Proposed changes would restrict tax breaks, with significant implications for multi-property owners
A proposal by the Australian Council of Trade Unions (ACTU) to restrict negative gearing and capital gains tax concessions to a single investment property could directly impact more than 300,000 property investors – about one in seven – who currently claim tax breaks on multiple properties.
Under current rules, investors can deduct losses from any number of investment properties against their taxable income, and only half of any capital gain is taxed when an asset is sold. These arrangements have disproportionately benefited higher-income earners, who are more likely to own several properties and have larger tax bills.
The ACTU’s plan, set to be discussed at a national economic reform roundtable this month, would keep existing tax settings for five years before limiting negative gearing and capital gains tax discounts to just one property per investor.
Analysis of Australian Tax Office data by RMIT researcher Liam Davies shows that out of 2,261,080 individuals with an interest in rental property in 2022-23, 306,300 – around 13.5% – owned two or more properties and would be affected by the proposed changes. The majority of negatively geared investors, holding only one property, would see no change.
Continuing to give investors tax discounts to own multiple properties is making home ownership nearly unimaginable for young people, according to ACTU secretary Sally McManus.
In the 2022-23 financial year, negatively geared investors claimed $10.4 billion in deductions, with $4.8 billion attributed to those with interests in two or more properties. The ACTU estimates its proposal could generate $1.5 billion in additional tax revenue annually, which could be used for initiatives such as the government’s Housing Accord, targeting 40,000 new social and affordable homes over five years.
Data from the Parliamentary Budget Office shows that most benefits from negative gearing and capital gains tax discounts go to higher-income earners, with 80% of the capital gains tax discount and 60% of negative gearing benefits accruing to the top 10% and 20% of earners, respectively. Over the past decade, the combined cost of these concessions has exceeded $80 billion.
Negative gearing and the capital gains tax discount were not originally designed for rental housing, Martin Duck, research associate at the University of Sydney, pointed out. “My research on Australian housing finance shows negative gearing and capital gains tax discounts were not designed with rental housing in mind – yet this is where they’ve had their greatest impact,” he said in an article published in The Conversation.
Negative gearing dates back to a loophole in the 1936 Income Tax Assessment Act, while the capital gains tax discount was introduced in 1999. “At the time, the stated aim was to get more people investing in Australian businesses, such as through the share market,” Duck said. “Instead, many people ploughed money into housing and have bid up house prices ever since.”
The Albanese government has so far ruled out changes to negative gearing and capital gains tax discounts, citing the political fallout from Labor’s 2019 election campaign, which proposed similar reforms. However, the ACTU’s more targeted approach, which would leave most investors unaffected, could make the proposal more politically viable.
The Greens have already expressed support, and shifting demographics – particularly among younger voters concerned about housing affordability – may increase public backing for reform.
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