Is negative gearing 'safe' now?
With the federal election now behind us, can we conclude that radical changes to negative gearing are unlikely to occur over the next three years under a Coalition-led Parliament?
Blogger: Simon Buckingham, director, resultsmentoring.com
Well what a long, drawn-out process that was!
Thankfully the election is now (mostly) behind us, and I think we can conclude that radical changes to negative gearing and capital gains taxation are unlikely to occur over the next three years under a Coalition-led Parliament.
You can almost hear the collective sigh of relief from 1.2 million negatively-geared property investors around the country!
But the way in which negative gearing policy became a focal point of the election, and the closeness of the result, ought to be a major 'wake-up' call for property investors.
It's clear that the 'sacred cow' of negative gearing is no longer untouchable.
And even though negative gearing and CGT rules will likely remain unchanged for the new term of government, there's NO guarantee this will continue beyond the next election.
Remember — while Labor would have removed negative gearing on established properties bought after July 2017 (but 'grand-fathered' negative gearing on established properties bought prior to that date), minor parties like the Greens wanted negative gearing abolished altogether.
So make no mistake ... The clock is still ticking on negative gearing and it's highly likely we'll see another attempt to eliminate negative gearing benefits and CGT concessions in the next few years.
Beware complacency! Sophisticated property investors should use this brief respite to begin making preparations for a future without negative gearing. At a minimum, this requires that you:
- Review the current and anticipated performance of every existing property in your portfolio. (You ought to be doing this every six months anyway.)
- Identify any properties where the impact on cash-flows would be severe if negative gearing benefits were reduced or removed.
- Take decisive action to cull any under-performing properties — especially those that rely primarily on negative gearing benefits for their performance.
- Educate yourself on different property investing strategies that don't rely on negative gearing or tax concessions for profitability.
With the property market showing signs of slowing in many parts of the country, passive strategies like negative gearing and holding for capital growth will only become less effective.
Educated investors who understand how to read the property market and apply active strategies — such as adding value through renovation, subdivision or development — will be the ones making the real money in the new market conditions.
Don't be a passenger on your property investing journey. It's more important than ever to be in the driving seat.
Welcome to the new era of the active property investor!
