Most property investors may end up paying less capital gains tax after Labor’s budget reforms, research based on an analysis of historical data suggests. The e61 Institute’s analysis also found half of all landlords would have faced higher costs from the loss of negative gearing over the period from 2008 to 2025 if the new system had been in place, suggesting the tax reforms alone cannot explain a slump in investment demand. Under the changes, 53% of housing investors would have paid more tax in total in that period, while 43% would have paid less, according to the research.
Dr Nick Garvin, a co-author of the paper, said public debate since the May budget had overstated how much the reforms would cost landlords. The Reserve Bank governor, Michele Bullock, said on Tuesday the budget reforms had “very directly” impacted the market. Rising interest rates have also added to costs this year, with another hike expected on Tuesday.
Garvin said some market commentary may have misjudged the impact of the reforms on investor activity because it overestimated investor profits on house sales. The median home analysed in the paper earned an average annual capital gain of 3.3%, after accounting for sales costs. Garvin’s sample included nearly 921,000 homes, a significant share of all investment properties bought and sold in the period.
Inflation averaged roughly 3% annually from 2008 to 2025, implying a tenth of the median capital gain would be taxable under the new system. Half of the gain would have been taxed under the old system’s flat discount. Investors would likely pay more tax under the new system if they borrowed heavily to finance their purchase and invested in properties that rose rapidly in price or had little other income, such as retirees.
The treasurer, Jim Chalmers, declined to directly comment on the paper but a Treasury spokesperson linked the findings to similar conclusions in the May budget. The Liberal shadow treasurer, Tim Wilson, said the budget’s “cruel twist” was that higher investor costs would be passed on as higher rents. But Garvin said investors could continue to buy and rent out homes if they prioritised long-term capital gains over short-term cashflow, which had been supported by negative gearing.
About half of all investments are typically negatively geared, running at a rental loss that can be claimed on annual income tax, and most would have paid slightly more tax if the government’s reforms had been in place. Negative gearing will now only be available for newly built homes, though owners of existing property can still carry forward and claim rental losses on their eventual capital gains tax bill when they sell. Garvin said part of the post-budget drop reflected that some borrowers had needed negative gearing to afford an investment property.
Extract — continue reading at the source.
