A property investor has warned that tax changes in the Federal Budget could force landlords to increase rents, contradicting Treasury claims of a modest $2 per week rise. The budget papers indicate the tax reform package, which includes significant alterations to the Capital Gains Tax (CGT) discount and negative gearing, is expected to have a 'small' impact on rents, with an increase of less than $2 per week for households paying the current median rent.
Landlord's Perspective
When questioned by the Daily Mail about whether he would raise rents on his 17 properties, landlord Jack Henderson responded bluntly: 'I'm not a charity, that's for sure.' The 29-year-old, who manages a $60 million property portfolio, stated that renters would be treated 'very poorly' under the budget changes. He argued, 'They got a one per cent tax cut on $28,000 worth of income and they will likely get a 10 to 15 per cent increase in rental prices.'
Impact of Negative Gearing Reforms
Under the reforms, landlords who can no longer claim tax deductions on losses from investment properties may attempt to pass these additional costs onto tenants through higher rents. For instance, a property renting for $2,600 per month but costing the landlord $3,600 in mortgage repayments currently incurs a monthly loss of $1,000. Without negative gearing to offset this loss, some landlords might try to recover the shortfall by increasing rent, potentially by as much as $1,000 per month.
Treasurer Jim Chalmers announced on Tuesday that the government will wind back negative gearing to only include new builds from July next year as part of the Federal Budget. Additionally, the 50 per cent capital gains tax discount will be replaced with an inflation-adjusted indexation system. Under previous rules, investors only paid tax on half their profits when selling an asset. The new system will index tax to inflation before applying it to the sale, potentially resulting in higher capital gains tax bills.
Government's Stance
Speaking to the Daily Mail during the Budget lock-up, Chalmers stated: 'I don't begrudge people who've done well, this is about making sure more people can do well.' However, Henderson dismissed the reforms as minor and claimed they would only affect working Australians, not wealthy property investors like himself. He said, 'The government saying they're trying to make it easier for people to get into the housing market means nothing. They also said that this will help 75,000 more Australians get into the property market over the next 10 years. So, 7,500 per year for 10 years. That's a pretty minuscule amount in a population of 27 million.'
Henderson further explained that sophisticated investors and business owners, the wealthy individuals the government aims to tax, typically own assets within company structures or trust structures where negative gearing is not applicable. Discretionary trusts, where trustees hold assets for beneficiaries, will face a 30 per cent tax on distributions from July 1, 2028, under the budget.
Tax Cuts for Low-Income Earners
The Albanese government has also adjusted the lowest tax brackets to ease pressure on low-income earners. From July 1, the 16 per cent rate on the lowest marginal tax bracket will be reduced to 15 per cent. This means anyone earning between $18,201 and $45,000 will pay one cent less in tax for every dollar earned. Those earning more than $45,000 will also benefit, saving a total of $268 per year, or $5.15 per week.
Henderson criticised this approach, stating: 'It's a bit funny. Essentially, they're trying to tax rich people and they're saying they're distributing it to the punter, the poor person in Australia, who's trying to get ahead. And their reward to the poor person was saying that we're going to give you a one per cent tax cut. They're saying they are trying to solve intergenerational inequality. They're saying older people are too wealthy, and it's much harder to get ahead if you're young. But the changes they've made don't reflect that whatsoever, like zero. You can't say that we're going to redistribute the wealth and then say we're going to give lower-income people a one per cent tax cut and nothing else. It's just bizarre.'
Capital Gains Tax Changes
Another concern for Henderson is the abolition of the 50 per cent capital gains tax discount across all asset classes, including shares and existing property investments. He argued that the government should encourage young founders to come to Australia but now they would face heavy taxation, as the policy affects all asset classes, not just property. 'If I was a politician, I would just have removed the capital gains tax discount on housing, but kept it in for other asset classes that you want people to invest in. Businesses, they're a productive asset. But now, if I was a young founder looking at starting the next billion-dollar business, why would you start in Australia now?'
