Property Investment Impact if Labor Wins

A listener to my radio segment on Emerald 4HI wants to know what effect a win by the Labor Party will have on my property investment clients. At this stage, it is still not clear who will be in power but what if Labor do get in?

Please note 10/07/2016: The Coalition to-form-government/news-story/1058a620130d9fdf7d4e1fa72bc3c1f5″ target=”_blank”>will be able to form Government. And the point is that with either scenario my clients are protected.

Firstly, as I understand Labor’s undertaking, it will have no impact on my existing clients as they promise any changes will not be retrospective. In other words, the rules for existing investors will stay the same.

What about property investment for my future clients? It actually, will have little impact.

Labor has said they will restrict the tax advantages of negative gearing to new housing. This has no impact on my clients as I have always advocated buying new housing to take advantage of the 2.5% depreciation allowance on the cost of the building.

How much is this depreciation usually worth? My executive 5 bedroom homes usually come in at about $500k and on this 2.5% depreciation enjoy about $6,000 tax deduction.

Does that tax deduction get less every year? Unlike normal depreciation, it is a flat rate. That means it stays at $6k a year, every year.

How long does this go on for? Under the current legislation, there is no time limit. Yes, I am saying that this $6,000 tax deduction goes on forever. So if you still own that home in fifty years’ time, you can still enjoy a $6k tax deduction every year.

So, what about Labor’s proposed changes to capital gains tax? Labor proposes in effect, doubling capital gains tax, but it will not have a huge impact on my clients. You only pay capital gains tax when you sell a property investment, but my clients do not buy & sell but buy & accumulate.

Surely, they must sell sometime! The plan is to only sell enough, to be debt free but they only do this AFTER they retire.

Why wait until after they retire? They pay capital gains tax at their marginal tax rate and naturally, that is less after they retire.

What happens if the existing government get back in?

Nothing will change, all the tax advantages of negative gearing will remain, and I will continue encouraging my clients to only buy new housing.

My best deal at the moment is a magnificent 5 bedroom home due to commence next month at North Harbour, Brisbane and the total package is still under $500k.

Builders often ask how we can build such a quality home for under $500k. We have been doing this for many years and one of the main reasons, which is most unusual, is that we are totally debt free – we have no debt and that is a huge saving for our clients.

Just a quick mention about the Emerald Art Gallery at the Central Highlands Council Chambers. The gallery is running a photo competition at the moment and we encourage everyone to visit to view the fantastic images. The 2016 Photographic Awards runs till the end of month – 31^st July.

If you are interested in enquiring about property investment, with a view to retiring debt free, please contact our office to schedule a free, no-obligation consultation.

Steve Taylor

If you prefer to listen here is my radio interview on Emerald 4HI:

At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.