Big changes to property taxation and trusts will impact Master Builders NSW members and the industry.
Breaking the promise he made at the last Federal Election, the Prime Minister has given the ok for changes to Negative Gearing and Capital Gains Tax arrangements.
From 1 July 2027, Negative Gearing will be restricted to new homes only and the Capital Gains Tax discount will be replaced by a system of indexation that means that only the above inflation component of the asset price will be included as taxable income for tax purposes.
Find out how the Federal Budget will impact your business below
What are the changes to negative gearing?
Anybody who exchanges on an investment property after 7:30pm on budget night (Tuesday) will not be able to use rental losses to write down their ordinary wage income from July next year, when the changes start (there is a one-year grace period).
The losses can only be used to write down tax on other residential properties, or carried forward to write down tax on residential property losses in future years.
Are new homes exempt from negative gearing changes?
Yes, investors in newly built homes will be able to continue to negatively gear their properties and use this to write down their overall income tax.
A newly built home must genuinely add to housing supply, so a knockdown-rebuild does not count unless the land is subdivided and multiple residences are added.
Are existing investments exempt from the negative gearing changes?
Yes. Those who bought investment properties before 7:30pm on budget night can continue to use the current negative gearing rules for as long as they own the properties.
Can negative gearing still be used to write down rental income?
Yes, rental losses will still be tax deductible for properties purchased after budget night, but only for any income from other residential properties.
Losses can be "carried forward" to offset positive rental income in future years, and can be deducted from the capital gains tax upon sale, as is the case currently.
What are the changes to the capital gains tax discount?
Anybody who buys an investment property after 7:30pm on budget night will get a discount that is equal to inflation over the time the asset is held.
Once a capital gain is adjusted for inflation, it is then taxed as regular income, but subject to a 30 per cent minimum rate of tax.
That means somebody whose income is low enough to be under the tax-free threshold or in the 16 per cent bracket would still have to pay 30 per cent on the capital gains.
Are new homes exempt from the capital gains tax changes?
Yes.
Those who buy newly built homes will be able to choose between the old 50 per cent discount or the new inflation discount (including the 30 per cent minimum): whichever regime they prefer.
Are existing investments exempt from the capital gains tax changes?
Only partly. For any property bought before 7:30pm on budget night, any gains accrued up until next July will keep the 50 per cent discount. But any future gains on the same property will be subject to the new inflation discount and the 30 per cent minimum.
So for example, a property that was bought for $1 million, is worth $1.5 million next July, and then is eventually sold for $2 million would have the first $500,000 taxed with a 50 per cent discount and the next $500,000 would be taxed with an inflation discount.
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