The Federal Budget has proposed major changes to negative gearing and capital gains tax (CGT), which could significantly impact the way you invest in property.
Under the proposed reforms:
- Negative gearing would largely be limited to new build properties i.e. adding to the housing supply
- Existing investment properties owned before the changes were announced on Budget night would be grandfathered
- The current 50% CGT discount would move to an inflation-based system for future purchases.
Whilst the final legislation is still subject to consultation and political debate, the announcements are already influencing investor sentiment and lending discussions.
What Could This Mean for Investors?
For many investors, property decisions have traditionally been driven by tax benefits, capital growth and long term wealth creation.
If implemented, the changes may reduce the appeal of highly negatively geared established properties. Alternative options could now include new builds, higher yielding investments and stronger cash flow strategies.
Lending & Borrowing Capacity
These changes will likely impact borrowing capacity for investors.
Currently, lenders take negative gearing tax benefits into account when assessing serviceability. If tax benefits become more limited, borrowing power for some investors may reduce by up to 20-30% approx. depending on income and property type.
As a result, loan structure and investment strategy will become even more important moving forward.
At this stage, the reforms are still proposed only but they highlight the importance of reviewing your loan structure, cash flow, borrowing capacity and long term investment strategy.
With EOFY approaching, now is a good time to reassess your position to ensure your lending structure still aligns with your financial goals.
Reach out to Allan Hall Finance today to have a discussion alongside your accountant to ensure you’re up to date with the latest changes.
This is the second time we have used Mitch from Allan Hall and there is a reason we keep going back, referring business to Mitch and the team. They are professional, very knowledgeable and helped as every step of the way.
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This article is general information only and does not constitute financial or tax advice. Clients should seek independent advice from a qualified accountant or financial adviser regarding their personal circumstances.