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How will a change in negative gearing legislation affect you?


What is negative gearing?

Negative gearing is a hot topic at the moment as the Federal Government and the Opposition are each looking at major shake-ups.  Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year.  This creates a taxable loss, which can generally be offset against other income including your wage or salary, to provide tax savings.

In the housing market, negative gearing has long been accused of offering a tax break for the wealthy, contributing to soaring house prices.  Many claim it’s locking first home buyers out of the market as they struggle to outbid cashed up investors for their first home.  But the theory that we’re awash with property moguls buying up everything in sight isn’t necessarily the case.  Of the 8% of Australians that own an investment property, only 27% own more than one and only 0.8% own more than five properties.

What will happen if there is a change in legislation?

A change to the negative gearing laws will be of concern to some, but not everyone.  With record low-interest rates and money available at a little over 4%, many properties are now positively geared.

If you currently own an investment property that is negatively geared, you’re not about to lose your tax deductions.  Both the Government and Opposition have expressed that any changes to the current laws will not be retrospective, that it’s “unfair to investors who made a large financial decision based on the rules at the time”.

This may not be the case though for the few that are highly negatively geared across multiple properties, as there has been talk of limiting the total deductions to a maximum annual amount.  Typically, those that are heavily negatively geared across multiple properties should have the cash flow to back that up, so again it will be less of an impact.

What’s the outlook for the future?

Moving forward, it’s possible that the negative gearing laws will not be as generous.  There has been talk of limiting negative gearing to new properties only.  There have also been suggestions of cutting back capital allowances, putting a total cap on the amount of deductions you can claim and changing the capital gains laws for when you sell your property.  All of these moves will lower the long-term returns on property by increasing the tax you pay, but none of the rules that we’ve reviewed so far appear to undermine the essential ingredients of the current tax regime.  Narrowing negative gearing to new properties is the only suggestion that we’ve seen that will reshape the market as it will lead to greater demand for new properties, causing a spike in new property prices.


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Our response to limit the spread of COVID-19

  • As COVID-19 continues to spread, we would like to take a moment to let you know what Financial Spectrum is doing to respond.

    While we haven’t been directly affected with any confirmed cases, we are taking all reasonable precautions to remain safe.Our priorities are:

    1. Keep our staff and clients safe
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    3. Play our part in minimising the impact on our community against the spread of COVID-19

    Financial Spectrum has the technology, infrastructure and systems to continue business as usual remotely and our staff will now be working from home.

  • You should notice no change to our service, with the exception that we are encouraging our clients to meet via video call, rather than face to face, unless requested. We will be contacting all clients with meetings booked over the next two weeks with instructions for a video call.This is an evolving situation and we will continue to monitor developments. We will keep you informed of any material changes to our approach.

    These are unprecedented times and we understand that many of you will be feeling unsettled about your finances. We would like to assure you that we are open for business and are here to help you. If you don’t have a meeting booked but would like one, or if you have questions, please contact us at info@financialspectrum.com.au or on
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Brenton Tong

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