SKY UPDATE | TREASURY REVIEW OF NEGATIVE GEARING

01 October 2024

The Australian Treasury has reportedly begun reviewing the policy of negative gearing, a long-standing feature of our tax system.

Negative Gearing in Australia

Negative gearing refers to the ability of investors to claim tax deductions against their other income for investment losses, thus reducing their tax.

Whilst negative gearing can be used across a range of investment classes, it is most commonly used by investors acquiring rental properties.

In that context, the costs of owning a property (such as interest on loans, maintenance, depreciation, etc) that exceed the rental income are claimed as a deduction by the owner.

Negative gearing has long been an effective strategy for reducing tax and building wealth.

While popular with investors, negative gearing has long been controversial. Critics argue that it contributes to housing affordability issues, as investors compete with first-home buyers, driving up prices.

In the interests of balance, it is noted that there is a lack of clear data to show if the theories advanced by the critics are accurate.

Treasury’s Review

At the time of writing, Treasury have not published any material concerning the scope and purpose of the review.

However, one might reasonably surmise that the review will focus on the impact of the policy on tax collections and the impact on housing supply and demand.

Further, that it may seek to evaluate the impact of removing and/or limiting the use of negative gearing.

Politics

The political landscape surrounding negative gearing is complex and fraught.

Previous attempts to reform the policy, most notably by the Labor Party during the 2019 election, have proved to be politically damaging.

Prime Minister Anthony Albanese and Treasurer Jim Chalmers have so far remained tight-lipped on whether the government intends to act on any recommendations from the Treasury review and whether the government has played a part in initiating it.

The media is reporting that Labor MPs have been advised to comment that Treasury routinely works on a range of policy issues and that changes to negative gearing and capital gains tax are not part of Labor’s housing policy.

With a Federal election likely to occur in the first half of 2025, this may well be the Labor government testing the political climate to work out which policies to run with.

What now?

As the Treasury’s review progresses, there will no doubt be more information in the public domain and we will keep you updated on any issues arising.

In the meantime, this news is likely to stimulate a range of questions for those who are considering or who are currently negatively gearing rental properties.

At present, there is no information available to help investors answer their questions. The best we can do is recommend that people be patient and to remind them of the potential perils of acting based on rumour and speculation.