Federal Budget and Property Tax Update

We wrote about changes to capital gains tax discounts earlier in the year when there were rumours of the program being scrapped, but the Federal Government’s budget announcement in May clarified its plans. 

At the moment, the policy changes are only recommended, but all the talk and headlines going around may be leaving you confused about what they mean for you as an investor. 

Here are the facts from the proposed changes: 

Negative gearing changes

Negative gearing currently allows investors to claim a tax deduction when the costs of owning a property exceed the rental income it generates. This can include expenses such as loan interest, maintenance, insurance, and rates.

Under the proposed changes, negative gearing arrangements for existing property owners would generally continue under the current system. However, from 1 July 2027, buyers purchasing established residential investment properties may no longer be able to offset rental losses against salary or other personal income. Instead, losses may need to be carried forward and applied against future investment income.

New-build properties are expected to remain eligible for negative gearing concessions, which aligns with the Government’s focus on increasing housing supply.

Capital gains tax (CGT) changes

The Government also proposed changes to capital gains tax for investment properties in its Federal Budget. 

Currently, investors who hold a property for more than 12 months can generally reduce their taxable capital gain by 50% when they sell. Under the proposed model, this discount may be replaced by an inflation-based system, in which tax is calculated on the property’s growth above inflation.

For example, if a property increased by 7% while inflation was at 4%, the tax would apply to the remaining 3% of growth. A minimum effective tax rate of 30% has also been proposed, although pensioners and some income support recipients may be exempt.

Properties purchased before July 2027 are expected to fall under transitional arrangements, meaning part of the gain may still qualify under the current rules. To add to this, A minimum tax rate of 30 per cent will apply to real capital gains accruing from 1 July 2027 (with no impact until the income is realised).

You can read more about proposed capital gains tax and negative gearing changes via this fact sheet from the Federal Government. 

What CGT and negative gearing changes mean for Rockhampton and Capricorn Coast investors

For existing investors, negative gearing won’t change, but future capital gains are likely to. If you’re concerned, your tax accountant can help you forecast the potential outcome of your investment. 

The Government’s announcement will change things for investors who want to ‘buy and flip’ without living in a property, because capital gains taxes are likely to be higher. Again, it’s a matter of adjusting expectations and strategy after carefully reviewing potential numbers. 

There may be benefits for buyers and some investors. For example, the change may open opportunities for young buyers hoping to see less competition from investors. Some investors may switch their strategy to positively gear their investment and profit in the short term, rather than seeking long-term gains. 

The other option is to look at purchasing new properties. With Rockhampton and the Capricorn Coast being top growth areas for Queensland, there is plenty of opportunity coming down the pipeline. 

Many investors have expressed their confusion about the changes, and the story is evolving as we collectively wait for proposals to be confirmed. For now, the recommended course of action is to speak with your accountant, loan broker and real estate agent about how changes could affect you and review possible future outcomes. 

If you believe selling your Rockhampton property is the best course of action at this time, we’re happy to have a discussion and answer your questions. Reach out to The Agency CQ today.