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Negative gearing policy changes: How property investors can prepare

Investors may see some significant changes with regard to the tax benefits they currently enjoy due to the policy changes put forward by Bill Shorten's Labor Party should they win the federal election.

Despite the proposed changes, however, it may be best to avoid taking immediate action to maximise tax benefits right away. Instead, experts recommend doing due diligence to understand how the potential changes can affect individual investment portfolios.

What are the property-related policy changes?

There could be up to 13 major policy changes that may be implemented if the Labor Party wins the 2019 elections, but two of the proposed changes directly impact investment property portfolios.

Negative gearing
One of the most talked-about policies is Labor’s intention to disallow the use of negative gearing on existing properties. That is, negative gearing may still be applied but its use will be limited to new properties beginning 2020. Only existing properties purchased before 1 January 2020 will be fully grandfathered.

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Capital gains tax (CGT)
According to the current tax law, you may receive a 50 per cent discount on the capital gain that is realised when your property is sold as long as you held it for at least 12 months. However, Labor plans to decrease the CGT discount to 25 per cent.

Preparing for policy changes

Whether Labor will win the elections is yet to be seen, but there are some things you can do to prepare for the potential policy changes.

Reassess portfolio
Changes can impact investment portfolios. However, just because changes may happen soon doesn’t mean your portfolio has to suffer. What you can do first is assess your current strategies and determine the potential impact of the proposed policies to your portfolio.

Perhaps there is a tax deduction that you were unable to claim and it could offset the loss you would have incurred from negative gearing or the additional 25 per cent discount that may be lost from CGT.

Doing due diligence is highly advised before executing any action, especially in this case since a Labor government and its policy changes are not yet set in stone.

Think long term
The first step in building your portfolio is to know your objective and time frame for investing, and the same applies for the potential changes. You may see price fluctuations in the immediate future due to policy changes, but remember that the market has the tendency to correct itself.

Instead of looking at the short-term market volatility, consider how the market and your invested assets may perform in the long term – will it go bankrupt or could you somehow regain immediate losses by seizing opportunities as they come?

Always consider your objective, limitations and time frame for investing before applying any changes.

Seek professional advice
The various policy changes are discussed in all forms of media, so its impact may seem scarier and more confusing, which can lead you to execute investment decisions out of panic. However, it’s best to seek advice from a licensed professional before allowing panic to take over.

You may ask them to explain Labor’s policy shifts and discuss how this could impact your portfolio. Likewise, you may consult them on alternative strategies to take if your investments will be heavily affected.

Remember that even if a Labor government takes over, policy changes don’t take effect immediately because there are legal processes to follow.

Understanding the potential changes and following a logical plan should they occur should be your priority over executing changes immediately.

 

This information has been sourced from Smart Property Investment and Accountant’s Daily.

Negative gearing policy changes: How property investors can prepare
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