I encountered property and tax collegaue and person familiar with the inner workings at Treasury and modelling etc Seems that one aspect of simple tax law being explored for budget is the fundamental operation of s8-1 of ITAA97 which contains the nexus between income production and expenses necessarily incurred. It would be very easy to limit deductions to the extent of income by changing just FOUR WORDS .to s8-1 ITAA97.. (a) it is incurred TO THE EXTENT OF gaining or producing your assessable income; or This would end negative gearing on any property and financial investments and effectively end neg gearing of all types and tighten the basis of most tax schemes.. Deductions would be unable to be deferred or ignored too so there is no complex law change. Makes ruling changes easy too. This could be argued to mirror the original intent of tax law.....Its greatest weakness would be to allow refinance of existing property. Thinking being explored was a additional rule that limits use of other security for a new loan effective budget night. ie No new equity loans...based upon the security use being contrary to s8-1 to enhance a deduction beyond income where it applies. Just speculation but well sourced from modelling. One of the reasons why IO loans are being given such focus. IO loans could be used to preserve tax benefits. There is also a minor concern about such a law change applying to a taxpayer with botn neg gearing and pos gearing...does it only apply to the loss or total net income ?? The technical view is it applies to "assessable income so existing losses offset by gains would remain". One view is that this may catch most taxpayers and could be easily amended later with enhanced revenue impacts but no effective tax loss now.
Hi Paul, interesting, but if believe it when I see it. They're too cowardly to upset the property millionaires by tweaking neg gearing, but will instead change whole underlying system to outlaw it entirely plus all Similar investment related loss situations? Fat chance I say but something will be done soon enough just not by current wimp in charge
Treasury look at all things and there is no way of ascertaining reliability. UK and NZ have made similiar changes (UK was worse I argue - They turned neg geared property into taxable property income)
It's ok.. the politicians have got my back. Seriously! Nearly all have large property investment portfolios, they will not shoot themselves in the foot. If Turnbull starts selling down his portfolio then I would start to be worried. They will all sing and dance but at the end of the day they will just end up coming back to "addressing the supply side issues" which they have done time and time again. Messing with the existing tax law I don't think is anything they want to do right now.
Excluding Canberra property few MPs and Senators have substantial personal further property NEG GEARED IPs disclosed on their registers. The canberra property rort is a given. In 2015 the issue was under the national worker average. Many like Turnbull and Shorten have positive geared property incl Commercial - Evidence is lacking really since wonership is dislosed not loans or arms length income.
Personally, I think the quickest and easiest way to change the debate is to remove the availability of deductions of non-cash expenses (depreciation). Then stop IO loans on investments. It will see an imidiate impact to increased tax revenues. Although most properties will remian tax neutraul (and in some cases slightly negative). Over time as debts reduce on IP's (as they are now on P&I), tax will become payable. Again though any such changes are 'tinkering' with a broken system. The entire tax and welfare system needs a complete overhaul. However, this wont happen as we are infected with a bunch on spineless polies, who are only interested in keeping their jobs through the next election. Blacky
Hear anything in regards to Stamp Duty/LandTax changes? Land tax: Parliamentary Budget Office costs plan to kill off stamp duty Its interesting that they are talking about it at a Federal level when they are State Taxes.
The Commonwealth funds states through GST allocations. They can implement a policy agenda to remove most (not all) state land tax or even stamp duty for example in exchange from a replacement source of income...I believe a broader based tax attached to rates was proposed. This would be called structural reform and require all states to commit (not most states are now ALP so that may be a challenge) Its a pipeline dream. States cant agree on rail gauge or daylight savings. I would very much doubt removal of stamp duty on property transfers. It acts as a transactional cost barrier to flipping. If you think the property market is Sydney is out of control now imagine it without duty.
