Negative Gearing and Capital Gains Tax Reform
The government is implementing tax reforms to improve fairness, support first home buyers, and encourage new housing supply by limiting negative gearing and reforming capital gains tax (CGT) arrangements.
Overview of reforms
- Reforms aim to help Australians enter the housing market and create a fairer, more efficient tax system.
- Changes include limiting negative gearing to new builds, reintroducing CGT indexation, and imposing a 30% minimum tax on capital gains.
- These measures target the rising housing prices and declining homeownership among young households.
Negative Gearing changes
- From July 2027, negative gearing will only be available for new residential properties, such as new builds or substantial renovations.
- Existing properties purchased before the announcement can continue to be negatively geared; properties bought between announcement and July 2027 can be negatively geared until sold.
- Losses from existing properties can only offset residential property income, but excess losses can be carried forward.
- Commercial properties and other assets like shares remain unaffected.
Capital Gains Tax (CGT) reforms
- The 50% CGT discount will be replaced with indexation based on CPI, aligning with the original intent and supporting productivity.
- Indexation applies to assets held at least 12 months, including shares and property.
- A minimum 30% tax rate will apply to gains from July 2027, reducing the benefit of deferring gains to low-tax years.
- Gains on assets purchased before July 2027 are grandfathered; new arrangements apply to gains after that date.
- The value of assets at 1 July 2027 can be determined via valuation or an ATO-provided formula.
Transitional arrangements
- Existing properties can continue current negative gearing and CGT arrangements.
- New builds purchased after July 2027 will be eligible for negative gearing and the CGT discount.
- Gains on assets bought before July 2027 will be taxed under current rules, with the new rules applying to gains after that.
Impacts and market effects
- The reforms are expected to support around 75,000 additional owner-occupiers over ten years, reversing a decade of declining homeownership.
- House prices may grow about 2% less over a few years, with minimal rent increases.
- The measures aim to increase housing supply and exert downward pressure on rents, complemented by increased rent assistance.
- International comparisons show similar OECD countries have comparable effective tax rates on capital gains.
Additional details
- Exemptions include the main residence and small business CGT concessions.
- The reforms target only residential property, with other asset classes remaining under existing rules.
- Policy impacts include limited effects on existing investors and a focus on supporting new supply and first home buyers.
Click the link below to read the Government information about the reforms.
