The 2018 Budget and Your Property Planning
We like to go against the grain, so we thought we would wait until the dust settled a week after the federal budget to provide an overview as it relates to property despite the rush most have to send something out in a hurry. The policy still needs to pass through legislation, so really, there is no rush.
In sharp contrast to last year’s budget which had a heavy focus on property, last week’s was relatively neutral. It happens to be a budget that will precede an election, so the government could possibly be conscious of not offending voters! Last year’s budget reforms were coloured by the perception of a never-ending increase in property value, at least for Sydney and Melbourne. Now that value growth has slowed, minds are turning towards concern about how far the market might drop in value. This is a great reminder that cycles do happen and a stark reminder of how times change!
Just like last year, in the budget announcement the government has:
- chipped away at the ability to claim expenses on property. A pre-emptive measure in the hope that negative gearing will become less of a policy issue leading into the next election.
- provided incentives to older voters to assist with living in the family home for longer
Arguably consistent policy to last year’s budget……I thought that didn’t exist!
Further Gearing Restrictions
Vacant Land – Long story short, no deductions are available when owning vacant land, irrespective of whether or not you are spending money on developing the site. This suggests that some developers were claiming deductions on vacant land that were dubious at best, so the government decided to shut down this loophole and pocket a sum of money rather than spend our taxes investigating. This is unlikely to impact most of our professional clients who are largely passive buy and hold property investors.
Negative gearing – Before anyone has a heart palpitation, negative gearing remains. The government declared they will invest more resources into targeting those who may be excessively claiming losses on investment properties.
I am often asked, ‘can you please explain negative gearing to me?’ by those who do not own an investment property. The phrase negative gearing gets bandied around, but rarely the explanation of what it means. It refers to the ability to offset cash flow losses on a property investment against your taxable income. This just happens to be exactly the same thing you are able to do with any other investments or businesses where your investment results in a cash flow loss.
Incentives for the elderly to keep the family home
Government Reverse Mortgage for Pensioners – All Australians of pension age who own their home and need to increase their disposable income will be eligible to access this loan. The main change is that this was only available to part pensioners who were looking to top up their pension. This now opens the scheme up to full pension recipients and self-funded retirees.
Home Care Packages – 20,000 extra home care packages to assist the elderly in living in and keeping their homes for longer.
This will not free up the supply side of the property equation and a lack of supply of well-established property (that logically the baby-boomers and beyond own the quantum share of), is one of the key drivers of property value growth. It has been argued that these announcements blunt the government’s plan from last year’s budget to encourage home owners aged over 65 to downsize and make a non-concessional contribution up to $300,000 from the proceeds into superannuation. These two new policies are almost diametrically opposed as they relate to the property market because one policy encourages selling the current family home, whereas the others do not. However, they all assist retirees maintaining a principal place of residence, which of course is the Australian dream. Importantly from a political perspective, the policies target differing demographics of elderly voters with a windfall of cash and support.
Merely coincidence, you be the judge?