Tax breaks for property investors are pushing loss-making investments into winning returns and pushing up prices, research from a not-for-profit economic agency finds.
Analysis of 900,000 investment properties, spanning 18 years to 2025, found tens of thousands of the houses returned a pre-tax loss for the owner before they benefited from the 50 per cent capital gains tax discount.
The e61 Institute found 46,000 investment properties fit this bill.
“The capital gains discount allows strategic tax minimisation where an investor can deduct their losses at 45 per cent while only paying a tax rate of 22.5 per cent on their gain,” e61 research manager Nick Garvin said.
“By borrowing more and taking on higher interest costs, the investor can get a tax deduction that is larger than the discounted tax paid on the capital gains. Negative gearing is only an issue because of the CGT discount.”
The capital gains discount is incentivising over-borrowing and making investment properties profitable when they would otherwise make a loss, the research concludes.
The analysis has been released as Adelaide’s median house price – officially overtaking Melbourne – reaches $1.016m.
There is mounting speculation the federal government will wind back the capital gains tax discounts in the May budget.
Released in March, a senate report on the operation of the capital gains tax discount found the tax break and negative gearing had skewed Australian housing away from owner-occupiers toward investors.
Liberal Party MPs Andrew Bragg and Dave Sharma, who were on the senate committee looking at the tax discount, issued a dissenting view on the findings, saying the report was “a simplistic and one-dimensional analysis of Australian housing policy” that did not address the supply issue.
In parliament on Monday, Treasurer Jim Chalmers was asked if the government would commit to reforming the tax concessions.
“We do acknowledge there are intergenerational issues in our economy and in our society, including in the housing market and in the tax system,” Mr Chalmers said.
He pointed to blanket income tax cuts that take effect in the new financial year, and changes to superannuation that will benefit people with less in their accounts, as measures taken to address intergenerational imbalances.
“When it comes to further steps in tax policy or housing policy, the budget is still a little ways away yet, and any further changes would be a matter for cabinet in the usual way,” Mr Chalmers said.
