Some Things to Understand About Negative Gearing and Capital Gains Tax

It’s no longer new to us that the building and construction industry is at its peak right now in many countries, including Australia. In fact, the industry is considered to be the biggest full-time employer in parts of Australia, specifically, Victoria. But we should also become aware of the dangers of not fully understanding some processes in this industry, particularly the financial aspect.

On May 8, an awareness campaign was released to highlight some important matters regarding the latest Labor proposed changes. CEO of Masters Builders Victoria, Rebecca Casson, and CEO of Masters Builders Australia Denita Wawn warned Victorians of the proposed changes and how it’s going to affect the said industry. According to Labor’s proposed amendments, there are dangers to restricting negative gearing. If you’re not aware of its definition, negative gearing is a form of financial leverage wherein the one who will be investing will have to borrow money to invest in something. The income, however, is going to produce less than the taxes and expenses. This form of leverage is common for property investment. In layman’s terms, the investor is making a loss.

There are also dangers in terms of capital gains tax according to the awareness campaign. Capital gains tax is simply, the tax that is imposed on the capital gains of an investment. Ms. Casson said, “The health of the building and construction sector touches every single Victorian, delivering homes, schools, hospitals, aged-care centers and transportation infrastructure in cities, towns and communities throughout the state,” she adds, ““The building industry overall contributes more than 40 percent of tax revenue to our state and the same is true in this community.” Geelong, a city in Victoria, is known to have a thriving building and construction industry. The city is also growing in terms of its population. Fortunately, it is able to meet the demands that come with this. In 2018, Geelong has named the fastest rates of dwelling approvals. If the changes on the negative gearing and capital gains tax are approved, it would certainly affect Geelong’s housing market for the worst.

Victoria is still considered to have the fastest population growth. The changes to negative gearing and capital gains tax would also have an effect on the housing supply. And we all know that if this happens, there might be a decrease in builder jobs, as well as local investment. The loss of ABCC or Australian Building and Construction Commission will also mean bad news because it could potentially cause corruption and lawlessness. “Taxpayers shouldn't have to pay more for community infrastructure, which is precisely what happens when unions are allowed to hold sway and ignore the law.” Ms. Casson concludes.

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