Your Finances

We are hearing a lot of political talk at the present in relation to Negative Gearing and Capital Gains Tax. So here is a brief update on the basis of these policies.

With next year’s federal election just around the corner, two key areas of taxation will be a hot topic up for debate. Negative gearing and the capital gains tax (CGT) discount have been a part of the Australian taxation system for decades and are top of mind for many Australians. These policies are under the spotlight, and any changes could have a significant impact on your tax planning, investment decisions, and wealth-building strategies.

Negative Gearing: A Potential Game Changer

Negative gearing allows property investors to offset the costs of owning an investment property—like mortgage interest, capital works deductions (building cost depreciation) and repairs—against their taxable income. This means investors can reduce their tax bill while holding onto their properties.

However, as property prices continue to rise, critics argue that negative gearing contributes to housing unaffordability. Some political parties are proposing changes, including limiting negative gearing to new properties or restricting it altogether for high-income earners.

Capital Gains Tax Discount: A Key Incentive Under Scrutiny

The CGT discount allows you to pay tax on only 50% of the capital gain when you sell an asset (such as property or shares) that you’ve held for more than 12 months. For long-term investors, this is a valuable tax incentive that can significantly reduce their tax liability on profits.

But critics say the CGT discount disproportionately benefits wealthier investors, and some parties are calling for it to be reduced or replaced with a more targeted approach.

How Could These Changes Affect You?

It’s too early to say, but whether you’re an investor, a business owner, or simply planning for the future, reforms to negative gearing and the CGT discount could directly affect your finances.

At HQB, we’re keeping a close eye on these developments and will keep you informed of impacts as any proposed legislation is rolled out.

– Brad Sheaves

Posted 15.10.2024

This article is compiled as a helpful guide for your private information and is subject to copyright. We suggest that you do not act solely on the basis of material contained in this article because items are of general nature only and may be liable to misinterpretation in particular circumstances. We recommend that our advice be sought before acting on any of these crucial areas.