General explanation.
"Negative gearing" just means offsetting other income with losses from an investment.
So if you expenses are $10k and your income from the investment is $9k, then you get a net $1k deduction that reduces your other taxable income.
If your expenses are $10k and your income from the investment is $11k, then you get ~~a net $1k tax bill in addition to your other tax liabilities~~ a tax bill on an additional $1k in addition to your other tax liabilities [edited, thanks for comment below].
This doesn't just apply to property. This is true for any business or investment (unless it's incorporated - in which case it's its own legal "person" - and it offsets its own costs against its own income).
The reason people get upset about it is because for a while a successful strategy has been to buy a propery, lose money on it every year because the rent doesn't cover interest costs, maintenance, rates, etc, get a bit of that loss back via negative gearing, and then still make money in the end because the property goes up in price. What helps this is the capital gains discount - if you hold an investment (any investment, by the way - applies to shares just as much) for longer than a year, your capital gains tax rate is half the marginal tax rate.
An additional variation on the theme is to buy a new property with a large annual depreciation, and then have a tax deduction despite being cash flow positive. The depriciation is a "paper loss". Though, in reality, eventually the piper must be paid - the reason depreciation exists is because things do need to be repaired after a while.
None of this is special to housing. You can buy low yielding shares with a margin loan and negatively gear the interest bill. This is harder because, generally, you are less leveraged with shares, but it's still a thing.
Home owners don't get to deduct costs of owning their home - it's not an income producing investment - but, in return, they don't pay capital gains tax at all.
>Additionally, when looking for our PPOR, we viewed so so so many places that seemed to have been developed and purchased by people that never would live in themselves and that was obvious by the livability of them. Crazy small places on tiny blocks that are just shit across the board.
The problem is that Australians rent places like that so that they can save massive deposits to buy huge houses. Not everyone can live in a house. If you scramble ownership and remove all investors, there would still not be enough luxurious houses for everyone to live in. Some people would still have to live in "investment grade" properties. Renters like cheaper rents. Cheaper properties can supply cheaper rents. That's why they end up existing.
People go on about construction standards, and that's all great, but the reality is that better properties are more expensive and slower to build, all else being equal. Slower to build means higher prices across the whole market.
Finally, a couple of other bits. Investors pay higher interest rates despite not being more risky. FHBs are given grants and stamp duty discounts. This is often panned as driving up prices, but it's indisputably a leg-up compared to someone who doesn't get it - eg an investor. There are shared equity schemes that help people enter the market.
Negative gearing should be ring-fenced and carried forward like the Division 35 Non Commercial Loss rules are.
If it becomes positively geared you get them then.
Negative gearing should only apply to new builds period.
The only valid argument for negative gearing is to increase the housing supply to create more affordable housing.
I say this as an investor with 4 properties.
Negative gearing reduces tax income for the government which means the wealthiest australian's are contributing less share than they should.
I think losing money in the hope that you make capital gain is fuking stupid. Nobody would start a business in the hope that they lose money and somehow sell it for a higher price - well except Amazon maybe.
Just from a wealth creation perspective, you want to be building wealth (positive gear) not losing money which inhibits your ability to create future wealth - the government shouldn't be subsidizing people to gamble on the housing market. They should be subsidizing to increase property supply.
The problem I see with this is that it creates unequal investments. If a business can offset it's expenses including interest against it earnings, why can't an individual? I say this as someone without any investment properties and who is worse off because of negative gearing.
The problem I see with this is that it creates unequal investments. If a business can offset its expenses including interest against it earnings, why can't an individual? I say this as someone without any investment properties and who is worse off because of negative gearing. I don't think you should be able to claim a deduction if the security for the loan isn't the income-producing asset either, it should have to pass 2 tests, what it is used for and what it is secured against (currently it is only the former).
Because it's housing and you live in it. You don't live in investments.
You cannot offset division 35 losses, nor can you offset collectible capital losses against capital gains. Different investments have different characteristics and limitations, and, well, if you want a financial investment, invest in a financial asset rather than a real asset.
The poster above makes a very valid point regarding incentivising new properties. I would go one step further and say reduce the interest deduction to 50% given you get a 50% cgt discount. Why receive a full discount on financing an asset you only pay half the tax on for any appreciable wealth? I mean to be honest, if a property is negatively geared, then holdings costs should probably be capitalised in that instance as it isn't income producing.
The point is, the current tax laws incentivise property investing the same way it does for shares, except, people rely on one for social stability and a place to call home. If you could live in a Woolworths fully ordinary paid share, I'd say the same of that.
I'd be looking at that 50% CGT discount before negative gearing. If it's suppose to offset inflation, make it a cap and index the CGT discount instead.
We literally had this before the 50% discount was introduced. The calculations were much more complicated than the 50% discount, so the 50% was introduced in order to simplify the system.
I think the point is that if you take away negative gearing for individuals, you incentivise the movement of real estate investment to corporations which *can* take full advantage of depreciation and other deductions.
This generally leads to concentration of ownership by a small number of large real estate companies. That's not necessarily bad, so long as there's no real monopoly or cartel formation, but a succession of governments have been pretty keen on the idea of "mum and dad" real estate investment being the backbone of household wealth accumulation and retirement planning.
A property is not a business that is creating economic value. Does a property employ any employees? no. (except for paying real-estate agents which does create some employment & tax income which is 7-8% of rents).
