Negative gearing woes spike as treasurer brushes off Labor interest

Negative gearing has been in the spotlight again in the past few weeks after treasurer Jim Chalmers admitted to asking the Treasury to outline possible options for scaling the concession back.

Negative gearing allows investors to claim tax for rental loss in the situation where the cost of owning a rental property outweighs the income it generates each year. If an investor knows that their rental will record a loss over a financial year, they can apply to reduce the tax taken out of their salary – a strong boost to personal cash flow.

The popular concession has become a painful thorn in the government’s side, as interest rates have continued to remain high. 2023 parliamentary figures estimated the cost will reach $97 billion in the next decade.

Mr Chalmers discussions with Treasury on alternative options to tackle Australia’s housing crisis came on the back of weeks of remaining tight lipped on potential changes.

Despite this, the treasurer has been clear that negative gearing is not part of Labor’s housing policy, speaking out on ABC Radio.

“I’ve been asked about this countless times. People shouldn’t anticipate that this is part of our housing policy,” he said. “It is not.”

Australia’s market

REA Group senior economist Eleanor Creagh said negative gearing was a consequence of Australia’s approach to taxing income comprehensively – income from all sources, rather than taxing different sources differently.

Mixed views on whether changes to the concession would impact upon housing affordability positively, negatively or even at all have persisted for a long time, though tensions are continuing to increase in the lead-up to next year’s federal election.

The Greens have called for changes to negative gearing and the capital gains tax discount in recent weeks, asking for Labor’s support.

Treasurer Jim Chalmers said negative gearing was not considered part of the Labor Party's housing policy. Picture: realestate.com.au

Speaking after a senate inquiry earlier this month, Greens MP Max Chandler-Mather said the two parties should work together to phase out negative gearing and improve home ownership prospects for renters in Australia. Labor has since hit back, claiming the Greens should instead focus on supporting the government's Help to Buy Scheme.

Mr Chalmers said the Labor government had “a heap of better ideas” than tinkering with negative gearing to address the housing crisis, specifically pointing to Help to Buy.

A pinched housing market

The Australian housing market continues to face an uphill battle despite some recent easing in headline inflation levels.

While changes to negative gearing to ease this have been cautiously backed within the Labor Party, both Mr Chalmers and prime minister Anthony Albanese had largely avoided clear indicators of their trajectory on making changes.

Most investors use some gearing in the form of their mortgage to fund their rental property. The loan interest is often a major expense but it can be claimed as a tax deduction when the property is tenanted or available to let, and this can significantly reduce the cost of the loan.

If you're an investor, a broker can talk you through what you can claim on as long as the property is tenanted or available for rent. Picture: Getty

What can investors claim on?

As long as the property is tenanted or available for rent, there is a lot an investor can claim.

The following can ordinarily be claimed on tax:

• Advertising for tenants, property management fees
• Accounting fees
• Borrowing costs like valuation fees, loan establishment/registration fees 
• Depreciation of some items including the building
• Interest payments and ongoing loan fees
• Stationery, phone costs, and bookkeeping fees
• Council rates, body corporate fees, land tax and strata fees
• Repairs, maintenance, pest control, cleaning and gardening
• Electricity, gas and water (part of these costs may be paid by the tenant, in which case they cannot be claimed by the landlord)
• Insurance premiums for building, contents, public liability and landlord insurance
• Lenders mortgage insurance premium (this may need to be claimed over a period of five years)

Most of the above expenses are normally deductible immediately in the year they are paid, while others – for example borrowing costs – must be claimed over a five-year period.

Is stamp duty tax deductible?

Costs associated with the purchase of your property, including legal fees and stamp duty can only be claimed when you determine any capital gain on sale of the property. Always seek tailored advice from a qualified accountant or tax agent when making a claim for rental property costs.