LNP to cap negative gearing claims.

As reported in The Australian ($) over the weekend, Treasurer Scott Morrison is working hard on some tax reforms and a key preferred policy change (relevant to this forum) is to cap annual negative gearing claims per individual. Its said the average claim is $14k, and introducing a cap of double this average to say $28k will only effect the cash flows of 1 in 5 negative gearers and raise $3B in the budget.

Times are a changing

 

I think there's a fairly limited number of negative gearers in this current low interest environment... I think i'm not against that proposal.

 

In my opinion, the whole discussion about reducing/abolishing NG is really overated. Its not gonna make much differnece in the whole scheme of things. Limiting finance drastically will. Massive taxes on property will. But not NG. Its very minor imo.

 

Sounds ok. There's lots of people who deliberately buy loss making stuff because they're addicted to the large tax refunds. Its better for everyone if only genuine investors are in the market.

 

I agree. The UK is far more strict you can only negative gear against other assets in the same class. I.e. not your salary. And look at crazy London property prices.

In fact they are going even more extreme with anti-landlord tax measures of which this is one:

NOW
Your buy-to-let earns £20,000 a year and the interest-only mortgage costs £13,000 a year. Tax is due on the difference or profit. So you pay tax on £7,000, meaning £2,800 for HMRC and £4,200 for you.

2020
Tax is now due on your full rental income of £20,000, less a tax credit equivalent to basic-rate tax on the interest. So you pay 40pc tax on £20,000 (ie £8,000), less the 20pc credit (20pc of £13,000 = £2,600), meaning £5,400 for HMRC and £1,600 for you. Your tax bill has therefore gone up by 93pc.

Source: Death of buy-to-let: landlords wake up to Osborne's 150pc tax

So keep an eye on the UK to see what harsh landlord taxation does for the property market. I think it probably puts more stress in the short term but wont affect the capital gains on the property.

 

It's a good start. Number seems a bit high though, would prefer they initially limit ng to something lower, around the average, or allow deductions only to be applied to the lowest taxable income band, so same deduction regardless of income.

 

So they'll start treating one investment class different to other investment classes. Utter morons.

 

won't be an issue if you buy in a trust

 

I am not convinced, also IR are on the rise

 

I suppose after depreciation many properties become negative geared...

 

There is no doubt NG helps, wont make or break you but it helps a little. It makes no sense to me from an investor standpoint to say "i am ok with ng going or being cut back etc'. Why would we as investors want to give back any help that is at our disposal, and lets not forget other asset classes have help.

For me, i am not happy/willing to give back an inch of help. Why should i be? I'm an investor, not a saint.

 

Fairly high threshold so limited impact on many investors, it would affect sales of newer properties and the apartment market the most IMO.

Interesting first post, thread and profile picture....

 

Yes, welcome to me. I have been a lurking observer since SS days. It was a little quiet on twitter regarding this news, for what is such a significant 'signal' to the market, hence the post!

 

FWIW, capping negative gearing claim to $20k has been my recommended starting point for a cap. Why $20k? For someone on the top tax bracket, the max net tax refund of $10k in this scenario earns the same tax benefit to the $30k cap for concessional super contributions for anyone under 50.

 

What's your motivation for the change?

 

Lets not start this again

 

LOL and you are ? and you have what clout to recommend or get anything done ?

 

They already treat all asset classes very differently so I don't really get this point. Active assets are different to capital which are different to trading assets. Business have non-commercial loss rules, capital losses can only be offset against other losses.

The Australian tax system is a hot mess of inconsistencies, as long as they keep changing things on the fly in reactionary fashion it will continue to just get messier and more unwieldy.

As for this change, I personally like the idea of treating rental losses similarly to capital losses and only allowing them to be offset against other rental income.

The proposed change really just hits the biggest speculators the hardest really which I guess is a good start.

As for why it should be changed... I don't really care from the property side of things, the impact will be minimal, imo, but from a budget perspective it's a massive blackhole that doesn't do anything positive for the economy. I can understand losing billions on small business concessions, I can understand losing billions on healthcare or education but to lose money so you can fuel property speculation makes no sense to me, you hurt many of the vulnerable in society with it and provide nothing positive. From that perspective it's a change that makes too much sense.

 

NG is not always the outcome of speculation (not that i personally have any issue with speculating) but it is also often the outcome in the interm period between starting/completing renos on sites, structural reno deals, property developments holding costs etc. NG then enables you to offset some of those interm costs.

It makes no sense to me from an investor's perspective to be happy to have less money back in my pocket as opposed to have more. Absolutely no business sense to me.

Our politicians waste an amazing amount of our money, i am sure with the money they save the economy from altering NG, they will have wasted it on their business class flights in 6 months. Ah no thanks. I'd rather my family keep it.

 

The market is cooling, China is cooling, ASX is falling - and SM goes after NG to hit the investors!? Bad move IMO. Whimpy approach to economics - hit the boosters to the economy. But, I expect better from SM and that pulling back the NG is just rumours. On the other hand, it may have come from MT and his new appeasement agenda to the welfare brigade. Interesting how it may pan out in the future - cut back on investment properties is getting more attractive.