Key facts
- Most property investors may pay less capital gains tax under Labor's budget reforms, according to e61 Institute analysis.
- The reforms would have resulted in 53% of housing investors paying more tax and 43% paying less between 2008 and 2025, the analysis found.
- Half of all landlords would have faced higher costs from the loss of negative gearing over the 2008-2025 period if the new system had been in place.
- The median home analyzed earned an average annual capital gain of 3.3% after accounting for sales costs.
- Under the new system, half of the median capital gain would be taxed, compared to half under the old system's flat discount.
- Negative gearing will now only be available for newly built homes.
Analysis from the e61 Institute suggests that most property investors may end up paying less capital gains tax following Labor's budget reforms, contrary to some public debate. The research, which analyzed historical data from 2008 to 2025, found that 53% of housing investors would have paid more tax in total under the new system, while 43% would have paid less.
Dr. Nick Garvin, a co-author of the paper, stated that the reforms' impact on landlords is likely overstated. He noted that a 50-50 chance of being better or worse off might not significantly affect investment decisions. The study implied that the reforms would only slightly add to investment costs, suggesting a smaller impact than observed in reality, with rising interest rates also contributing to increased costs.
New investor loan applications at Commonwealth Bank fell 28% in the two months following the budget's release, and July data indicated a slowdown in investor credit growth. Reserve Bank Governor Michele Bullock confirmed on Tuesday that the budget reforms had "very directly" impacted the market, leading to a significant drop in investor applications and changing the dynamic for housing investment.
The e61 research suggested that the median home analyzed earned an average annual capital gain of 3.3% after sales costs. Under the new system, half of this gain would be taxable, compared to half under the old system's flat discount. Garvin suggested that investors might see the reforms as beneficial if they prioritize long-term capital gains over short-term cash flow, which was previously supported by negative gearing. Negative gearing will now only be available for newly built homes.
Treasurer Jim Chalmers declined to comment directly on the paper, but a Treasury spokesperson stated the reforms aim to create a fairer and more neutral system by fixing previous over- and under-compensation of some investors. Liberal shadow treasurer Tim Wilson argued that higher investor costs would be passed on as higher rents, leading to less housing availability and fewer homes being built.
Dr. Peter Tulip, chief economist at the Centre for Independent Studies, believes investors will focus on capital gains rather than negative gearing. He suggested that the e61 paper demonstrates property will become more attractive to risk-averse investors due to lower taxation on low gains and higher taxation on high gains, making returns more predictable and housing a safer investment.