The main problem with a high cost of housing, is that it is a drain on capital that may otherwise generate economic growth. If average mums/dads spent less money on rent (or a mortgage), then more money would flow to small business, and less money to banks like CBA/Westpac/ANZ etc.
Small business is a driver of competition, employment & economic prosperity.
If prices are high, banks are extracting an unreasonable amount of wealth for their shareholders that would otherwise lead to real economic growth.
High cost of living is also a contributor to inflation. Higher living costs mean employees demand higher wages (assuming low unemployment & employees have bargaining power to increase wages).
Strong economic growth also leads to low unemployment & higher wages, but this is a much more natural state of things. If unemployment is low due to strong growth, then interest rate raises make sense because everyone is doing well.
But with our current structure, not everyone is doing well, and it is not as 'fair' as it should be to give everyone a fair go.
Property is complicated, especially from an economic benefit stand point. Im sure economists could provide clearer examples but there are economic benefits to property, including maintenance and taxes and housing being considered a product. You also have corporate buildings, leasing offices to businesses, it would be hard to argue that has no economic benefit, even if the entity who owns it has no employees. Industrial land and agriculture also are other cases where real estate has economic benefits. You have managed funds who may allocate units of properties to investors, which isn't significantly different in its structure to that of a managed fund with shares.
With all that said, I do agree with you about most of what you mentioned about the problems of high cost housing and the flow on effects. I just don't feel that there is a compelling argument for property to be a lesser investment than other investments. I personally think CGT discounts should be scrapped and more tenant focused rules for investment property ownership, and greater incentives for first home buyers and new builds.
> None of this is special to housing. You can buy low yielding shares with a margin loan and negatively gear the interest bill. This is harder because, generally, you are less leveraged with shares, but it's still a thing.
Being able to use the interest you pay on a loan used for an investment property is what people have the most problems with. As you explained it's no different than investing in shares, but in a social democracy the focus should be on creating housing for people to own and live in and not to be used as an investment. I know the theory is that this just increases demand which then is going to be satisfied by new construction but it's clearly not working. In conjunction with PPOR this creates too much of an incentive to buy an investment property, own it for 5.5 years and move in for half a year just to sell it and get a CGT exemption and then rinse repeat. As long as you're working or create enough tax debt through other investments you get the loan the entire time financed by the government.
I think it's only Australia now that you can claim negative gearing across income streams. All other countries that have negative gearing either never had that attribute or got rid of it.
New Zealand, Canada, UK and US don't allow it across income streams: https://en.m.wikipedia.org/wiki/Negative_gearing
But Japan and Germany do in some circumstances, but they don't have the same incentives due to the rest of the tax and housing system being much more equitable.
I only reviewed one - Canada - and your source says the opposite of what you said, with negative gearing allowed across income streams provided the asset is expected to produce income over the life of the asset, including capital gains income. That's same as here.
> In conjunction with PPOR this creates too much of an incentive to buy an investment property, own it for 5.5 years and move in for half a year just to sell it and get a CGT exemption and then rinse repeat.
I don't believe that's possible, or am I missing something? There is a 6 year absence rule which allows you to rent out your PPOR for up to 6 years and still claim the CGT exemption, but it has to have genuinely been your primary residence prior to that. You can't immediately rent out a property and still be CGT exempt 6 years later. It's intended for this kind of situation:
> Michael purchased a house in Brisbane and has lived in it for the past four years. It has been his official main residence for the entire period that he has owned it.
>
> Since then, he has been offered work placement in Perth for a two-year duration. He accepted the placement and moved to Perth and opted to live with his cousin. As a result, he did not treat any other home as his main residence. In the meantime, he has decided to rent out his own residence while he is away, to bring in some extra revenue.
>
> After two years, he decided to move to Perth and sell his home in Brisbane permanently. Through the application of the capital gains tax property six-year rule, he was able to sell the property and claim the CGT exemption.
https://duotax.com.au/capital-gains-tax-property-6-year-rule/
Wow finally a good comment on ausfinance. Been so long since I’ve seen any content like this.
So refreshing to see a take that isn’t “eat the rich, kill greedy landlords, give me handouts!!”
Just because its what you want to hear, doesn't mean its correct.
I believe in the free market in general, but negative gearing actually conflicts with this ideal.
Property is problematic as a concept in a world with a growing population, because there will always be limited supply (where people actually want to live)
Therefore the playing field will never be even, if you can inherit property. And by extension, any concessions granted to property owners simply continues to reinforce this inequality.
Negative gearing was brought in to serve a specific economic purpose in the 80s in Australia, but the necessity no longer exists, and it only serves to enrich property investors.
Oh sorry I forgot, it’s your birthright to have a mansion in point piper right?
You deserve to have a nice house on land in one of the worlds best cities?
You realise in nearly every other major city the vast majority of people live in apartments? Why are Australians the only ones entitled to get a 600m2 block
Have a reality check mate you’re so lucky you weren’t born into the slums of the Congo working 100 hrs a week just to get a few grains of rice so you don’t starve. Australians have it too good. Buying a house is easy and achievable if anyone actually wants to do some hard work and sacrifice, but if you want to just work 40hrs a week and chill then that’s on you
> Home owners don't get to deduct costs of owning their home - it's not an income producing investment - but, in return, they don't pay capital gains tax at all.
in some countries you can negatively gear your PPOR, this is a change that should really be considered if we don't end up scrapping it all together.
