Abstract

In the 2012-13 tax year around 1.2 million persons were invested in negatively geared properties in Australia. Around 330,000 persons included capital gains in their taxable income where a 50 per cent discount was applied.

Australian taxation law allows investors (including rental investors) to offset the losses from negative gearing against their other income, not just their rental income as is the case in some other countries. This effectively treats rental losses in the same way a tax deduction or business income loss would be deducted against other income.

A separate, although often related element of taxation law is that capital gains, once an asset is offloaded, are halved before being counted as taxable income. This provides a significant concession relative to other forms of income.

The Federal Opposition have proposed a number of new policies that would alter the taxation law in these areas and this research attempts to understand the distributional consequences of such changes.

For negative gearing the Federal Opposition proposes to quarantine negatively geared investments to newly constructed dwellings only. Negative gearing would no longer be allowed for existing dwellings or a range of other investment classes. There are a number of exemptions in this policy though for business investment classes.

They also propose to reduce the concessional treatment of capital gains taxation from 50 per cent to 25 per cent. The existing concessional treatment for small business and superannuation would not change.

The analysis here is considered over the ‘long run’ and does not attempt to model behavioural changes such as investors changing their investment portfolios, carrying losses forward or altering their taxation affairs and behaviour to minimise the impacts of these policies. As such we expect these estimates are upper limits with regard to total impacts for the policies modelled. The general pattern of the distributional modelling should not be greatly affected.

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