Has the Morrison government done a backflip on negative gearing?

Coalition in surprise negative gearing crackdown!

That was the headline in the Australian Financial Review that caught my attention.

Remove Negative GearingThey went on to say:

New legislation to deny deductions for any losses or outgoings incurred through undeveloped land has been introduced to Parliament, backdated to July 1.

The under-the-radar change will have a limited impact but property industry sources said they had been caught unprepared for the move which would raise $25 million in the 2020-21 and 2021-22 financial years.

Assistant Treasurer Michael Sukkar who announced the move in legislation designed to protect the integrity of the tax system said :

“The measure addresses concerns that some people have been improperly claiming deductions for these costs,”

But don’t worry…

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The changes won’t apply to expenses associated with holding vacant land if it is used by the owner or a related entity in carrying on their business, such as primary production or property development.

Companies, managed investment trusts, public unit trusts and unit trusts would also not be affected.

This new legislation is in line with measures introduced in the 2018 Federal budget that came into effect on July 1st 2019 which were aimed at discouraging “land banking” which holds back land that could be used for housing or other development.

Under the new tax settings, property owners would be able to claim deductions after a property was constructed on the land, the property had received approval to be occupied and was available for rent.

I’m not concerned that this is a change of heart and we’ll see more changes to negative gearing for property.

The ability to claim “negative gearing” – the excess cash flow of your property outgoings over your property income sounds fair to me, but is a land owner’s intention is not to use it, develop it or build on it, then I’m not to fussed that they can’t claim a tax deduction.

Negative Gearing

“Land banking” is an investment strategy I’ve used frequently over the years as have many of our development clients at Metropole.

But we don’t buy vacant land that doesn’t produce an income.

We buy old houses close to their “use by date “on sites with development potential so that we buy our properties as close as possible to land value but still have some income coming in while obtaining development approval.

There’s nothing wrong with buying the worst house in the best street and watching its value increase.

By the way…if you’re interested in learning more about land banking or property development you really must join me for 2 days at my upcoming Property Renovations and Development workshop where we teach you the advanced strategies of property development  Click here, find out more and reserve your place.

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Michael Yardney

About

Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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