Houses would probably be cheaper if owning multiple homes was banned but a government like that has worse problems. I've never felt experiencing the former Eastern bloc would be fun.
Unlike other assets such as equities, real estate losses can be claimed against primary income. This is the leak that tipped the balance.
If I could claim my losses in equities against my primary income I’d never pay tax again and the share market would be even more grossly overvalued.
You are talking about capital equities losses, and there is no difference. You can't claim capital real estate losses against your income either.
If you sell shares at a loss, that goes to your capital account and you can later use that loss to offset other capital gains, but not income.
If you sell a house at a loss, it's the same story.
There is no difference.
[edited for clarity]
No this doesn’t only apply to real estate, it applies to *any income-generating asset*. Equities are income generating if they produce a dividend, and can be negatively geared the same as real estate - you *can* claim losses associated with *maintaining* the asset — i.e. interest used to purchase — against primary income, just as you can with real estate.
And as the poster below me pointed out, just like you can’t claim capital losses against primary income with shares, you also can’t do this with property.
Weird how many people think property is somehow special in this regard…
I believe that’s largely because there’s this false belief in Australia (thanks to government propping it up) that *property only goes up.*
Interestingly this is also probably one reason why our property market is traditionally so overheated while our stock market sucks - the majority of people Aus. speculate (“invest”) mainly in property.
>If I could claim my losses in equities against my primary income
Only if you took out a loan to buy them and the losses are due to the ongoing cost of servicing the interest on the loan.
Well you can in exactly the same way. If you have margin loan to buy shares, then you can offset the interest expense against the dividend income earned. If the interest is more, hey presto, you have negative gearing.
>Unlike other assets such as equities, real estate losses can be claimed against primary income.
You can claim losses from equities against primary income though?
Your explanation about the strategy is also either worded in a way that doesn’t make sense, or again wrong.
It’s a strategy that allows people to offset deductible expenses from profits. It doesn’t make sense to purposely negatively gear an investment. If it’s positively geared, it means the NET income overall is still higher (although creating a larger tax bill, the net profit outweighs in increase in tax).
The reason investments are usually geared is because borrowing expense (interest charges) can be claimed as a deduction.
I think you're confusing negative gearing with deductions in general, negative gearing is just that you are allowed to deduct more than the total income on the property so that some of it gets applied to the taxable income from your other income sources.
It can make sense to purposefully negatively gear a property if you intend to make your profit by selling it for more than you paid (or if it will only have to be negatively geared for a short time.)
>it doesn’t make sense to purposely negatively hear a property.
Obviously it does because people do it.
If you lose $1/year in operational expenses, but gain $2/year in capital value, then you’re making a tidy profit, on paper, overall, or when you sell the property.
Making that $1 operating cost more bearable is the way it can be deducted from your *personal income*. This is what is referred to as “negative gearing”.
As far as I know Australia is the only place one can offset a property’s operational expenses against their *personal* income. Elsewhere all of the property’s income and expenses are in a separate tax bucket.
In America the interest you pay on your PPoR is a tax deduction against your general income so I don't believe that Australia is thr only place in the world where the property's expenses are offset against their personal income.
Sorry but the whole top of your explanation is completely wrong.
If your deductible expenses for an asset are $9k - that’s your deduction.
So profit of $10k and expenses of $9k mean your taxable income is $10k, less your $9k in deductions. The remaining $1k is the taxable income.
$1k does not represent the deduction.
Have another read, especially this bit:
>**then you get a net $1k deduction that reduces your other taxable income**.
We're in agreement here, I'm just using the net number rather than -$10k and +$9k.
Re this:
>So profit of $10k and expenses of $9k mean your taxable income is $10k, less your $9k in deductions. The remaining $1k is the taxable income. $1k does not represent the deduction.
That's the other scenario:
>If your expenses are $10k and your income from the investment is $11k, then you get a net $1k tax bill in addition to your other tax liabilities.
That bit was actually wrong - it's tax bill **on an additional** $1k, not **an additional $1k tax bill**. I'll correct that, thanks.
I dunno about you, but if I were to buy a negatively geared property, I’d be hoping for and doing everything I could to make it positively geared as soon as possible.
Reno, coat of paint, etc to bring in more rent? Lower interest loan? Whatever it takes. Get that cash flow positive ASAP.
well you miss the point. rich people love it because they can reduce the amount of tax they pay. why do you think they keep loading up with more and more neg geared propertys.
But the goal of rich people isn’t to pay less tax, it’s to make more money.
What is better, earning $200,000 and getting taxes $100,000, or earning $100,000 and getting taxed $25,000?
You pay less tax earning $100,000, but you make and keep more earning $200,000.
Same goes for property. It’s always a loss to negatively gear. You cannot get band more than you’ve lost, only the tax portion, so you’re worse off.
You’re always better off say increasing rent or decreasing expenses - cash flow will be better.
Sorry, can you elaborate?
Whether I understand tax or not is irrelevant anyway. If I could get more out of a property and improve cash flow, I’m going to do that.
“Oh what’s that? You’ll pay more rent? No thanks. That would increase my tax bill!”
- you, probably
I have a masters degree in tax. Your comments show you don't understand negative gearing. I'm not here to give lessons, nor will I elaborate.
You can have the last word.
