Tax Changes Begin To Reshape Investor Decisions

The Federal Budget’s changes to negative gearing, capital gains tax and trusts are starting to influence how investors assess property.

Negative gearing will remain available for newly built residential property but not established homes. This may create a premium for new dwellings among investors seeking the concession. The complication is that the premium could disappear at resale, because the property will no longer qualify as new for the next investor.

Many investors are holding back while they obtain tax advice, reconsider ownership structures and calculate the yield required without negative gearing.

The removal of the 50% capital gains tax discount and a minimum 30% tax on discretionary trust distributions could also reduce the appeal of smaller commercial assets. Buyers may demand higher yields, placing downward pressure on values.

Stamp duty creates another obstacle for anyone wanting to move property out of a discretionary trust and into another ownership vehicle. State governments have not indicated that concessions will be offered for these transfers.

Tax structure matters more, but it should not overwhelm the fundamentals. Location, property quality, tenant demand, yield and growth drivers still determine performance. Investors should seek qualified advice before changing structures or paying a premium for a concession.