Screw Property Investors

Discussion in 'Property Market Economics' started by MTR, 26th Apr, 2017.

Join Australia's most dynamic and respected property investment community
  1. Angel

    Angel Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    5,813
    Location:
    Paradise, Brisbane
    Wow, can we really put up the rent whenever the interest rates increase? Bonus!
     
    Perthguy likes this.
  2. Francesco

    Francesco Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    647
    Location:
    Canberra, Brisbane

    It is a misunderstanding to say that 'the government gives you money to negative gear'. With negative gearing the government takes 'less' through the tax system is the reality. The existing reality resides in the principles of accounting and tax.

    My apology to those who are familiar with my spiel. The gist is negative gearing results from applying the principles to derive taxable income applicable to a specific tax entity. To remove negative gearing is actually to distort the principles so that it favours a particular lobby group, ie FHB, but it will be to the detriment to chronic renters. Rant over, thank you!
     
  3. Skilled_Migrant

    Skilled_Migrant Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    796
    Location:
    Melbourne
    Positive plan to help housing affordability
    "from 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment."

    Singular vs plural....will be clearer closer to election
     
    Francesco likes this.
  4. Francesco

    Francesco Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    647
    Location:
    Canberra, Brisbane
    Except for another double dissolution, the next election must be held between 4 August 2018 and 18 May 2019 for half of the Senators (from the States) and on or before 2 November 2019 for the House of Representatives and the Senators from the territories. Wikipedia source.

    IMO, Labor has clearly spelt out its policies already:

    From 1 July 2017:
    negative gearing to be abolished for investments in established housing, with grandfathering of existing investments. Investments in new housing not affected.

    capital gains tax concession on all assets to be halved to 25%, with grandfathering of existing investments. Investments by superannuation exempted.
     
    Skilled_Migrant likes this.
  5. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    In typical Labor style, the policy statement is both technically correct and misleading at the same time. Our current understanding of negative gearing is deducting an investment loss from labour income (wages or salaries). If an investor offsets income from investments with a loss from other investments, we don't call this negative gearing although the tax outcome is exactly the same.

    Labor's stated policy is more nuanced than their policy statement.

    from 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities.

    This is not negative gearing but has the same tax outcome as negative gearing. In typical Labor style again, it's the negative gearing you have when you don't have negative gearing.
     
    Ted Varrick likes this.
  6. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,256
    Location:
    Australia
    What investment income does the typical property investor have?
     
  7. Ted Varrick

    Ted Varrick Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    1,941
    Location:
    No Mans Land
    Probably equities and fixed interest if they are running a kind of balanced portfolio.

    Obviously this would depend on investment outlook, age, time in the market, research, wind direction, and other such relevant considerations related to their current and, maybe, future circumstances, and/or wants and needs.

    How's that?
     
  8. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,256
    Location:
    Australia
    A little weak. Geared property means fairly large losses. Would need lots of shares / bonds to offset this. A 500k ip can be bought for 75k. Tax loss might be 10k. Think that many people have 200k of shares? It then fights with super.
     
  9. Skilled_Migrant

    Skilled_Migrant Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    796
    Location:
    Melbourne
    • It is immaterial...Losses are quarantined within the investment stream. The losses cannot be offset against cross investment incomes.
    • It's not an open slather for offsets as made out. The investment income and losses are streamed and in case of overflow are offset against the CGT within the stream.
     
  10. Trainee

    Trainee Well-Known Member

    Joined:
    24th May, 2017
    Posts:
    10,256
    Location:
    Australia
    That conflicts with perthguys quote. Whos right?
     
  11. Owlet

    Owlet Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    757
    Location:
    VIC
    Are you saying a 5k share loss cannot offset a 20k profit on the sale of an IP?
     
  12. Skilled_Migrant

    Skilled_Migrant Well-Known Member

    Joined:
    21st Jun, 2015
    Posts:
    796
    Location:
    Melbourne
    What do you think ?

    "from 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities. These losses can also continue to be carried forward to offset the final capital gain on the investment."
     
  13. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    Fixed interest from term deposits, LICs, ETFs, shares, income from positively geared properties.

    The policy means that anyone with an income stream from investments will be able to claim an investment property loss against that income. Lower income earners starting out will not be able to do the same thing. Preferential tax treatment is given to the wealthier at the expense of the less wealthy. What amazes me is that labor supporters believe this policy will make the system fairer.
     
    Francesco, Lions4Eva and Angel like this.
  14. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    Readthe Grattan Report. The truth is in there. There is nothing in the Labor policy about quarantining losses within property (for property losses) or shares (for share losses).

    The policy statement does not indicate anything about making distinctions between asset classes :


    "from 1 July 2017 losses from new investments in shares and existing properties can still be used to offset investment income tax liabilities."
    It's pretty clear the losses are not being streamed as claimed.
     
  15. Simon_S

    Simon_S Well-Known Member

    Joined:
    5th Oct, 2017
    Posts:
    251
    Location:
    Sydney
    Peter Martin: Revealed. What negative gearing costs other taxpayers

    Found this from 2016: Bill Shorten.

    Looks to be about budget repair.

    As the Economy goes into recession and tax revenues contract it will force either party to remove neg gearing and other subsidies. I would imagine that would be across all asset classes.
     
  16. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    My interpretation is that if a loss is not claimed as a deduction against investment income in a particular year then the loss is carried forward to offset the capital gain for that asset. If I make a loss on a house of 10k and I can't claim that loss in that income year then I would roll that loss forward to offset the capital gain for that house, not to offset the capital gain on the sale of another house and not to offset the capital gain from the sale of shares.

    I have been writing about the yearly deductions of losses from investments against income tax liabilites from investment income. I have not addressed rolling forward capital losses to offset a capital gain on sale of the asset.

    This is an interesting point though. Only investors with a fairly high income would be able to afford to carry a loss making investment for the life of the investment. It would be interesting to model the tax outcome of immediate claim vs rolling forward.

    In any case, once again: high income earners are advantaged by this policy and lower income earners are disadvantaged.
     
  17. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    We will have to see if Labor change their policy before the next election. The current policy is very favourable to high income earners.
     
  18. HGM

    HGM Well-Known Member

    Joined:
    4th Jul, 2017
    Posts:
    150
    Location:
    Illawarra, NSW
    That's the case with the taxation of investment income more generally, nothing to do specifically with property investment. That's why News International paid no tax at all last financial year, for example. The specific purpose of Labor's NG policy is to stop high-earners (doctors, dentisists, lawayers, tradies etc) using loss-making property investments to reduce their income tax. So in terms of income tax equity, your conclusion is wrong.
     
  19. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    In terms of deducting rental losses from personal income (salaries or wages), then you are right. That is absolutely what the policy is intended to stop. There is more but I am rushing off to a job so will have to post that later.
     
  20. Perthguy

    Perthguy Well-Known Member

    Joined:
    22nd Jun, 2015
    Posts:
    11,767
    Location:
    Perth
    If anyone is interested in more detail, it's all set out in the Grattan Institute Report that the policy is based on. For example,

    One concern with quarantining is that it will favour investors with more diversified portfolios. This is because investors with other positive investment income can make use of the loss write offs immediately, whereas those with only one loss making investment will have to wait until the income from that investment is positive. There may arguably be an equity concern if wealthier investors tend to be the ones with more diversified portfolios. [page 38]

    This is exactly what I have been saying.