Property investors who bought before Budget in limbo as Labor needs Greens in Senate for tax changes

Property investors who bought an existing home before Budget night are in limbo with the Greens reluctant to pass Labor’s controversial tax changes unless negative gearing and capital gains tax rules are retrospective.

Australia’s peak accounting group, CPA Australia, has revealed its members can’t provide advice to their customers given the uncertainty, after the Federal Government introduced a bill into Parliament on Thursday with grandfathering provisions for investors that would need support from the Greens in the Senate next month to become law.

“Members can’t give advice until legislation passes both Houses because there’s no guarantee that what the Government has tabled today will be passed in its current form,” the group’s tax lead Jenny Wong told The Nightly on Thursday.

The position of the Greens over Labor’s Budget tax plans was “creating a lot of uncertainty and a lot of questions”, the group representing Certified Practising Accountants said adding that Labor’s proposals on negative gearing and capital gains tax concessions were already “one of the most complex in recent memory”.

“Investors make decisions based on policy settings at the time which means significant changes can have substantial negative impacts, particularly for those who are highly geared,” Ms Wong said.

“Accountants and financial advisers are left guiding clients through a system that is still being built, with proposed changes not yet legislated while further changes have been flagged.”

Treasurer Jim Chalmers on Thursday introduced the omnibus Treasury Laws Amendment (Tax Reform No. 1) bill to scrap negative gearing for existing properties from July 1 next year.

The tax breaks, however, for investor landlords making a rental loss would be grandfathered for homes bought or exchanged before Budget night under Labor’s legislation.

This means contracts signed before May 12 would enable owners to negatively gear for the entire period of ownership.

But investors who signed a contract signed after Budget night would only be able to negatively gear a property until June 30, 2027.

Instead of claiming rental losses against their taxable income, these investors would have to wait until they sold to reduce their capital gains tax bill.

The definition of a newly-built property is also up for debate, with new houses on greenfield sites now considered new but not knockdown and rebuild houses.

The same grandfathering would apply to the 50 per cent capital gains tax discount, before gains made from 2026-27 onwards were indexed for inflation and incurred a minimum 30 per cent tax.

While Labor has a landslide majority in the House of Representatives, the Federal Government can only get its legislation through the Senate with the support of the Greens.

The Coalition and One Nation are opposed to Labor’s Budget tax policies and without the Greens, the Government would lack the numbers even with left-leaning Senate crossbenchers Jacqui Lambie, Fatima Payman, David Pocock and Lidia Thorpe all voting in favour.

Senator Nick McKim, who holds the treasury and economic justice portfolios for the Greens, in March called for grandfathering to be scrapped with any changes to capital gains concessions and negative gearing.

“Grandfathering changes would exacerbate poor intergenerational outcomes,” he recommended in a Senate committee report on the CGT discount since it debuted in 1999.

“To ensure a significant release of housing is made available for renters to buy, hard limits and a phase out of existing arrangements must be part of any negative gearing and capital gains tax reforms.”

The Nightly contacted Senator McKim to clarify if the Greens still wanted Labor’s CGT and negative gearing changes to be retrospective.

During last year’s election, the Greens had advocated grandfathering the CGT discount and negative gearing to one investment property “ensuring ‘mum and dad’ investors with a single investment property are not negatively impacted, while disincentivising future speculative and unproductive investment in the property market”.

While the House of Representatives sat this week, the Senate is not returning until June 22.