Two macro issues that seem to be prevalent is 1. People finding affordable rentals and 2. FHB getting a foot on the ladder. Instead of fully binning NG a reimagining may work. Let’s say we only offer NG on new builds. What would the impacts be? You would assume all the investment money would go to new dwellings which would attract a tax break and support with the rental crisis by increasing dwelling supply. It would also mean less competition for established properties supporting FHB getting into a PPOR. I see value in NG looking at the original intent which is to drive building investment. But I don’t think someone buying a 50 year old house and renting it out whilst getting a tax break solves any issues.
New builds are already made more attractive due to depreciation schedule - that probably far exceeds the benefits of negative gearing in the first couple of years. But a big disadvantage of new builds is they tend to be in newer (outer) developments and offer an inferior growth prospect.
It’s a catch-22 where we want cheaper rental housing but yields are already so low that the only incentive for investors is capital growth which steers them away from new builds. The exception to this might be inner suburb rezoning but much of that land is out of reach of most property investors anyway.
I feel the only solution to rental crisis is significant government intervention- either through supply large amounts of government housing or even more significant incentives for investors. The former is expensive and the latter is “unfair” (welfare for the rich).
This assumes that investors are blind to the fact that their investment is worth less if they ever try to sell it, because the buyer doesn't have the deductibility incentive.
The total return is then lower, so supply falls until rents go up enough to bring the returns back up.
We ran an experiment in disincentivising investors, particularly in Sydney. First the APRA changes, and then all the falling towers that scared the bejeebers out of everyone. Covid messed with the results by driving rents up everywhere (eventually), but we should be able to see the results of the experiment by how Sydney rents in particular behave compared to the rest of the country once dust settles.
Negative gearing has been shown to have much more negative consequences than positive in the long run, that is why it is now illegal in all but two countries worldwide: Australia and Japan (New Zealand has just made it illegal too)
It is, and it applies to any form of business investment that doesn't make money.
If you had a job that paid $100,000 a year and a side business that lost $20,000 a year, would you expect to combine both on your tax return to have a net income of $80,000 a year, or have the government say "Tough titties about your loss, you have to pay tax on the $100,000 anyway"?
I recall my wife had that situation, she had a hobby business which required some capital investment to set up, which meant she made a loss the first year, but she owed tax on her PAYG income because her employer for her regular job made a blue on her withholding amounts, but they wouldn't allow her to offset the loss on the hobby business income to cancel out her PAYG owing amounts. All she could do was carry over the loss to the next year.
Unless I am remembering the details incorrectly (which is possible)
Tax offset and tax deductions are two different things. Tax deductions reduce your taxable income thus reducing your taxes. Offset reduces the amount of taxes you're paying. You can't apply an offset amount to reduce your earnings to pay less tax. I know it's confusing but that how the ATO see it. It's all in how they calculate your taxes.
Not necessarily. What makes negative gearing so lucrative is the non cash deduction (i.e. depreciation). I can make $5-10k profit in rental income but depreciate $20k of the building's value and suddenly I'm at a "loss" of $10-15k.
That's a good point, although claiming depreciation on the building increases the capital gain. And depreciation is an idea favourable to the tax office ... It prevents the taxpayer from claiming the entire capital expense when it occurs.
Stopping negative gearing is a complicated way of saying that you can't run a business based on residential property, or if you do, you'll be faced with a tax situation unlike any other business. It will destroy investment in residential property because it would no longer make much sense.
Why do so many people think that's a good idea?
Yep but if you use the 6 year rule you keep resetting the main residence period, effectively depreciating the asset to zero and paying no CGT on the sale. Negative gearing makes logical business sense. It's here for a reason.
But that wealth is not money in your bank account, so it's not fair to have to pay tax on it until you realise the gains by selling it (that's what CGT is for)
> less properties on the market that probably 'should be'.
Huh? A tax incentive for property development leads to less properties on the market.. some logic there..
Considering it's historically been 80% of established builds being bought by investors this market strategy fails fairly strongly to encourage new builds.
Do you mean that 80% of residential investment properties are established builds, because there is no way that 80% of all housing is bought by investors.
And if it does mean that one in five investment properties is a new build, that implies that residential investors are much more likely to buy a new build than other property buyers, since we do not build anything like 20% new houses a year. In which case this actually is evidence against your point. It means that residential investors are stimulating new housing investment.
Of course that's 80% of residential investments not all residential properties.
That's a very creative way of trying to spin what I said.
Yes, 1/5 of investment properties bought each year are new builds, but that means 4/5 are not new builds but established property.
So the NG/CGT as an incentive to build new homes and increase supply results in only 1 new build for every 4 established properties added to the pool of investment properties.
The fact that investors make more gains from the price rises associated with reduced supply gives an incentive to an investor to buy an established property.
>the gov missing tax revenue from the credits of negatively geared properties
This is like saying the gov missing tax revenue for allowing any tax deductions or not taxing everyone at 100%.
The concept of negative gearing is fine, and is consistent with every other tax deduction you make.
People love linking housing affordability to it, cause it's simpler to blame these people instead fixing the systematic problem (local, state and federal gov planning).
If I want to have a milkbar, I take out a loan to buy a building. I have other one off expenses (fridge etc) as well as ongoing expenses (stock, interest on my loan.) When it comes to tax time, I take my income subtract my expenses and come up with my taxable income (very simplified.)
Negative gearing is the same, but my business is providing rental accommodation.
