Yes, I’m pleased to report that not only has the ALP decided to leave negative gearing alone, but the Federal Opposition has scrapped its plans to make changes to the capital gains tax discount.
At the last two Federal Elections, along with changes to negative gearing, the ALP promised to reduce the capital gains tax discount from 50 to 25%.
While existing investment properties purchased prior to 1 January 2020 were to be fully grandfathered under the terms of the 2019 election promise; this change would have proven a disincentive for future property investment.
To illustrate, if Lucy bought a $600,000 house in 2019 and, after four years, sold the property for $680,000, she would only pay tax on $40,000 of the profit under the current rules.
Under Labor’s proposal, Lucy would have been paying capital gains tax based on a gain of $80,000. Not only would this change have discouraged future investment in real estate, but it also caused very significant job losses in the property and construction industries and hit the broader economy hard.
To bring you up to date further on how CGT is calculated, if you sell the investment property in under 12 months, you’ll pay tax calculated on the entire capital gain. But, if you hold the investment property for longer than a year, the 50% discount on your capital gain less any capital losses and the costs of maintaining the asset will apply if you sell the asset.
To complicate matters, if you are an Australian resident who purchased an investment property before 21 September 1999, you are eligible to use the “indexation method” for calculating a capital gain. This method considers the impact of inflation on the price you originally paid for the property. As a result, your initial purchase price will likely increase, and your capital gain will decline.
To choose the correct method for calculating the capital gains tax liability on the sale of an investment property, you’d be well-advised to speak to your accountant and tax adviser before making a move.
If you’re interested in selling an investment property before the end of the year, contact your local Raine & Horne office today for a free appraisal.