Federal Opposition leader Bill Shorten announced earlier this month that a Labor government would cut the current CGT discount for investment properties held for more than 12 months from 50% to 25%.
That announcement was criticised by the Housing Industry Association at the time, and the HIA believes a commitment from the current government that no change will be made in the upcoming budget is a positive step.
“Over recent months there has been a range of proposals from reducing the CGT discount on investment properties to applying the tax on the family home, and yesterday’s categorical statement by the government provides certainty to the industry and to investors,” HIA chief executive industry Policy and Media Graham Wolfe said.
“The housing industry has opposed changes to the way capital gains are currently treated on investment properties. It would mean investors pay even more tax,” Wolfe said.
Wolfe said any changes to CGT arrangement would place undue taxation pressure on sale of new houses in particular.
“New housing is one of the most highly taxed commodities in the Australian economy,” he said.
“Right now, around two dollars out of every five that an individual pays for a new home is tax. Buyers pay for those taxes. They pay taxes on the taxes. They pay stamp duty on top of taxes, including the GST. And when they eventually sell the property, if they make any money, they pay tax on that.”
In his announcement, Shorten said the Labor government hoped to address affordability issues with their changes, but Wolfe said increased taxation will not achieve that goal.
“HIA has stressed that housing cannot be asked to pay even more taxes.
“When it comes to improving affordability, the focus should be on increasing housing supply, and this won’t happen by increasing taxes on housing.”
While lobby groups such as the HIA panned Labor's proposal, some people within the investment industry were more accommodating of the idea.
Philippe Brach, chief executive officer of Multifocus Properties & Finance, said he had no "philosophical" objections to a reduction in the CGT discount.
“When you look at when negative gearing was first introduced it was supposed to be a tax deferral method, not a way to avoid paying tax. The idea was that you defer the tax you pay and then you sell the property you pay the whack of taxes,” Brach said.
“But then the 50% discount was introduced and it meant that people really were avoiding paying their taxes. So while as an investor I don’t like to see the discount cut, I don’t have any philosophical issues with it,” he said.
