Australian owner-occupiers can turn their place of residence into an investment property and negatively gear the home in a surprise twist to the government’s latest tax changes.
Treasurer Jim Chalmers during last week’s budget revealed Labor is limiting negative gearing to new builds.
However, the system is being grandfathered for homeowners who purchased before the Treasurer’s budget speech was delivered.
A spokesperson for Mr Chalmers confirmed to The Australian Financial Review that all existing properties owned prior to budget night will be grandfathered.
This is regardless of whether they were an owner-occupier homes or an investment properties.
SkyNews.com.au has also reached out to the Treasurer’s office for comment.
A homeowner who moves out of their residential address and rents it out to tenants can benefit from negative gearing after the change is brought in from July 2027.
Critics argue Labor’s tax changes will hurt younger generations wo are competing with older Australians that benefited from negative gearing.
They also benefited from decades of the 50 per cent capital gains tax discount, which Labor announced will be replaced by an inflation-adjusted model.
Negative gearing allows people to purchase properties – which were more affordable in decades past – to deduct an average of $8,702 from their taxable incomes each year.
They can use losses on their investment property to reduce their income tax.
Hannan Accounting and Taxation Services’ Ridhwan Hannan said some Australians looking to cope with surging price pressures may find this approach attractive.
“Instead of selling (their home) and then trying to buy something else, someone might negatively gear it for a couple of years and then see where they land,” Mr Hannan told news.com.au.
“Rates are going up, prices are really going down from a cost of living perspective for some people who have bought properties in the last couple of years and have maybe overextended themselves – they might say, ‘OK, I’ve got no option’.”
The call comes as interest rates have been lifted three times since the beginning of the year and economists anticipate at least one more hike this year.
This would bring the cash rate above 4.35 per cent, where the Reserve Bank of Australia held it for almost a year and a half to stamp out post pandemic inflation.
The budget also replaced the 50 per cent capital gains tax discount with inflation-linked indexation and introduced a minimum 30 per cent tax rate on capital gains.
Budget papers estimate the tax changes could lead to 35,000 fewer homes being built due to reduced investor demand.
The Opposition said it will repeal the changes to CGT and negative gearing if elected in 2028.