If it’s valid for the milkbar, it should be valid for the landlord.
Not an accountant, but I’m pretty sure you could do the same if you take out a loan to buy shares.
Your comparison is incorrect, negative gearing allows you to offset the costs of managing one asset against income from another source.
In your milkbar example, it would be like taking the losses from milkbar (the asset) and offsetting it's against an income from a second job you might have. This is not allowed.
For any asset such as shares only profits are distributed as dividends, losses are not distributed.
In the case of loans to buy shares the interest can only be deducted from gains on the same asset class not gains from elsewhere.
>negative gearing allows you to offset the costs of managing one asset against income from another source.
This is what has always done my head in, and is often left out of the discussion. This is my idiot understanding:
NG on an IP allows people to offset losses on it against their taxable income gained from other employment. You can't start a little business at home and deduct associated losses from the income earned from your "normal" job. But if someone's "second income stream" is an IP they can deduct losses that from their "normal" job. Right?
If NG is meant to incentivise the supply of rental/investment properties, is it working? Less than a million new homes were built over the last decade, 920k iirc. Pretty low.
I read one estimate that the cost to the govt of NG on property will be $6bn annually once people come off fixed terms. Like, if the aim and justification is to *increase the supply of housing*... mate, don't you just wonder whether that sum of money could be a bit more than a tax break
Absolutely, your comparative example of starting a side hustle business and than offsetting it's cost against income from a job is spot on. Try doing that and see how quickly ATO will be up your backside auditing you however do it with property and you are doing the nation a favour of building new homes when in reality they are just sucking up existing supply and opposing all new builds.
NG is only sustainable for an investor if their property prices go up, new supply has the opposite affect of reducing prices, hence why we there is so much resistance to opening supply.
Well that's disappointing. Do people not know about this nuance or is it willfully ignored? If NG's justification is increasing the supply of housing but it doesn't achieve that aim, and, at the same time people largely see it is a *personal* tax break that totals 6bn/year... mate. That just seems like a rort to me, I gotta say.
> Your comparison is incorrect, negative gearing allows you to offset the costs of managing one asset against income from another source.
So the milkbar expands to doing deliveries. They have two streams of income - on prem, and delivery. They make heaps more from delivery, lose a bit with on prem, but it is great marketing for the delivery business.
How is that different from Bruce O'McBruceson whose primary income is his salary, but also has a rental unit?
2 things that are incorrect in your comparison
1. Bruce can't be compared to a business, Bruce is an individual and the business is an entity. For example a business is allowed to deduct it's expenses against revenue before paying taxes but an individual cannot deduct cost of living against their income. Business is the asset like how the house is the asset, Bruce can only be the owner in both cases you can't compare him to an asset.
2. Even in your example where the business has 2 streams, both streams are from the same business, aka from the Milkbar, in the case of Negative Gearing,an Investigation Property loss is being offset against an income that is completely seperate from Investment Property such as an income from a job. The income from job has no connection to said property they are independent of each other.
The main reason commercial property can be empty for months is that the typical tenancy is for years with limited opportunity for the landlord to break the lease or increase rents. For the landlord, contracting with a tenant is a huge deal, much more than residential tenancies..so waiting longer for the right tenant who will pay what you want is more rational than it would be for a residential landlord.
Many people would argue that housing is a critical need for society and it shouldn’t be mixed in with running a milk bar (or any random business).
There’s a good book (and movie) called The Lorax that illustrates the point well.
If it was essential we'd nationalise shelter. But in reality we dgaf if people live in tents were here to make fat stacks lol if the dregs gotta live in tents fck em.
You're probably right. A lot of people think it should be dropped, or dropped for property investment anyway.
With negative gearing people are hoping to make money from capital growth in whatever investment they've negatively geared. They're prepared to take a loss on income with the associated tax benefit (assuming they have enough income from other sources).
It doesn't always work out that it's a net gain. You can make a loss on income, the value of the investment may fall, leaving only the reduction in income tax for the period. Could be a net loss even then.
Another way of saying 'prepared to take a loss on income' is that they are prepared to offer lower rents than they would otherwise.
A blindingly obvious point that is completely obscured in rage against high house prices.
The government can’t afford to house people and maintain the properties (think housing commission on a huge scale)
They incentivised the public to buy houses as an investment to make rentals more readily available through tax law.
Not as many people as you think can save sufficient money as a deposit for a home regardless of the market. Most can barely put a bond together. If everyone sold their rentals (which a lot of people have been doing due to the government tinkering with NG rules) it would have an enormous negative impact on available rental housing (like we’ve been seeing only it would be 10fold at least) that’s why. Where do you propose to house all the people who need to rent?
A lot of renters are not in a position to buy the place they rent, even at a reduction in price. So there would still be demand for rentals but lower rental supply = more expensive rent.
Negative gearing on property is truly awful and should be removed if we want to have any hope of avoid feudalism in the next 20 years.
The first defense people put up for it is "But it's the same as every other investment" and while that's true, every other investment is more productive that investing in bricks. Buying shares or starting a business can create jobs and growth. Bricks can't. It would be better if buying pre-built properties was less attractive than other investments to make some of our capital actually work for the economy. The only thing worse that speculating on house in vulture capitalism.
