The 2017/2018 Budget provides some interesting changes that could affect people with investment properties if the recommended modifications become legislation over the next few months. Minor changes have been suggested to negative gearing, incentives have been increased to encourage property owners to provide affordable housing, and some of the infrastructure funding could offer substantial property market changes.
Negative gearing options reduced
It’s been clear for a while that negative gearing legislation is something that governments both Labor and Liberal would like to modify. This Budget introduces two fairly minor changes to negative gearing rules, but they could provide a nasty surprise to some investors. They target areas that are prone to misuse from some taxpayers:
- Travel: if the suggested changes go ahead, property investors will no longer be able to claim, as deductible expenses, any costs for travelling to and from rental properties.
- Depreciation: the government plans to set limits on the amount of depreciation that property investors can claim on equipment on a property, such as dishwashers and water heaters.
Affordable housing discount increased
On the positive side, the government has increased Capital Gains Tax discounts for property owners who participate in the affordable housing program – from 50% to 60%. To qualify, a property must be:
- Held as affordable housing for at least three years.
- Managed through a registered community housing provider.
- Provided at below market rent to eligible tenants.
For the first time, investors in Managed Investment Trusts will also be eligible for the 60% affordable housing CGT discount. See the fact sheet for full details.
Queensland infrastructure investment could affect property prices
A number of infrastructure funding options in this Budget could increase property prices in key areas around Queensland, offering new investment opportunities to savvy investors who can pick the suburbs most likely to rise in price. The Melbourne-Brisbane Inland Rail project, connecting Melbourne and Brisbane through Toowoomba, offers a boost to industry in the Toowoomba region and a number of new jobs when construction commences – potentially increasing the demand for housing in the area. The National Rail Program, allocated $10 billion over the next 10 years, could see the Brisbane Cross-River Rail project finally get off the ground, says Paul Fletcher. This would improve north-south commute times, and hence might increase property prices in suburbs serviced by the existing rail network over the next few years.
If you’re currently negatively gearing your investment properties, keep an eye on the news for the next few months to see which changes actually make it into legislation. Renting an investment property as affordable housing might work well for some investors and badly for others; talk to our Financial Advising Team if you’d like some help figuring out whether it’s the right move for you.