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Shorten Short On Negative Gearing Figures

Discussion in 'Property Market Economics' started by House, 18th Mar, 2016.

  1. House

    House Well-Known Member Premium Member

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    "The latest ATO Taxation Statistics to 2013-14 show that the potential budget impact to taxpayers has fallen by more than 50 per cent in only two years.

    Net rental deductions have fallen by more than half in the two tax years to 2013-14, from $7.9 billion to just $3.7 billion.

    After tax-effecting those figures it's clear that as things stand such a move to limit negative gearing to new dwellings prospectively could only save a fraction of the amount claimed from the federal budget."

    image.jpeg
    Pete Wargent blog: Negative gearing set to stay
     
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  2. Foxy Moron

    Foxy Moron Well-Known Member

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    It was never about the money Alex ;) Orwell.png
     
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  3. Bullion Baron

    Bullion Baron Well-Known Member

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    The other problem is that Labor's policy indicates they will only remove the ability to negative gearing established property against salary and wages, but there is no mention of stopping it against other income which far exceeds (net rent) losses.

    See this tweet/table: Bullion Baron on Twitter

    It's a good place to start, but Labor's policy definitely needs further review...
     
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  4. propernewb

    propernewb Well-Known Member

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    Eh, if the benefits are so small then why are you so resistant to change?

    LNP narrative has been that Government has been overspending. Electorate is expecting cuts or increased taxes. Increased GST on 20+ million citizens or cut NG welfare from <10% of the population?

    Hmmmm....
     
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  5. Angel

    Angel Well-Known Member

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    Increase the GST and tax everyone equally.
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    If the benefits are so small, why spend the time and money implementing? There's more important issues.
     
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  7. propernewb

    propernewb Well-Known Member

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    Yes, everyone should be taxed equally. Continuing NG provides unfair tax treatment to those who made poor investment decisions. I am glad you are on board with the idea of NG removal.
     
  8. propernewb

    propernewb Well-Known Member

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    Do you honestly think $3.7 billion p.a. is small? It isn't. We can't afford to subsidise poor invesemt choices when that money could be redirected elsewhere. NG for new construction would be an appropriate policy. NG for trading already establish dwellings is nonsense.
     
  9. Scott No Mates

    Scott No Mates Well-Known Member

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    But some should be taxed me more equally than others.
     
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  10. Chilliblue

    Chilliblue Well-Known Member

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  11. Francesco

    Francesco Well-Known Member

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    Do you know what negative gearing is? It is a loss made on one investment undertaking by a tax entity, which is offset by the profit made on other investment undertakings or earnings by the same tax entity. When you want to tax a tax entity, ie an individual, a company or trust, you have to ask the tax entity to tally all its earnings and expenses, before working out the profit for tax.

    The natural and moral procedure is to tax on the profit. If you leave out expenses or losses, you are asking the tax entity to shoulder the expenses and losses. Overtime, this process is seeking to deplete the capital of the tax entity and inevitably seeking to bankrupt the tax entity.

    This fundamental injustice or 'imbalance' can be seen from another approach - if all the investments/earnings are profitable, they are 'happily' aggregated for tax on the same individual tax entity at the highest marginal tax. So, "Profit? - it's yours, lump it together with your other earnings, at the higher tax rate." But, "loss? too bad, (suck it up), but exclude it or isolate from your tax returns" (Many Gen Y wish to take this approach).

    The current debate is not seeking to remove NG for all tax entities and all investments. It is seeking to distort the natural procedure of a capitalist society. This is telling as it is contrary to the moral foundation of a capitalist society. Merely misusing the term 'subsidy' does not make NG a subsidy as NG is merely accounting for profit of the tax entity before a moral tax is levied. Removal of NG in any form is a distortion without equivalent removal of tax!

    The meaning of subsidy:
    1. 1.
      a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low.
      "a farm subsidy"
    2. 2.
      historical
      a parliamentary grant to the sovereign for state needs.
    How is the state 'granting' to help the individual if NG happens entirely by the decisions of the individual tax entity? Does the grant requires a statutory appropriation or merely (in your case) deem all finances of the tax entity effectively belongs to the state? Are state subsidies given to groups of individuals, corporations, sectors of societies, but not to specific individuals?

