Property investors should start preparing themselves for changes to negative gearing and capital gains tax according Daryl Dixon from Dixon Advisory.
The founder of the non-bank self-managed super fund manager says major changes to the taxes are increasingly likely.
Recent studies have indicated that getting rid of negative gearing would reduce house prices by around 1-2 per cent and would have limited impact on rental prices.
The Federal Government would expect to save around $5.3 billion if it axed negative gearing and the 50 per cent capital gains tax concession.
Mr Dixon spoke to The Sydney Morning Herald about the possible impact on investors of these possible changes.
“The worst case would be if the changes were to apply to both existing and new investors when interest rates are rising and property prices are stagnant or falling,” he said.
“In theory, a future government wanting to maximise revenue and encourage the disposal of assets could apply the new tax provisions to all capital gains accruing after the date of change.”
“In technical terms, that wouldn’t be a retrospective change but it would pose difficulties for the Tax Office and investors.”
Mr Dixon said it was most likely that any changes to capital gains tax was likely to only apply to new investors and affect future demand for property.
Melbourne University researchers last week released a report to the Reserve Bank that found axing negative gearing would boost the average home ownership rate to 72.2 per cent, up from 66.7 per cent where it sis currently.
The report claimed the overall welfare of the economy would rise by 1.5 per cent off the back of discarding negative gearing.
Melbourne University researchers Yunho Cho, Shuyun May Li and Lawrence Uren spoke to Australian Broker about their report.
“Our model shows that eliminating negative gearing would reduce housing investments and house prices, and increase the average home ownership rate,” they said.
“Comparing across the stationary equilibria, removing negative gearing increases the average home ownership rate by 5.5 per cent.”