Secondly, negative gearing allows owners to decouple their property costs from their income. You can buy a property and not be that concerned that the rent isn't covering the majority of the mortgage. You'll get a good portion of it back at tax time and then make 10% capital gain on the property per year due to the extra demand created by the negative gearing arrangements. Oh, did we mention that you get an exemption on that capital gain? Bazinga!!
If you removed negative gearing, investors would have to weight the value of the asset against the income it generates. If it doesn't cover most of the spread then you will be less inclined to outbid others on the property. This will reduce the amount that housing appreciates as there will be less demand.
Negative gearing was out of fashion (less people doing it) due to low interest rates in last few year but will now make a come back. There are some who want it scrapped but there are fears that in doing so will crash the property market when everyone offloads their IPs. This will also reduce the number of rental properties causing rental prices to go bonkers. Pretty much what we're seeing now with interest rates rising sharply.
negative gearing is only worthwhile when you are expecting a capital gain significant enough to offset your losses. I don't think anyone is expecting significant capital gains at the moment.
Given that investors cannot offset their losses on IPs if they scrap negative gearing then they will raise their rental prices to recover the difference. Clearly you know nothing about investing.
You want to keep it on tangent? Ok then, what makes you think if someone sell their IP it'll go to another investor? Most likely it'll be sold to a owner occupier than an investor as they will abandon property investment without negative gearing.
The dude is right. The new owner occupier was previously a renter. That means for every investment property that leaves the market, there is one fewer renter also.
Supply goes down by one, demand goes down by one. How is that obviously 'price (rent) goes up'?
>I can see that it may of begun as a stimulus to get more housing created and people investing into the market space.
>However, it also seems like that period is long gone
Wow, I didn't know we no longer have a housing shortage. Why the hell are their people droning on and on about it everyday?!?
Negative gearing is consistent with other business and taxation principles - the cost to make a profit is deducted from your profits that are taxed. Makes sense and is fair.
What isn't fair is not paying tax on the capital gains of your house, just because you lived it it.
Make $100K capital gains on shares? Taxed. Do it on your house? No tax... WTF?
Another whinge post. NG means the investor is cashflow NEGATIVE. It’s not sone magic free money. Please educate yourself. Like any other business, because property investing is a business, only profit is taxed. Now, if there is a loss, which is incredibly common, there is a tax offset. The main thing here is that the investor is losing money for the period. It’s not free money from the government. Pack of peanuts here.
If you get rid of negative gearing, less supply of housing for renters , so overall the gap widens with wealth, and the not so wealthy get even more poor. Which you don’t want of course.
There's been articles on negative gearing, *clearly highlighting* that over 80 or 90% of investor loans, go to *existing dwellings*.
They do not create stock, they do not create a place to live, they steal a home, that a home owner may like to purchase.
This wouldn't be so bad, if investors, weren't subsidised by the tax payer, in that the gearers are claiming this against their tax and therefore, paying less tax.
Based on the rental crises and excessive house prices, it's quite clear, it doesn't work, period, it does drive housing prices up.
You're absoloutely, not wrong to think it's bullshit, it very much is.
Though you're asking the wrong sub, this place is about 50% /r/australia folk and young angry people now (I don't blame them) - the few investors remaining here don't bring emotion to the table, they follow the legal rules to make a profit and this shitty policy, if they admit it or not, has worked.
So you benefit from something (inheritance, likely involving property) which is ridiculously tax-advantaged - no estate tax, gift tax, or capital gains tax on PPOR sale) - and then bitch about negative gearing?
Negative gearing only works because those people in the 47% tax bracket pay so much tax to begin with. If we lowered the top marginal rate there'd be less incentive to negative gear.
Owner-occupiers entering the market get a lot more incentives than investors. I'd be happy to scrap negative gearing if we also scrapped all the owner-occupier incentives. Deal?
Negative gearing is fine, it would likely make sense to adjust the laws so that only brand new properties would be allowed to deduct losses against other income as this would incentivise more properties to be built and is in line with most other investments, but this would likely need to be done if/when the government decides to overhaul the entire tax system.
Basically the amount of work required plus the likely political blowback from any changes regarding tax mean that this is going to stay in the too hard basket for a long time.
Nah.
I’m totally disgusted with the way we tax property in this country, but negative gearing is a bit of a red herring.
Negative gearing relates to income tax, and it is an important principle of the way we do income tax that the tax is on net profit after expenses. This is why we have all kinds of other deductions for investment in your personal income earning capacity. It’s important because the rate of income tax is relatively high compared to say, business growth rates or typical margins, so we only apply it to the profitable surplus, not gross revenues. It is also progressive (different rates for different amounts of profit), so the amount of profit matters and needs to be counted correctly.
The only alternative to this way of doing things would be to have every property investor run a company or business, which is seen as impractical.
The real problems with property taxation are cap gains treatment and a general lack of property holding taxes.
I’ve got a 5.6% gross yield on a property I bought in Perth in 2021.
5.2% on one in Brisbane in 2020 and 7.15% on another with a granny flat bought in 2018.
If you’re negative gearing as an investor in a rental market like this you’re doing it wrong.
The logical problem with Australia's negative gearing is being able to pretend your entire life is a business with a total profit loss, combining your personal wage from employment plus your actual business, an investment property.
The practical problem is Costello's stupid capital gains discount, which makes NG viable because your 'business' gets full fat tax discounts, but only half taxed capital gains tax when selling.