    By the way, $3.7b or whatever figure that you mentioned is merely the figure based on ATO data, ie at one stage of federal government interaction. It does not mean that the amount will be received by the federal government even if NG for rental properties were entirely abolished. What investors cannot invest in rental properties may end up in share investments, trading, gambling, spending on 'dodahs', overseas holidays, etc. The perceived gain from increasing tax collection is speculative without more detailed studies. Of course, there will be other repercussions, including as seen before in the Hawke/Keating era. So, any argument that the Government will have that amount is unduly overstating.
     
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  12. propernewb

    propernewb Well-Known Member

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    Wow, you are distilling the debate over NG into morals?

    Did I, or anyone else, force that entity to enter a poor investment? Can anyone on this forum truly hold their hand to their heart and say that any investment that they have undertaken - whether profitable or not - was not made out of their free will?

    This isn't China. Nor is it Soviet Russia. Investors are free to make their own choices. Free to make their own profits. And free to wear their own losses.

    As for "this process... ineveitably seeking to bankrupt the tax entity", of course it should! If you are foolish enough to entire a loss-making investment. And you are foolish enough to continue with a loss-making investment. Then you should wear your losses.

    Don't try to switch this into philosophical nonsense debate about Capitalism. This is a debate about investors taking responsibility for their own losses, at a time when Government can no longer afford to supplement those losses as it did in the past.
     
  13. Angel

    Angel Well-Known Member

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    How did you arrive at this conclusion?
     
  14. Francesco

    Francesco Well-Known Member

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    De ja vu. The current process in Australia allows all income making results relating to the tax entity to be tallied before taxing, that is why I and many other investors are on board. What presumption to call someone foolish when it is not warranted! Of course, we will respond suitably when the investment environment changes and NG is one proposed change. As it is we prosper, or otherwise knowingly under existing conditions, which I have no qualms about. This is possible because we are not China or Russia yet in rental framework.

    On the contrary, Australia will be seeking to implement a socialised framework (need some comparison with China and Russia) if and when NG is limited as it distorts tax take on the basis of 'profit, then tax at higher marginal rate', but 'loss, then isolate or defer'. This is an example of 'socialising' private profit (through tax), but 'privatise' loss (suck it up attitude).

    You may need to understand accounting and tax, but I hope you understand to avoid misusing the term 'subsidy', which is taught in Economics.
     
    Last edited: 20th Mar, 2016
  15. Pernoi

    Pernoi Member

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    I take it you've never taken a tax lesson, because this simply isn't accurate.

    Hint: Capital gains tax.
    Hint: Check the tax rates and calculation of taxable income for different entity types.
    Hint: TOFA

    There are numerous treatments for different categories of asset, investment, entity type etc.

    Again, ignorant comments.

    If the entity is making continuous losses, it is the entity 'inevitably seeking to bankrupt' itself.

    Again, you have little understanding of how tax currently works, let alone the capability to understand the proposed changes.

    Hint: capital gains tax discount

    Absolute crap. There's really no other way of responding to this gibberish. Tax is inherently a distortion.

    Let's try again actually using the word you quoted: SUBSIDISE

    You'll notice that this is a verb. Verbs are not nouns.

    subsidize - definition of subsidize in English from the Oxford dictionary

    Support (an organization or activity) financially:the mining industry continues to be subsidized
    selling price low:(as adjective subsidized) subsidized food

    subsidize: definition of subsidize in Oxford dictionary (American English)

    Pay part of the cost of producing (something) to reduce prices for the buyer

    I don't even know what you're talking about here. It isn't just a tangent; it's denying reality.

    The (somewhat incomprehensible) irony....

    Oh and here's a tip: try claim capital losses against your salary.

    I'll wait.
     
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  16. Francesco

    Francesco Well-Known Member

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    What confusion! Note what I wrote about abolishing NG without changing tax: "Removal of NG in any form is a distortion without equivalent removal of tax!" I have no qualm about how the capital gains and losses are treated at the moment (BTW I have used it.) - against each other, but aggregating rental income with salary while excluding losses (NG) is what I am against. But, you seem to know exactly what the government's preferred policy option is...

