Labor has confirmed major reforms to negative gearing and CGT discounts for investment properties, set to start on July 1, 2025. These changes aim to reshape how Australians invest in property and other assets. Investors who buy their first investment property before that date will keep some key tax benefits, but others face new limits.
Key Changes to Negative Gearing and CGT Discounts
Negative gearing lets investors deduct losses from rental properties against their other income, like salary. Under the new rules, this will end for most assets. Losses from rental investments after July 1, 2025, can only offset rental income, not salary. The only exception is for a first investment property bought before the cutoff date.
The capital gains tax (CGT) discount also faces cuts. Investors currently get a 50% discount on gains from assets held over a year. Labor will remove this for investment properties, except the first one acquired before July 1, 2025. For other non-investment assets, the discount shifts to indexation based on inflation.
These reforms come from Labor’s 2025 election promises, backed by Parliamentary Budget Office costings. They apply across asset classes, not just housing. The goal is to adjust tax incentives that have fueled property investment for decades.
Transitional Rules for Existing Investors
A one-year grace period helps those with properties already in place. If you own your first investment property before July 1, 2025, it stays protected. This creates a clear deadline for action. Buyers who settle before the date lock in the old rules. Those who wait face the new limits right away.
This split matters for timing purchases. Mortgage brokers and property advisors now stress the rush to complete deals early. For people with multiple rentals, losses will soon treat differently. The protection centers on that single first property.
Potential Effects on Rental Supply and Prices
Experts worry these changes could shrink investor demand for rentals. Less new supply might push up rents. In 1985, Australia tested similar limits on negative gearing. Sydney rents jumped 43% and Perth rents rose 33.5% over 26 months. The policy reversed in 1987 after supply tightened.
Overseas cases match this pattern. New Zealand and the UK cut similar tax breaks, but house prices hardly fell. Rents climbed instead, leading to policy reversals. Grattan Institute models predict just a 1-2% drop in home prices here. That small shift won’t fix affordability much for first-home buyers.
Brokers expect to warn clients about rent risks. If investors pull back, tenants could pay more even as prices stay steady.
Shifts in Broader Investment Choices
The rules hit more than property. UBS strategist Richard Schellbach sees a move from growth stocks to dividend-paying ones. Investors may favor income over capital gains as CGT treatment changes. This could last a decade or longer.
Equity portfolios might rebalance. Tax settings now push steady income assets. The policy revives old debates from 1985 on how tax shapes behavior.
Treasurer Jim Chalmers will face questions on next steps. Discretionary trust taxes stay unchanged for now. The focus remains on negative gearing, CGT, and the first-property shield.
Practical Advice for Property Investors
Act fast if you want the old benefits. Complete your first investment purchase before July 1, 2025. Review your portfolio for multiple assets. Losses will soon stay within rentals only.
Talk to a broker or advisor soon. They can map timing and risks. Watch for rent inflation signals, based on past data. Diversify into dividend stocks if property appeal fades.
These steps help navigate the shift. The deadline sets the pace.
Conclusion
Labor’s negative gearing and CGT changes mark a turning point for Australian investors. With protections only for first properties bought before July 1, 2025, timing is key. While prices may dip slightly, rents could rise, echoing history. Investors should plan now to adapt and protect their goals.
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