Why should investment gains be taxed less than actual productive wages? The answer they give is 'inflation' but I didn't get a 7% tax break this year on my wages to counter inflation.
And the core underlying problem is that banks will lend you far more money for property than they will for any other business. Shares make more money, but try going to a bank to borrow 2m to invest in shares vs 2m to invest in three properties.
1. average joe is ignorant of how the real world works, stick head in sand
2. NG is there to allow landlord to rent the property out BELOW COST
3. Tenants are paying BELOW COST
4. Tenants are still whinging it expensive
5. IF there is no NG, then tenant will have to pay above cost (landlord are not charities)
6. If rent is expensive now, imagine rent twice as much
> IF there is no NG, then tenant will have to pay above cost (landlord are not charities)
> If rent is expensive now, imagine rent twice as much
That’s being simplistic too. If negative gearing was removed and property became a less attractive investment, what would that do to property prices?
Some people have very short memories because we know exactly what it would do to prices. Just the threat of a change to negative gearing had property prices dropping. You are exactly right.
Business have negative gearing...why shouldn't a person's investment business?
I made 100k and lost 10k this year.I made 90k total this year so I pay tax on 90k only....how doesn't this make sense?
Spoiler alert: everything benefits people who already have money.
You really think that if they get rid of negative gearing that people without money will somehow be advantages?
Either prices stay the same and it's just as hard to get into the market, or they drop and the people who have money no longer need negative gearing and it's still hard to get in the market.
I agree and have owned resi IP in the past... I think there should negative gearing for people who meet certain criteria; NO AIRBNB, cheaper rent, tenant assist etc (just a thought)
Yep exactly should be there for those who actually help provide affordable housing not exclusively profit both ways via rent and tax returns (deductions)
I think it's fine in principle - property investment isn't a perpetually loss-making exercise in the same way that, say, [horse racing](https://www.ato.gov.au/law/view/document?locid=%27FOI/1013879P%27&PiT=19960207000001) may be, so the losses are incurred in attempting to make a profit and that's the principle on which deductions work. That said, I also think a capital gains tax should apply to unrealised gains on land holdings (i.e. before property sale/crystallisation of gains) due to the infrequency with which some properties are sold (50 year + owner occupiers are among the most egregious examples).
Australia [already has a framework for this](https://www.businessthink.unsw.edu.au/articles/tax-unrealised-capital-gains-land) in relation to unrealised international share investments and I think there's a compelling case for it to apply to property as well. It will bring forward costs for property owners but should also depress prices given banks will need to factor in these future costs when awarding mortgages. The article I linked in this paragraph talks about such a potential property CGT change in more detail.
Haha yup.
It's going to leave a crater in the governments budget this financial year.
RBA cornered itself with stupid low cash rates and these rate rises are basically going to jam a decades worth of inflated housing debt right up the ATOd back door.
Basically the wealthy will pay even less tax while the poor eat 20c noodles in a tent to clean up this mess.
First of all it is a Ponzi scheme. Basically it is great whilst more people do it. If system EVER changes, ppl in it will be bankrupt.
That is the shortest explanation I can give. If gov takes longer view of system for the prosperity of the country into account, it will be watered down or abolished. If they want to be voted back in they leave it.
So, rise up or be a part of the problem.
Negative gearing allows cheaper rentals for those who can't afford market rates.
Negative gearing has taken a good idea and created a monster. I have no idea how this will be resolved
That is bullshit - the law says you cannot leave a property deliberately vacant and claim deductions.
It must be [genuinely available for rent](https://www.ato.gov.au/Individuals/Investments-and-assets/Residential-rental-properties/Rental-property-genuinely-available-for-rent/).
Yes you are completely wrong, negative gearing is not some awesome free money. You don't get a dollor back at tax time for every dollar you lose on your IP.
With housing It's just to encourage people to invest in housing and supply rentals so we don't have issues. The truth is housing as an investment is not good returns and thats why super and big investment firms don't touch it.
If you want to end the rental crises we going to need to offer more. But people are uneducated.
So get educated and learn about it. Don't just hate and be jelly.
Edit: I just want to add that the tiny shit box places you talk about are what IP investors try and avoid as IPs are 20-30year investments so the value is purely in the land.
Yes - I don't see equities = housing although I understand both are potential investment vehicles. Despite that, I broadly disagree with the concept of housing as an investment (in extremes) and think CGT discounts and negative gearing give an unfair advantage to developers.
Having a cap on amount of properties that you can negatively gear would be fine. But it's generally the greed and the tax systems that support it that mean inequality thrives.
Edit: also - there's no need to get like that either. I can express an opinion (albeit a strong one) and you're allowed to disagree - but I'd hope we can do that with some sort of respect
Agree with your last sentences, sorry for being snarky..
Also agree with the need to limit investing in property. Some sort of caps on negative gearing (1 property max) sounds reasonable.
I think stamp duty should be abolished too, to encourage property turnover and remove penalty for downsizing etc.
Thanks!
And totally agree. Stamp duty reform is probably overdue. Anything that supports the idea that anyone can own a property I think I'd a good idea (although it might be a pipedream at this point) - because let's face it - everyone needs a place to live.
Property investor here who has benefitted from Negative Gearing in the past (now property is positively geared).
When you see a tax provision you don’t like it is useful to ask yourself the question “What will happen if we take it away?” There will be fewer rental properties and rents will rise. Property investors will suffer, but so will renters. That will be the price of greater justice.