    You misunderstood the context about my statement on bankrupting investors. Refer to my post 14 above.

    What prompted me to seek to disabuse usage of the term subsidy in my post 11 is in response to post 8's statement:

    "We can't afford to subsidise poor invesemt choices when that money could be redirected elsewhere."

    I take it is not unreasonable for most people to construe that 'we' in debates on proposed federal changes to NG means taxpayers or the federal government. Perhaps, it is rather disingenuous to say that subsidy by government or whatever mileage at demonisation of investors is not intended to be conveyed. But, you seem to know definitely what Propernewb really meant to launch a response on his behalf with a diatribe about verbs and nouns...
     
  17. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    In fact the statement is absolutely accurate as per your own yardstick or definition.

    • A sum of money granted = PAYG tax rebate for investment losses against property borrowings.
    • State or a public body = ATO
    • An industry or business = PAYG tax payers indulging in borrowings against property for investment (predominantly in property)
    • Keep the price of a commodity or service low = Price of property (FHB specifically)
    • The reduction in rental losses is specifically due to historic low interest rates. Negative gearing tax claims fall thanks to low interest rates.
    • To a lesser extent APRA has had a more focused effect on reducing investor activity recently, but it is not yet reflected in the annual statistics quoted in the OP.
    • Low interest rates have just cured the symptoms, not the disease. If the interest rates go up by lets say 2-3%, the yields will still be the same causing the rental losses to return to previous levels if not exceed those levels. Exceeding those levels is a real possibility as historic low interests have disproportionately increased property investments.
    • The (not so unsubstantial) benefit is just one part of the equation.
    • The proposed policy corrections are more negatively geared (pun intended) to arrest the financial and social costs associated with NG Positive plan to help housing affordability.
     
  18. Francesco

    Francesco Well-Known Member

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    For the record, grant in the case of a subsidy by government is part of a publicly visible government budgeted policy to assist an industry or sector that is perceived to need help, eg the car manufacturing sector. It is therefore often announced, debated in parliament, often legislated and definitely budgeted for with program guidelines to administer the program and safeguard how the money is distributed. This is commonly understood by economists, public servants and experienced Ministers.

    You and others have tried to provide justification for defining and using 'grant' with respect to 'subsidy' that has been contrary to the above context and arguably muddying the debate.

    Having expanded at length on differences, I am happy to agree to disagree with any other outstanding objections and innovation of terminology.
     
  19. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    • a publicly visible government budgeted policy: NG is publicly visible and both sides of politics have provided budgetary impacts in addition to the treasury and ATO,s assessments.
    • assist an industry or sector that is perceived to need help: FHB (at least that's what the politicians tell us)
    • It is therefore often announced: It has been more than announced.
    • Debated in parliament: People have had enough of this debate in parliament since the 1980s.
    • often legislated: Isn't NG legislated ?
    • definitely budgeted : Read the ATO and treasury reports and the pretty graphs they throw up regularly.
    • program guidelines to administer the program: ATO has enough guidelines on it. If still doubtful ask a question on this forum about NG and count the business members that reply to it.
    • This is commonly understood by economists, public servants and experienced Ministers: Which of these do not understand NG ?
    • If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.
    • We can keep splitting the hair, at the end of the day, NG is a repetitive annual tax rort that takes tax payer's money (billions) and puts it into the property investors (<5% of population) pocket Bill shorten poised to take negative gearing..
    • The only factor muddying this debate is self interest. There is a whole Eco-system around this rort (NG) encompassing investors, buyers agents, mortgage brokers, financial advisers, accountants, property developers, property managers, who have a lot to loose if this rort were to be removed and these are the ones who are nit-picking on statistics, definitions, grammar, semantics etc.

    Your inclination to disagree rather than debate is duly noted.
     
  20. Francesco

    Francesco Well-Known Member

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    If NG per se is a tax rort and subsidy then all NG should be abolished and let the economy function.