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Negative Gearing

Discussion in 'Accounting & Tax' started by Wandercro, 27th Jun, 2015.

  1. Wandercro

    Wandercro Active Member

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    Just watching the Liberal conference , sad I know, PM made a firm statement that they will not touch negative gearing.
     
  2. Rixter

    Rixter Well-Known Member

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    I wonder if its because the pollies have their fingers in it and its political suicide:rolleyes:
     
  3. wategos

    wategos Well-Known Member

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    Yes their self interest is a problem at the expense of the country, but it would not be political suicide, plenty of people want it gone. I would vote for whoever proposed to reform it.
     
  4. Beelzebub

    Beelzebub Well-Known Member

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    It's also good policy and in keeping with one of the core principles of tax policy: i.e. you pay taxes on your income and if you lose money your yearly income is lower; so you don't pay less tax, you pay the tax you should based on your income.
     
  5. wategos

    wategos Well-Known Member

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    It is not good tax policy, tax payers should not support speculators (anyone losing money in expectation of capital gain is a speculator). Negative gearing is a total disaster, just look at the massive level of property speculation in this country.
     
  6. Beelzebub

    Beelzebub Well-Known Member

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    Tax payers are not supporting anyone, you pay taxes on your income. If you make 100k then lose 10 your income is 90k. You pay taxes on 90k. How is that unfair? Why should the government be making decisions on what form of business should not be subjected to the basic tax principles that have been in place for decades?

    Another way of looking at it. Let's say a guy owns 5 stores. Stores 1, 2, 3 & 4 make $250,000 profit a year each = $1 million. Store 5 makes a loss of $250,000. One business owns all 5 stores. So as store 5 lost money his total profit for the year is $750,000 and he pays tax on $750,000. What you are proposing is the same as arguing that he can't deduct his losses from store five and has to pay tax on the whole $1million while wearing the $250,000 loss.

    Also, getting rid of negative gearing would cause a significant short term correction in prices, but prices will come back up and with them yields. You will find that speculation continues, yields and rents are higher and those at the bottom of our society who can never buy a house are actually worse off.

    Governments actually understand these basics, that's why it will never go away. Good advice from the public service will stop any silly ideas that future cabinets might have on the issue.
     
    Last edited: 27th Jun, 2015
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  7. Beelzebub

    Beelzebub Well-Known Member

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    I'd also add that getting rid of negative gearing would probably benefit my long term strategy, so if they want to get rid of it I won't suffer.
     
  8. wategos

    wategos Well-Known Member

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    Its not a related business, its speculation. Losses should only be able to be claimed against other property investments, not job income. Should the government allow gambling losses to be tax deductible also ? Should someone be able to deduct their 5K horse racing bet losses from their job income ? No.

    You don't really believe this since you are in favour of negative gearing. Actually though, removal NG would be good for future investment as yields would rise through lower property prices (rents would not be affected).
     
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  9. Singo

    Singo Well-Known Member

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    Removing NG would be a political suicide. There are about 16 million Australians who can vote. Around 10% of them own 1-3 IPs. Most would have jumped in for NG benefits. 10% is a lot for political parties. You abolish NG, you won't get into power for at least 10 years as properties are illiquid.

    Middle to high income earners actually earn more than what they need. So they pump the extra money into properties. If you are organized with your finances, you make easy money in property via CG. The system favors them. It is really funny to see these fellas who NG whinge about foreigners buying properties here.

    btw, I don't mind this system or NG. I actually make use of it.
     
  10. MikeLivingTheDream

    MikeLivingTheDream BCOM MCOM MTAX CPA CTA Registered Tax Agent

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    The government has already introduced the non commercial loss provisions which prevent you from offsetting certain types of business losses against your other income so they have already had a big say on other types of business losses.
     
  11. Beelzebub

    Beelzebub Well-Known Member

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    I suppose you make a good point about the principle and betting. I do remember a case where a drug dealer was done over for dealing drugs, the tax man decided that since he was making profits on a business he still had to pay up. The Court allowed him to deduct $200k, or something along those lines, because he lost some drugs that he buried in his back yard. The government had to step in and introduce legislation to stop this. This obviously fits with the principle of being able to deduct business losses.

    Nevertheless, negative gearing has the consequence of subsidising rents and if you get rid of it in the long term prices will still be high, but rents will be even higher as yields increase. This will hurt those worse off in our community.

    Also, It is not negative gearing or speculation that pushes up the price of property, it is high immigration and lack of supply. This lack of supply is mainly a consequence of town planning regulation; make it easy to develop and watch prices fall. You can already see this to some extent with the prices of apartments in and around Melbourne CBD. Out last Minister approved everything, now there is an oversupply and prices are coming down. But there obvious amenity issues with this.

