How new capital gains tax and negative gearing rules will impact every property investor

Are you having trouble building wealth? Well never fear, the government is here to help, by taxing you!

Treasurer Jim Chalmers promised big reforms on budget night, the type that would resurrect the dying homeownership dream for young Australians.

The problem is, the only real plan turned out to be to make people pay more tax. And it won’t be the ‘greedy landlords’ that end up having to pay.

The first big change to housing came with the end of negative gearing concessions for established houses. This would surely stop those cashed up landlords from outbidding young families and using what could have been someone’s dream home as a mere offset to their massive incomes, before eventually cashing it in for a huge capital gain in their retirement.

Oh but wait, the changes have been ‘grandfathered’. So all those cashed up landlords already using negative gearing can go on doing so with no changes.

Gee I wish my grandfathers were as generous as this one.

The other big move was the removal of the 50 per cent discount on Capital Gains Tax (CGT) for property investors.

Turns out the government had not been getting a big enough slice of the property pie.

State and Territory Governments have been cashing in on the beginning of our property journeys by charging buyers tens of thousands of dollars in stamp duty (more than $50,000 for median priced houses in most capitals), so the federal government has decided to bookend the experience, by making us exit through a very expensive gift shop.

The 50 per cent CGT discount for investors is no more, replaced by an indexation system where taxable capital gains are reduced to allow for inflation.

The CGT changes will only be partially grandfathered … perhaps just “fathered”.

Investors who already own properties now and sell them in the future, will access the 50 per cent CGT discount for the gains accrued up until July 2027, but will be taxed according to the new method for gains accrued from then on. There is also now a 30 per cent minimum on CGT, so those naughty people who wanted to save on tax by waiting to sell until they were retired or earning less income, will now have to pay more too.

The thing about CGT, however, is it is only taxed when capital gains are realised. In other words, if you never sell the property, you’ll never pay tax. So those cashed up landlords who are carrying on negatively gearing, now have no reason to sell their homes. And thanks to the government’s own assertion that negatively geared homes become neutral or positive cashflow after about four years, they probably won’t need to.

Labor seems to think that increasing taxes will bring down property prices.

The fact is that property prices are overwhelmingly governed by supply and demand. If there’s not enough supply, the prices will rise. Right now, Australia has two severe supply shortages, homes to buy and homes to rent.

Moving rental homes into the homes to buy market is simply making one supply chain worse, while slightly improving the other.

The only way to fix the imbalance is with the construction of new properties.

But oh, wait, we tax the hell out of the construction sector too.

The one bit of relief with the negative gearing changes is that it will still be an option on newly built properties.

This is the least the government could do. The national housing accord plan of 1.2 million homes by mid-2029 was already dead and buried, but yet another tax may have dug it up and killed it even deader! Of course the problem is, you need someone to build a new home in order to purchase it and begin making an annual loss on rental income.

So, what did the budget have in store for construction?

Well, there will be $2 billion invested into a local housing infrastructure fund, which will support the building of 65,000 new homes over the next decade. So 6500 homes a year? Nationwide?

And it won’t actually build the homes, but rather go towards building infrastructure that homes need, like roads, water, power and sewerage.

So, essentially, there was nothing in the budget to boost construction, nothing to address the supply crisis in homes available for rent or purchase. There was only an increase in taxes that will deter investors from making properties available for rent, while also taking away any reason to sell them.