Arabic version: قانون جديد يحد من الاستدانة السلبية، وقد يفضّل بعض المستثمرين

Australia has enacted sweeping reforms that restrict negative gearing for residential property and change the way capital gains are taxed. The government’s stated aim is to give first-home buyers a better chance at existing homes and to redirect investor capital toward increasing housing supply.

According to The Conversation, negative gearing will be reserved for new builds for purchases made after the cut-off time of 7:30pm on budget night on May 12, while existing properties bought after that time will face a “quarantine” on excessive rental expenses. The 50% capital gains exemption has been replaced by an indexation system that adjusts a property’s cost for inflation, and arrangements for properties purchased before the cut-off have been grandfathered.

One practical loophole noted in the analysis is that a property only needed to be owned or under binding contract at the cut-off time to retain the old treatment; it did not need to be an investment property then. That means current owner-occupiers could buy another home and later convert their former residence into a rental and still access the traditional negative gearing rules. Some economists have speculated this could disincentivise certain homeowners from selling.

The article also highlights a structural advantage for “grandfathered” landlords. Those who owned properties before the cut-off can continue to deduct rental losses against other income, and if their older properties become profitable they may be able to use those profits to absorb quarantined losses on newly purchased properties. This preserves some tax benefits that the reforms otherwise remove for new purchases.

A further consequence is the creation of a pool of undeducted rental expenses that are “trapped” by the quarantine rule: losses that cannot be used against other income and can be applied only to future rental profits or capital gains on sale. That incentive to hold properties until a sufficient capital gain materialises could reduce the supply of established homes for sale and place upward pressure on prices.

Supporters argue the changes could make housing more affordable by removing tax advantages for investors buying existing homes, and the article notes there are early signs Australia’s housing market is beginning to cool. It remains to be seen whether the end of widespread negative gearing will have a lasting impact on affordability.