Australian Government Announces Changes to Negative Gearing and Capital Gains Tax

Nearly 2000 homes are scheduled for auction across Australia this weekend. The federal government’s new tax changes will be a factor for participants at the 1994 auctions set for Saturday and Sunday. The changes include limiting negative gearing to investors who build new homes.

Negative gearing allows property investors to offset losses against their taxable income, a feature of the tax system since 1922. The capital gains tax concession, which has provided a 50 per cent discount since the Howard government, will revert to the pre-1999 structure based on indexing for inflation.

Capital gains and family trusts will also face a 30 per cent minimum tax rate. "We are the party of home ownership. We want more family homes. They want to lock young people out of home ownership," he said. Treasurer Jim Chalmers stated the package would deliver a fairer tax system.

"We all know about first home buyers rocking up to auctions and being outbid by people who might already own multiple properties. We’re trying to level the playing field at auctions," he said this week. The measures were part of the fifth budget delivered by Chalmers.

The budget also included a new $250 working Australians tax offset, a $1000 standard tax deduction, a $20,000 instant asset write-off for small businesses, loss carry-back provisions for firms with turnover below $1 billion, and changes to research and development taxation.

Federal Treasury added 50 pages of analysis to the budget documents arguing for the tax changes, the largest such inclusion since 2010. The analysis stated that the combination of negative gearing, the capital gains tax discount and trust arrangements has encouraged investment in existing housing for tax benefits rather than in productivity-enhancing assets.