Silly question about Negative Gearing?

Businesses and investors are merely playing by the rules the Government has set down. They are not squeezing the government if they run a business, pay staff, pay tax, pay GST, and indirectly provide employment for others through the various sectors of their business that need services, couriers, postage, manufacturing and so on.

Businesses and investors are large contributors to our economy and society via jobs, goods and services, GST, etc. LL\s provide much needed housing for folks, and outside of any Cap Gain; the reward for the effort is terrible; bad tenants who get away with far too much, and so on.

Unemployed folks are contributing via paying GST on the dollars they spend; that is true - but the dollars are not generated from their own endeavor, and what they provide to the rest of the community is recycled from the GST they have paid on stuff.

It's the "us and them mentality" again I'm hearing in your post; you are sounding as though you resent businesses and investors who are having a crack, doing good for themselves, helping to raise all the other boats.

Why?

We need a society where everyone is given incentive to do well; to prosper...party of that process is to reward folks as they elevate up the levels.

Do I resent a guy who works really hard, earns $500 a year from his job or business? Hell no. I pat him on the back; he is paying way more tax than I am, and I wish I was earning the same coin.

We want to discourage folks from thinking it is OK to suckle off the Govt, to not put in and try to get ahead - and we certainly do not want to encourage their often vocal attitude of resentment and hatred of the better-offs who are perceived to be rorting the Govt and how "unfair" it all seems.

Who are the bigger rorters? The folks who earn loads and get a nice incentive via a tax concession here and there, or those who pay no tax (or very little) but get to enjoy all the same facilities paid for by everyone else, but without contributing all that much along the way.

 

It appears that you are projecting your personal experiences (on both extremes) to the whole of society. It is easy to empathize with your personal experience (along with others who have posted similar experiences) but IMHO that does not constitute an adequate basis to form a public opinion.

That is not how a public discourse or policy should eventuate, given the complexities involved.

This is where statistics help to get a more inclusive snapshot. Regrettably the data collected from taxation records over last 15 years depicts a different picture of NG and CGT.

 

How am I abusing the tax system if I
a) have a PAYE job that is taxed at X rate, then
b) buy an IP with a loan, pay interest, pay rates, pay for repairs, pay for insurance, pay a PM, then
c) the Government says I can legitimately claim the expenses related to the ownership of the IP against my other PAYE income, because it is an income producing investment, then
d) I pay an accountant to do the sums on my various incomes, my various legitmate tax deduction claims - which he then takes no responsibility for and makes me sign off on, then
e) hands me the assessment which states that I must either pay the Govt some tax, or the Govt might reimburse me some money due to an over-payment of tax amount based on the income after expenses?

Yet again another "us and them" mentality which deems investors as bad people who are ripping off the system and taking an unfair advantage over everyone else.

OK; I'll entertain the argument; how about we do as Billy Bob wants - erase NG, and change the CGT rate from 50% to 25% discount.

It is fair then that I then do not get taxed on any income I make from the IP, or pay the base tax rate with the $18k threshold attached to it.

That would be fairer.

Or do you guys want to have it both ways?

 

I do not have adequate information to form an opinion either way. Till I have that information I am inclined to give benefit of doubt to the social security recipients.

Maybe there is a problem of rort in social security, but that is a different problem from NG and CGT and will require a different fix (administration rather than policy change). The solution to that problem is definitely not to allow the NG and CGT exemption to continue unabated. Two wrongs do not make a right. If we allow a (unsubstantiated as yet) rort to be solved by another rort, we might end up like Greece.

 

You must live in a very nice part of town and not been around Aus much.

Take it from Wyles and me as just two examples of older folks who have seen a bit - they are out there and in large numbers.

Given that 95% of the population are at average wage or below, this would assume that 95% of all shopping malls are populated by this group - all malls are populated to 95% from this group.

Given this; visit say; 6 shopping malls in random locations and observe what is going on.

While you are doing this, visit 6 Centrelink locations and hang out at them for an hour or so each and observe.

