Negative Gearing

[xelasnave]

It is in the news again.
There are cries to abolish negative gearing.
I worked in real estate when it was abolished many years ago.
It was reinstated.
What are your views.
Do you think abolition would make things better or worse.
Would it mean Governments would need to subsidise housing in someother way.

[PCH (Paul)]

Why the powers that be would have any gripe about a person taking the initiative to provide for their own retirement, whilst saving the government money by them not having to provide that same rental accommodation is beyond me.

Beggars belief totally!

[Renato1 (Renato)]

I suspect that what the government allows to taxpayers via negative gearing, it more than makes up for with Capital Gains Tax.

Win-Win.

Regards,
Renato

[casstony]

Anything that puts downward pressure on house prices is good - get rid of negative gearing and first home buyers grants, then people will be able to buy a house without becoming debt slaves for the rest of their lives. There will be an economic hit while the market adjusts but in the long run it's better for the economy if people don't have all their disposable income tied up in loan repayments. Markets and financial systems have become very corrupted and sick over the last few decades.

[Larryp (Laurie)]

Originally Posted by Renato1

I suspect that what the government allows to taxpayers via negative gearing, it more than makes up for with Capital Gains Tax.

Win-Win.

Regards,
Renato

Capital gains tax is discounted the longer you own the asset, and property is normally held for a long time

[RickS (Rick)]

Originally Posted by Larryp

Capital gains tax is discounted the longer you own the asset

CPI indexing only applied until 1999 (and now optionally to assets owned before then.) These days there is no discount.

[rrussell1962]

Don't individuals get a 50% discount on the taxable gain for assets held longer than one year?

[PeterEde (Peter)]

I would think things like first home owner grants would increase housing prices. when has a government grant had a positive influence on the price of anything?
Negative gearing allows for cheaper rentals. Benefits out way to negatives.
No I don't have a rental property. But people rent because they seem to think it's more beneficial/cheaper. But when you can have a mortgage for the cost of rent. You'd have to be crazy not to take the mortgage.

[RickS (Rick)]

Originally Posted by rrussell1962

Don't individuals get a 50% discount on the taxable gain for assets held longer than one year?

If you hold it for less than a year then the gain is taxed as income. If you hold it for longer then it's taxed as a capital gain. You are correct that this is at a 50% discount, but I don't think that's what Laurie meant.

[rrussell1962]

Yes, I thought Laurie was referring to indexation too. All indexation really did though was to strip out CPI from the gain so that gains due purely to inflation were not being taxed. Anyway, getting a bit off topic here and I would hate to mislead anybody snippets from my half remembered accountancy days.

[glend (Glen)]

Get rid of negative gearing, its an artifact of the past that is being exploited by investors which keeps an artificial premium on property prices and is self perpetuating among self managed super funds. Greed is not good. It is keeping an entire generation of Australians from gettng their first home as wealthy older people use equity to build portfolios of properties far beyond what woukd be considered necessaar for a comfirtabke retirement.

A good interim solution would be to ban negative gearing for any investor that already has one investment property negatively geared - this will prevent cascading negatve gearing. They can keep the single negatively geaared property but lose an tax advanrage on subsequent properties.

There also needs to be a careful look at the rules that apply to self-manaded superfunds and their ability to borrow for investment purposes.

[rrussell1962]

On balance Glen I tend to agree. An alternative approach might be to restrict the offset of losses on property so that such losses could only be offset against future income on property and not against other sources of income. The UK tax system works like that by dividing income into different classes or schedules. Well, at least it did when I was there.

[zenith (Tim)]

Having funded the system for many years through renting, working and paying taxes, and then buying a small, old un-renovated house at an exorbitant price, it would be a real shame if this wealth vehicle is denied to me when I could make use of it. Given that I am forced to forgo a significant part of my income (Superannuation) but am still required to fun the pension scheme, and that I did not have access to free tertiary education or health care, it would be unfair if I could not take advantage of this illogical greed based system that has destroyed housing in this country. Let it be for your first investment property, perhaps no negative gearing for your third, fourth, fifth properties...If only I could tax deduct or salary sacrifice a new Takahashi.

[rrussell1962]

2 sides to every argument Tim, and your points are certainly valid. I suppose one key point is that to what extent was the price on your property being pushed up by the increase in the number of potential purchasers who were solely interested in the property because of the potential for negative gearing.

It's interesting that the discussions on negative gearing centre around property, in theory any income producing asset can be negatively geared. Of course property does have greater scope for deductions other than interest.

[RickS (Rick)]

Originally Posted by rrussell1962

It's interesting that the discussions on negative gearing centre around property, in theory any income producing asset can be negatively geared. Of course property does have greater scope for deductions other than interest.

And the great Australian dream isn't to own a nice stock portfolio

[sn1987a (Barry)]

Accountants of IIS how can I negatively gear a 40" f3 SDM? it would cost nearly a house.

[PeterHA (Peter)]

My view is:
Governments have various ways to provide sufficient quantity of rental accomodation in a situation of a growing number of citicens:

1. Government builds housing and rents it out, that is cash intensive upfront.
2. Government provides (tax)incentives for the private sector to build accomodation and to rent it out; no up front investment for the government but lower tax revenue. Without the incentive there would be much less private real estat investment.

I think the Australian Government goes predominantly with version 2.

[rrussell1962]

Peter, very succinct and hits the nail right on the head! I do think though that the issue of negative gearing inflating demand and keeping owner occupiers (who can't negatively gear) out of the market needs to be addressed. That situation keeps the demand for rental property higher than it would otherwise be.

Perhaps there are 2 types of negative gearers. Type 1 want to provide for their future with an investment property and need negative gearing to make that possible. They also intend to use the rental income from the property to part fund their retirement. Type 2 just want somewhere safe to park their money, don't need the income for now, love the opportunity to reduce tax on other income and intend to sell on retirement in a tax year where they have no other income, pick up the 50% discount on the capital gain and consequently pay very little tax over the life cycle of their investment. That's what I would do if I could afford it!

The question then becomes how to encourage Type 1, which seems to benefit everybody and discourage type 2.

My cunning plan is to borrow a load of money to buy the 40 inch dob, run it as a small business, charge everybody else to look through it and claim the interest as a deduction. Of course I couldn't use it myself as that would be personal use and bang goes the interest deduction. Drat.

[jenchris (Jennifer)]

Now that my house (the one I live in - I don't have an investment property) is worth a little more, you want to abolish what allowed it to appreciate so that my house won't be worth as much ??
Seems a little one legged to me. I get to lose my gains because you want to stop people who work hard and save making any money - tall poppy stuff, isn't it?

I think there are millions of folks out there who own their own home who would be a lot annoyed about changes that devalued their house.


A better system is what used to occur in UK (may still do, I have no idea) - mortgage relief. Any money spent on mortgage has tax back on it. This allows people to buy a home rather than rent one. Negative gearing could be slowly weaned back so as not to destroy people's hard work and dreams.
I think the lack of mortgage tax relief is one of those on the minus side of the Oz tax system.

Foreign investment is what is forcing up housing prices. Make foreign home ownership leasehold only and you'll cure most of that.

[sn1987a (Barry)]

I'll do the same Russ you can look through mine and I'll look through yours.