The proposal has 3 components that would modify the capital gains tax (CGT) discount and negative gearing arrangements.

Component 1 – Replace the CGT discount with an indexation method.

• This component would remove the 50% discount on capital gains realised by individuals on assets held for 12 months or more. Instead, an asset’s cost base would be indexed by changes in the consumer price index (CPI) as part of calculating the capital gain at the time of sale.

Component 2 – End negative gearing for prospective investment properties.

• This component would remove negative gearing arrangements (which allow deductions for investment losses to be made against non-investment income) for all non-business investment properties purchased by individuals, funds, trusts and companies, with assets purchased prior to the start date of this policy either grandfathered or subject to Component 3 below.
  • Deductions would be restricted to the same class of asset in which the losses were incurred. The value of investment property related losses could not be used to reduce income earned through other means such as wage and salary.
  • Those affected would not be able to carry forward within-year losses to offset future rental gains, nor to offset the ultimate capital gain when the asset is sold

Component 3 – Phase out negative gearing for existing investment properties.

• This component would phase out negative gearing deductions for individuals, funds, trusts and companies with more than one investment property purchased before 1 July 2022. In 2022-23 the proportion of negative gearing deductions allowed for an investor’s second (or more) investment property would be 80%. This percentage would decrease by 20% each year until it reaches zero in 2026-27.

All components would have effect from 1 July 202