Yes; but the two groups get tarred with the same brush by the "us and them" factions.

 

The post was not meant as a personal accusation, but a policy discussion. Individual taxation compliance is not in question or the issue.

Statistics do show the disproportional tax incentivized investor behavior as well as the effects on the asset class for which the tax incentives exist. The aberration is more enhanced when viewed in a global context. Where does the question of "us and them" arise ?

If a separate taxation scale is required for assets, just change the ownership structure from individual to business (lower tax rates), do not conflate the active and passive income streams.

 

It's overrated, you're not missing much

Me too, I agree, move where there is work and you can afford to buy.

 

The way you created a strawman in that post is commendable, transparent and lame, all to common from posters on here. I have said it publiclally in these forums, that I have absolutely no problem with anyone trying to get anything and everything out of the government. I resent the self righteous like yourself and others on this forum who decide that some people aren't worthy of doing this.

This biggest routers as you know but surprisingly forget to mention, are those who do things like offshore their profits and use tax havens, etc. Latest estimates put this at $40 billion. Deliberate welfare fraud is estimated to be at a rate of 0.7% which makes it around $1.33 billion.

I think you are angry at the wrong people.

 

Perhaps.

But the system does nothing to help them find work. I have a friend who works in a govt paid job agency that basically does Centrelink's work. It's all just ticking boxes rather than actively helping people find work. She reckons if they did nothing for the people who don't want to find work and concentrated on those that do then they would get all those people work pretty fast. The govt pours a load of money into these agencies.

If you're under 30?40? you have to do 4 days work for the dole a week and if over that age 2. A very strong disincentive to stay on the dole.

The economy needs some unemployment or inflation would be out of control.

He's probably on the Disability Support Pension, which is $400pw versus 250 on dole. That's a strong incentive to be declared 'disabled'.

My brother is on the DSP due to a mental illness. He's probably well enough to work 3 months a year. But if he does he will drop down to the dole for the 9 months of the year he is not well enough to work. Who wants to hire someone that can only work 3 months a year?

You don't lose a dollar of dole for every dollar earned. It's always financially beneficial to get some work if you are on the dole.

 

How so? How can 95% of the population be on average or below wage? Even using a mean definition of average this would not be possible. Govts always use median to determine average. By definition half the population would be below the average and half above.

I suspect you don't listen to ABC all day and sneak over to Alan Jones for 7 hours a day!

 

@Bayview you are wasting your time, unfortunately ideology gets in the way of common sense.

I'm looking forward to the election being over and back to investing.

 

Internalizing policy debate will not get us anywhere.

TRA 1986...it was exactly the same discussion. If rort is offensive, happy to replace it with a verb of your choice which describes it as adequately (Academic papers on TRA refer to it as tax lurk). I am running out of words (anecdotal, rorts) given the sensitivity and indignation.

Legal validity of utilizing NG and CGT is not in question, but it's continuity is, based on all the reasons already provided. Even if centrelink has rorts, how does that take away from the issues and tax avoidance associated with NG and CGT.

 

Much discussions have been made on your post. I think some of your statements have not been adequately discussed. It would be helpful for new readers to get a handle at least where it is at the moment. In summary your gripe with PIs (Property investors) are based on these assumptions and claims taken from above:

- that they "speculate",
- that this is not done with "after tax income",
- that this is "personal life-style" choice,
- that NG is an inefficient use of tax money because it implies some money is transferred to the private hand of investors

Others have respectfully disagreed and explained that in reality all enterprises undertake some risks and therefore 'speculate' as to the likelihood of success and achieving the gains that would justify the venture. For example, Bayview demonstrated even a profitable business he bought was inherently "speculative" because the operative environment changed. (I respect entrepreneurs for taking risks and efforts to be productive for themselves and those around them, including society at large. )

You appear to tolerate speculating in PIs as long as it is with "after tax money". Bayview has explained that PIs have real 'skin' in the rental property as they have to pay with 'after tax money' literally in providing the service to tenants, such as deposit, cost of due diligence, insurance, rates, land tax, property management, water supply, advertising, body corporate, LMI, interest and depreciation. All PIs have 'skin' in the business of rental properties, especially when lenders have vested interest to make sure that they will not lose money.

