ALP CGT and negative gearing policy

Discussion in 'Accounting & Tax' started by Robjj, 22nd Aug, 2018.

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  1. Robjj

    Robjj Member

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    Evening all,

    This week I am watching the LNP do their very best to self-immolate. Which brings the very real possibility of a change of government in the first half of next year.

    I'm reading the ALP policy on CGT and negative gearing and was hoping someone could help to clarify some points.

    They speak about grandfathering, presume this means will not apply to pre-existing investments. Is there are grandfather date ? or is it post election.

    CGT discount reduction to 25% is clear. Removal of NG except for new builds. This is where I am confused. Does this mean we can no longer claim investment interest expense as a deduction at all on our PAYG returns? or just the the difference between rent and interest if interest is more (eg a loss)?.

    Do trusts now become more appealing in that they are a separate tax entity with potentially lower tax rates?

    Rob
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Who knows. Just some airy fairy comments are this stage with no draft legislation.

    Best to assume investors won't be able to claim as much as now. I suspect any loss won't be able to be offset with out income but could be carried forward. But just speculation.

    Tax lawyers benefit as things become more complex.
     
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  3. Mike A

    Mike A Well-Known Member

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    Might work similar to the non commercial loss provisions.

    Who knows. But labor will likely win and yes negative gearing will change dramatically.
     
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  4. Tony3008

    Tony3008 Well-Known Member

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    My understanding FWIW is that you can deduct interest and other expenses from rent, but if you end up with a loss, tough. Presumably if you have multiple properties, some negative, some positive, the rents and outgoings are summed. What I don't know is whether losses will be able to be carried forward as in UK. Note that in UK a Conservative government has changed the rules so that mortgage interest on rental properties will progressively not be a tax-allowable expense.
     
  5. Robjj

    Robjj Member

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    This is how i read it. I've read some documents released under FOI but still not clear.
     
  6. Mike A

    Mike A Well-Known Member

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    Labor’s Proposal
    Labor will reform negative gearing and the capital gains tax discount to ensure that our tax system is fair, sustainable and targets jobs and growth.

    Negative gearing

    Labor will limit negative gearing to new housing from a yet-to-be-determined date after the next election. All investments made before this date will not be affected by this change and will be fully grandfathered.

    This will mean that taxpayers will continue to be able to deduct net rental losses against their wage income, providing the losses come from newly constructed housing.

    From a yet-to-be-determined date after the next election losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment.

    Capital gains tax

    Labor will halve the capital gains discount for all assets purchased after a yet-to-be-determined date after the next election. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50 per cent to 25 per cent.

    All investments made before this date will not be affected by this change and will be fully grandfathered.

    This policy change will also not affect investments made by superannuation funds. The CGT discount will not change for small business assets. This will ensure that no small businesses are worse off under these changes.

    Labor will consult with industry, relevant stakeholders and State governments on further design and implementation details ahead of the start date for both these proposals.
     
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  7. Mike A

    Mike A Well-Known Member

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    Yes their policy is the loss can be carried forward to be offset against any future capital gains or profits when the asset turns positive.
     
  8. Mike A

    Mike A Well-Known Member

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    Im actually in favour of the proposal to grandfather exisiting arrangements and limit negative gearing to be offset against other income to new property.
     
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  9. Lacrim

    Lacrim Well-Known Member

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    I'm in favour of voting Liberal
     
  10. kaibo

    kaibo Well-Known Member

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    forgot to mention their antagonism to the banks, people that argue that these changes don't affect them due to grandfathering is wrong as it will decrease the attractiveness to the next owners of our IP's. I'm already getting more exposure overseas especially with a likely incoming labor party
     
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  11. Dean Collins

    Dean Collins Well-Known Member

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    Basically the way we as expats are treated today.

    To be honest its kind of indifferent and wont really affect the cost of housing in Australia. Will just mean you are paying far less tax when selling your property....but the sheep don't know that so will be complaining in 4 years from now when property is still expensive.

    Australia needs more #Tier2Cities and until this happens....our cost of accommodation is going to remain high.
     
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  12. wategos

    wategos Well-Known Member

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    The policy is good, it will reduce speculative pressure on prices so ultimately will be good for both investors (higher yield via lower prices) and home buyers.

    I normally vote conservative but would vote ALP on this issue.
     
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  13. Mike A

    Mike A Well-Known Member

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    Liberal or labor doesnt bother me. Negative gearing was designed to encourage capital into property. It did that. Now it needs to move into new property and not existing stock. Current owners wont be affected and capital will look to new property.

    As someone pointed out prices may drop on exisitng properties. Thats a good thing. And again doesnt affect the current owners. They already made massive gains. So sure their 700k property now sells for 600k. But they paid 400k. Cant see the issue.

    And as @wategos said yields improve and asset class becomes attractive.
     
    Last edited: 23rd Aug, 2018
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  14. hammer

    hammer Well-Known Member

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    I wonder if this means there will be a rush to pick up IPs form now untill the election?
     
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  15. Sackie

    Sackie Well-Known Member

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    Labor just wants to target hard working investors who are trying to secure their futures and not be dependent on government in retirement and give more to bums. Its that simple .
     
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  16. Robjj

    Robjj Member

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    Thanks, good clarification.

    I note the exception for superannuation funds. I’d imagine this will tempt more into self managed super for property and shares given how attractive that will look.

    A strategy to fend off the changes could be to bank some sub divisible property now with the plan to build in the future.
     
  17. Mike A

    Mike A Well-Known Member

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    then look at alternative investments. there is still no changes to the small business cgt concessions for small business. you could make a $1m capital gain on a small business venture and it be tax free under both LIberal and Labor.

    Both allow the same person to provide for their retirement.
     
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  18. TSK

    TSK Well-Known Member

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    No. One of the jobs of government is to correct market failures and put in regulations that provide, or attempt, to provide a level playing field. Cgt reduction pretty much responsible for housing boom in conjunction with cheap credit ... They are correcting the error of previous governments and directing it into job creation and new housing .
     
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  19. Sackie

    Sackie Well-Known Member

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    Have to agree to disagree mate.
     
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  20. TSK

    TSK Well-Known Member

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    Had to say until we see the policy details. Personally don't think grandfathering is the way to go but rather a slow reduction is capital gain reduction and neg gearing over 10 + year window.
     
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