Introduction

Federal Labor leader Bill Shorten has announced the Labor Party's (ALP) plan to introduce changes to both negative gearing and the Capital Gains Tax (CGT) discount to all investment assets. If introduced, these changes will have potentially far reaching implications for the Australian property market. The proposed changes are summarised below:

1. Negative gearing - Labor has proposed to limit negative gearing to newly constructed property investments from a yet-to-be-determined date following the next election. All investments made before this date will be fully 'grandfathered', ensuring that taxpayers will continue to be able to deduct the full net rental losses against their taxable income.

Losses from new investments in existing properties can still be used to offset other investment income tax liabilities. These losses can also continue to be carried forward to offset future investment income and any capital gains on the investments.

2. Capital gains tax - Labor has also proposed to halve the capital gains discount for all assets purchased after a yet-to-be-determined date following the next election. This will reduce the capital gains tax discount for assets that are held longer than 12 months from the current 50% to 25%.

All investments made before this date will not be affected by this change and will be fully 'grandfathered'. This policy change will also not affect investments made by superannuation funds. The CGT discount will not change for small business assets.

We must note that this Tax Alert has been prepared based on the information which has been released by the ALP to date, however, it will be critical to see the final detail of any legislation (if Labor was to win the next election) before any investment decisions are made.