As PIs are already using 'after tax money', your alternative option is that it be 'quarantine within the business structure'. Other forumers have explained that the acceptable business structure in the Australian tax system are: individuals, trust, companies and partnership. As mums and dads are buying rental properties either as partnership or individuals, they are a buying within the business structure. Others have pointed out that this would be equitable if both profits and losses from the rental properties are quarantined and has its own tax free threshold. This seems the nearest configuration to avoid inequity.

The Labor proposal on NG abolishes it in respect of established properties with grandfathering, appears inequitable in the following situations:

CF positive and loss on sale: mum and dad pay higher tax when the rental income is added to their other incomes but if they still make a capita loss in retirement and do not have high investment income there is no offset. Government would have taken tax while investors actually suffered loss from the whole investment. (The House has loaded the odds in its favour! CF Positive, I! win, Capital Loss, I win! Consolation - go on Aged Pension if it is still around!)

CF negative and loss on sale of established properties: mum and dad have carried the losses using after tax income and there may be no offsets if there is insufficient investment income after retirement. This is strong disincentive for people against bettering themselves financially. There would be a impact on demand for Aged Pension.

The other highlighted statements appear to reflect leftish POVs on tax offsets. There will be philosophical divides over calling tax offsets such as NG subsidy. The PM, MT has already called the NG a tax offset, which I agree. For the left and big government proponents, there is little difficulty in generalising NG as subsidy. They take comfort that during the Reagan Administration, an economic professor conveniently called tax offsets subsidies (I wonder what the good professor got for that). The public would be largely agreeable to removing true subsidies and the Greens play to this bias by proposing to abolish NG in all its forms - it would cut deeper than the Labor and therefore more inequitable IMO:

"The Parliamentary Budget Office (PBO) was requested to provide a costing to remove negative gearing for all asset classes, for assets purchased on or after 1 July 2015, with grandfathering arrangements for existing investments."

It is unclear whether Greens proposal is for restricting partnerships and individuals or all business structures. More likely the former and again it will not touch the truly wealthy!

Reference: http://greens.org.au/sites/greens.org.au/files/negative_gearing_initiative.pdf

 

Welfare fraud is still fraud - and these are part of the group who are the most vocal about how unfair everything is in life.

Offshore tax havens and so forth are perfectly legal - go after the Govt; not the Companies.

Kerry Packer gave a fabulous speech about paying tax at a Commission into how much tax he was paying....

https://www.facebook.com/video.php?v=537476029710839

Everyone is entitled to use the laws available to them to minimise tax, to invest for their future ad to become financially free.

The ones who are not worthy of this in my view - and many other people's view - are the ones who do bugger all for the economy and society, yet complain bitterly about those who have.

My view is that you should be rewarded for effort..creating wealth and incentive to create wealth and contribute to our economy and society.

But when folks who are starting out, and/or not contributing much if anything at all, then go on to complain about the those who have been having a crack (legally and by the rules set forth) and have arrived at a point further up the levels where the benefits start to compound - then I start to argue back.

I understand that they are doing it tough - and everyone before them has, and I understand that folks who are further down the track want to take up the fight and argue it's all unfair - on behalf of these folks too. But you have to reward folks who have gone further down the track, and further up the ladder...otherwise they won't bother, they will do less, start to complain about their lot, and put out their hand even further.

Plus; it's not as though the ones starting out are not able to access the goodies the Haves are enjoying...they just haven't arrived there yet.

I go on and on about being 24, homeless, car-less, jobless and broke. It's all true. I had a lot of good reasons to whinge...it is easy to cry about how the Haves are so much luckier, or perceivably rorting us battlers and so on.

It's victim BS, and sadly this is how this Country is heading; people who get offended at everything, are victims of everything and want everything for nothing and right away, please.

