Negative gearing reforms to favour lower income investors
Negative gearing reforms can save the Australian Government more than $1.7 billion each year, a 57.3 per cent saving from the $3.04 billion cost of negative gearing deductions currently, without hurting lower income investors, Australian Housing and Urban Research Institute (AHURI) research confirms.
The AHURI report, Income tax treatment of housing assets: an assessment of proposed reform arrangement, looked at reforms to negative gearing and capital gains tax (CGT) that would reduce the impact on everyday ‘mum and dad’ investors.
Key findings of the report included:
- Reforming rental deductions could provide greater tax concessions to ‘mum and dad’ investors and reduce the generous concessions that ‘sophisticated’ investors on higher income currently receive;
- A reduction in CGT discount has the potential to reduce inequality; and
- CGT reform could be gradual.
The research sought reforms that would have the least impact on investors with lower incomes, said author, Professor Alan Duncan, from the Bankwest Curtin Economics Centre at Curtin University.
“Current negative gearing policies are heavily skewed towards high income earners, raising concerns about the extent to which these policies exacerbate income and wealth inequality in Australia,” said Duncan. “Our modelling suggests that a progressive rental deduction for investors cushions less wealth ‘mum and dad’ investors from significant drops in tax savings, and may be an appropriate policy option.”
Co-author, Professor Rachel Ong ViforJ, said reductions in CGT discounts would mean high income investors pay more tax than lower income investors, but that the reform would be “progressive in nature, reducing negative gearing tax savings by greater margins as tax assessable income increases”.
ViforJ said the changes would have to be worded carefully to ensure high income investors understand that the tax amount would represent a lower proportion of their take home income, and avoid the misconception that changes would have a proportionate impact on rental investors’ net incomes.
AUTHOR
Anastasia Santoreneos
Recommended for you
A relevant provider has received a written direction from the Financial Services and Credit Panel after a superannuation rollover resulted in tax bill of over $200,000 for a client.
Estimates for the calendar year 2024 put the advice industry on track for a loss in adviser numbers as exits offset gains from new entrants.
Adviser Ratings shares five ways that financial advice changed in 2024 with an optimistic outlook for 2025, thanks to the Delivering Better Financial Outcomes legislation.
National advice firm Invest Blue has announced several acquisitions, including the purchase of an estate planning and wealth protection business Lambert Group.
