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Changes to Australia's property tax perks could change the market

The Australian Labor Party is proposing that the government scale back on tax breaks for landlords in the country.

It is these tax breaks that have played a massive part in the 50 per cent increase in property prices in capital cities throughout Australia for the past seven years, reports Bloomberg Business.

There is set to be an election for prime minister in a few months and this proposal has shaken up the nation's policy debate.

Currently, Prime Minister Malcolm Turnbull and his government are now looking at the tax perks and will be reviewing the taxation system of the country.

According to figures from Bloomberg Business, $6.4 trillion (£3.2 trillion) of Australian's personal wealth is tied up in residential property, partly due to the tax breaks that property investment presents.

If changes are made to this policy it risks confusing investors and potentially further decreasing the prices in various sectors of the property market.

Saul Eslake, an independent economist, said: "The groundswell has been shifting against the system because even people who have been helped by it are now realising it's harming their kids' chances to own their own home."

To reduce their tax bill, over one million Australian citizens have been using a tactic called negative-gearing, which sees them deduct the costs of owning a rental property - a buy-to-let - from their overall taxable income.

In doing this, they have also been deducting the cost of their mortgage interest payments to improve on the amount they are taxed.

Britain and America allow property investors to deduct these costs from investment income, but in Australia the government allows the deduction to come against wages.

Labor is aiming for investors to pay more capital gains tax on properties sold by changing the rate of tax-free gains from 50 per cent, to 25 per cent.

However, these changes would only apply to properties that will be bought after July 2017, pending the outcome of the election.

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