    Long term I want cash flow, so high yields, which I believe would result from abolishing negative gearing would be great for me. And, as I'm in my 20s I can ride out any short term mayhem from its abolition.

    In any event it would be political suicide to get rid of negative gearing. The vast majority of people who are negatively geared will vote against any party who proposes to abolish it. Those who don't have an interest in negative gearing and do want it gone will only add it to their list of reasons to vote for their party. It would just be one factor among many. Only a small minority would change their vote on that issue if they didn't have an interest in property.

    So as it will never disappear it is kind of pointless to argue about it. Which makes this 1am post on a Saturday night by a guy in his 20s particularly sad.

    My thoughts anyway

    Beelzebub
     
  12. Chilliblue

    Chilliblue Well-Known Member

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    Removing negative gearing means doing so on both property and shares.

    The negative effects of removing it off shares would outway any benefit of the property.
     
  13. Cadbury99

    Cadbury99 Well-Known Member

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    Gambling losses are not tax deductable, gambling winnings are not taxable either.
    I'd be happy to opt out of negative gearing if I didn't have to pay tax on any profits I made.
     
    Last edited: 28th Jun, 2015
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  14. Francesco

    Francesco Well-Known Member

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    Earned income is taxable. Morally and ethically, at least in a democracy, tax should be levied on the net profits of taxable income. If there are tax implications on net profits there are also implications on net losses.

    Winnings from gambling is considered based on luck or hobby, not on work, hence not taxable. If winning from gambling is not taxable, neither are the losses claimable in tax returns. More detailed discussion about the tax situation of gambling can be pursued at this website:

    http://www.gamblingtaxation.com.au/

    Kudos to Beelzebub for your understanding of the working of negative gearing and its impact on individual investors. The discussion on negative gearing has been extensive over in SS over time. To assist new enquirer on this issue, some of the threads are:

    http://somersoft.com/forums/showthread.php?t=108177&highlight=francesco&page=3
    http://somersoft.com/forums/showthread.php?t=108573&highlight=francesco
    http://somersoft.com/forums/showthread.php?t=97077&highlight=francesco
     
  15. citystar

    citystar Well-Known Member

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    While I understand a lot of countires out there do not allow negative gearing to reduce assessable income/salary I doubt the Australian government will stop this anytime soon. If they do I know a lot of landlord friends of mine who will increase their rent to make it neutral as soon as the lease is up for renewal. Just imagine A Current Affair tv show showing how tought it is for people to find affordable rentals then...
     
  16. wategos

    wategos Well-Known Member

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    If they think they can increase rent why not do it now ? Because they can't, market wont allow it.
    I expect NG will go once baby boomers are done with it, which will be fairly soon. Same as HECS, as soon baby boomers had finished with the free education, in came the fees. As the demographic gaining the most from it diminishes, it will be politically easier to phase out. The economic and social cost is also becoming too much to sustain.
     
  17. DanW

    DanW Well-Known Member

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    If you ever spent time in Asia, particularly China and HK, you wouldn't say OUR country is the one with massive speculation.

    Stepping outside of Sydney, there is nothing special happening in Australian property besides a normal property cycle. A year ago you could still find markets in Brisbane and Adelaide that have not moved in 4-5 years. You can look at Perth and see a market moving backwards. You can look at Tassie and see Dismal returns. You can look at Canberra and see negative growth for some the last couple of years.

    In Sydney, we are at the top of a normal cycle, that has been extended by four things:
    1. Lowest interest rates in history
    2. Inflow domestic migration due to mining downturn
    3. Undersupply of new land release
    4. Foreign investment and foreign migration

    Negative gearing doesn't matter, removal of it just exacerbates point #3 because developers will stop building if the newbie investors that want negative gearing stop buying when it's abolished. Every action has a reaction, even if it takes time to adjust.

    Changing a tax policy does not affect demand and supply.

    The only policy that can affect prices, is one that increases supply (new land and more developments). Decreasing demand is not really possible unless migration or population growth is stopped. Any other method to decrease demand (charge more tax) is only an artificial and short term method and will balance itself out.

    Negative gearing is possible on shares and other asset classes as well - yet the share market is not in a boom so it's not being discussed.

    The government that abolishes negative gearing will achieve only one important thing - people will stop talking about negative gearing :)
     
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  18. DanW

    DanW Well-Known Member

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    You're right, no one can increase rents due to cost increases hence no one does.

    Rent increases come from supply reduction, and that takes time. When costs increase, or when anything happens that makes property a less attractive investment, the buying dries up. When buying dries up, developers/builders stop building. Then after a couple of years there are massive queues at rental open homes, and rental bidding wars start. I've seen it during other market downturns, I'm a long term renter.