02 May 2010
What the report says …
Subject to transitional provisions, and following action to improve the current shortfall in housing supply, a more neutral personal income tax treatment of private residential rental investment should be introduced, with less volatile market effects, through a 40 per cent discount on all net residential rental income and losses, and capital gains.
However, changing the taxation of investment properties could have an adverse impact in the short to medium term on the housing market. Investment returns in the Australian residential housing market are likely driven by capital gains rather than by rental yield. As such, reducing net rental losses and capital gains tax concessions may in the short term reduce residential property investment. In a market facing supply constraints, these reforms could place further pressure on the availability of affordable rental accommodation within the private rental market. These reforms [to reduce the tax benefits of negative gearing] therefore should only be adopted following reforms to the supply of housing and reforms to housing assistance.
What the Federal Government says …
In the interests of business and community certainty, the Government advises that it will not
implement [this policy] at any stage:… Reduce the CGT discount, apply a discount to negative gearing deductions, or change grandfathering arrangements for CGT.
What the Urban Taskforce says …
Even the Henry Review admits that changing the taxation of investment properties could have an adverse impact in the short to medium term on the housing market.
The Federal Government was correct to today decisively rule out proposed reductions in the capital gains tax discount and any proposal to discount negative gearing deductions.