The inference from the complainers is that the Haves suddenly woke up one day, were rich, rorting the system, not paying enough and/or their fair share tax, generally getting a much better deal than the Have-nots, and so on...virtually everyone started a long time ago from the same level as the complainers, and worked and sacrificed their way up to the level they are at...the complainers always fail to recognise that.

The complainers want to start off at the top of the ladder and work their way up even higher from there.

As for multi-nationals who are not paying their fair share of tax - I agree with you in part on that...

But my view is split; my Conservative mind says we need to give incentive to these O/S companies to invest so that they can provide growth via jobs, products and services etc...otherwise they will take their bat and ball and go home, and we are left with an even bigger crowd with their hand out for the Govt to save them, and less money on the credit card with which to do it...unless we start taxing everyone more to make up the difference.

Whilst no-one likes that these Companies pay such low rates of tax - they still pay tax. Yes; the % is low - but the dollar volume is still a lot. The status quo is a necessary "evil" of sorts.

One of my mates employs over 50 people. His % of tax based on turnover is quite low compared to Joe Average on $45k per year. BUT; his tax bills in dollar amounts would be scary to most here on this forum. Do I begrudge him that %, or his wealth? Bloody NO WAY. He started at exactly the same level as me, one of 5 sons from parents who are school teachers in Colac.

Good luck to him; good on him and I wish everyone was of his attitude and ethics; we would be a much better Country than we are. ..he couldn't give a stuff about Google not paying enough tax...he just gets on with it.

But anyway; if we want to fix this problem; how about this; my thought is that with these Companies, you make the rule that they all pay a flat percent of tax on their turnover - say; 15%. Then, they can pay tax on their PROFIT as per the normal rules of play as set down by our Govt.

By the way; the complainers never mention how much Payroll Tax the evil multis pay.

John Feine on the ABC goes on and on and on about these low taxed multis, but I've never heard him say thanks to any of them for what they contribute, or their Payroll Tax burdens, or how many jobs they create - never.

He and others like him are a figureheads and a voice for the complainer movement. Folks like him and the ABC are - in my view - a very large influence on the growth that is cancer that is the complainer element of our society.

But here's the problem; all the complainers will then whine that 15% is not enough..... because they are paying 23% (or whatever)...it's not equal and it's unfair.

So, let's put it up to 23% like the complainers pay for example...Now the Company becomes uncompetitive, closes the doors, and travels on out - or lays off hundreds or even thousands (as we are seeing already)....

The complainers are now complaining that they can't get a job, they can't pay their mortgage and car loan, can't feed the kids, and the news do segments and interviews with the laid-offs on how terrible it all is.

 

I agree with some of this, but your personal view is that only some are worthy to legally squeeze every cent out of the government.

 

@Bayview Greece is a perfect example of what happens when the country does not collect it's taxes. Which one is preferable:

Complaining about not collecting taxes before Austerity/bankruptcy
OR
Rioting after austerity/bankruptcy.

 

Not at all, Lib.

I am all for everyone being able to take advantage - lawfully - of all the rules set down.

Whether it is "fair" or "in the right spirit" - as was said by that buffoon in the KP video - is for the Have-nots (or their representatives) to argue.

As I said; my gripe is when everyone slams the Haves for using the rules, and screaming how unfair it is.

The Have-nots (and/or their representatives) always forget to mention that the Have-nots are already enjoying various forms of concessions, and assistance that I as a Have cannot.

But my experience is that when you have nothing (or very little) you are not able to access all the perks available to the Haves - things such as NG, better tax concession incentives, etc.

So, you put the head down, get cracking and elevate yourself to the level where you can play like the "big boys".

It's all a matter of frame of mind and attitude.

Here's an example of what pervades our society - and is something I have heard and observed most of my 55 years -

The Have-not whines because the Haves make too much money and get all the breaks, and he doesn't...meanwhile; the Have is donating a decent chunk of wealth back to various charities etc,,,then; the Have-not cries; "Oh; but you are only donating the money so you can decrease your tax bil!!"