NEGATIVE GEARING DEBATE SHIFTS FOCUS TO TIMING OF TAX DEDUCTIONS
As negative gearing dominates pre-budget debate, BMT Tax Depreciation says potential changes may not remove deductions but could delay when property investors can access them.
While no final policy design has been confirmed, one approach under discussion is the quarantining of rental losses, an established concept already used in parts Australia’s tax system.
BMT Tax Depreciation Chief Executive Officer Bradley Beer said quarantining was not new, but how it is applied would be critical.
"If rental losses were quarantined, they would be contained within the investment rather than used to reduce tax payable on other income, such as salary or wages,” said Mr Beer.
“The key question is whether those losses can be carried forward and used in future years when the property becomes positively geared."
Mr Beer said this distinction would directly affect investor cash flow.
"If losses are quarantined but carried forward, the benefit may still be available later when the property produces taxable income. That would change the timing of deductions and impact cash flow," he said.
"If losses are not carried forward, the impact would be more significant."
"A quarantined loss model would not necessarily mean deuctions disappear. It may mean they are used differently or at a different time. That distinction matters, particularly in the early years of holding a property."
Mr Beer said the timing of tax benefits could also influence broader market behaviour.
"If investors face higher after-tax holding costs in the early years, some may look to recover that pressure through rents, particularly in tight rental markets," he said.
BMT Tax Depreciation noted that understanding the timing of deductions, including depreciation, would become increasingly important if changes are introduced.
"Investors would need to understand which deductions remain available, when they can be used and how any unused losses are treated," said Mr Beer.
BMT Tax Depreciation said investors should avoid acting on speculation and instead focus on understanding their current position and seeking professional advice.
"We don't know what, if anything, will change in the May budget. But if negative gearing reform is considered, the treatment of carried-forward losses, capital gains tax, existing properties and new purchases will all be important," concluded Mr Beer.