Its not a big deal at all.
Without it though you wouldnt have as many rental options in better suburbs.
As a property investor its really not very good as it stops you acquiring more properties. I dont think I have ever met a pi who did it on purpose for tax reasons. Its usually like me who bought one cause it was a good deal and would go positive in a few years.
Most investments unless youre buying in like 7% yield will be negative in the first 2-5 years.
When they got rid of it before it just caused a bigger rental crisis.
Im a developer and was a property manager and Ive spoken to probably 1000s of investors dont know any who did it for the tax breaks they were keen to get it positive nobody wants an investment losing money.
General explanation. "Negative gearing" just means offsetting other income with losses from an investment. So if you expenses are $10k and your income from the investment is $9k, then you get a net $1k deduction that reduces your other taxable income. If your expenses are $10k and your income from the investment is $11k, then you get ~~a net $1k tax bill in addition to your other tax liabilities~~ a tax bill on an additional $1k in addition to your other tax liabilities [edited, thanks for comment below]. This doesn't just apply to property. This is true for any business or investment (unless it's incorporated - in which case it's its own legal "person" - and it offsets its own costs against its own income). The reason people get upset about it is because for a while a successful strategy has been to buy a propery, lose money on it every year because the rent doesn't cover interest costs, maintenance, rates, etc, get a bit of that loss back via negative gearing, and then still make money in the end because the property goes up in price. What helps this is the capital gains discount - if you hold an investment (any investment, by the way - applies to shares just as much) for longer than a year, your capital gains tax rate is half the marginal tax rate. An additional variation on the theme is to buy a new property with a large annual depreciation, and then have a tax deduction despite being cash flow positive. The depriciation is a "paper loss". Though, in reality, eventually the piper must be paid - the reason depreciation exists is because things do need to be repaired after a while. None of this is special to housing. You can buy low yielding shares with a margin loan and negatively gear the interest bill. This is harder because, generally, you are less leveraged with shares, but it's still a thing. Home owners don't get to deduct costs of owning their home - it's not an income producing investment - but, in return, they don't pay capital gains tax at all. >Additionally, when looking for our PPOR, we viewed so so so many places that seemed to have been developed and purchased by people that never would live in themselves and that was obvious by the livability of them. Crazy small places on tiny blocks that are just shit across the board. The problem is that Australians rent places like that so that they can save massive deposits to buy huge houses. Not everyone can live in a house. If you scramble ownership and remove all investors, there would still not be enough luxurious houses for everyone to live in. Some people would still have to live in "investment grade" properties. Renters like cheaper rents. Cheaper properties can supply cheaper rents. That's why they end up existing. People go on about construction standards, and that's all great, but the reality is that better properties are more expensive and slower to build, all else being equal. Slower to build means higher prices across the whole market. Finally, a couple of other bits. Investors pay higher interest rates despite not being more risky. FHBs are given grants and stamp duty discounts. This is often panned as driving up prices, but it's indisputably a leg-up compared to someone who doesn't get it - eg an investor. There are shared equity schemes that help people enter the market.
Negative gearing should be ring-fenced and carried forward like the Division 35 Non Commercial Loss rules are. If it becomes positively geared you get them then.
Negative gearing should only apply to new builds period. The only valid argument for negative gearing is to increase the housing supply to create more affordable housing. I say this as an investor with 4 properties. Negative gearing reduces tax income for the government which means the wealthiest australian's are contributing less share than they should. I think losing money in the hope that you make capital gain is fuking stupid. Nobody would start a business in the hope that they lose money and somehow sell it for a higher price - well except Amazon maybe. Just from a wealth creation perspective, you want to be building wealth (positive gear) not losing money which inhibits your ability to create future wealth - the government shouldn't be subsidizing people to gamble on the housing market. They should be subsidizing to increase property supply.
The problem I see with this is that it creates unequal investments. If a business can offset it's expenses including interest against it earnings, why can't an individual? I say this as someone without any investment properties and who is worse off because of negative gearing. The problem I see with this is that it creates unequal investments. If a business can offset its expenses including interest against it earnings, why can't an individual? I say this as someone without any investment properties and who is worse off because of negative gearing. I don't think you should be able to claim a deduction if the security for the loan isn't the income-producing asset either, it should have to pass 2 tests, what it is used for and what it is secured against (currently it is only the former).
Because it's housing and you live in it. You don't live in investments. You cannot offset division 35 losses, nor can you offset collectible capital losses against capital gains. Different investments have different characteristics and limitations, and, well, if you want a financial investment, invest in a financial asset rather than a real asset. The poster above makes a very valid point regarding incentivising new properties. I would go one step further and say reduce the interest deduction to 50% given you get a 50% cgt discount. Why receive a full discount on financing an asset you only pay half the tax on for any appreciable wealth? I mean to be honest, if a property is negatively geared, then holdings costs should probably be capitalised in that instance as it isn't income producing. The point is, the current tax laws incentivise property investing the same way it does for shares, except, people rely on one for social stability and a place to call home. If you could live in a Woolworths fully ordinary paid share, I'd say the same of that.
I'd be looking at that 50% CGT discount before negative gearing. If it's suppose to offset inflation, make it a cap and index the CGT discount instead.
We literally had this before the 50% discount was introduced. The calculations were much more complicated than the 50% discount, so the 50% was introduced in order to simplify the system.
I think the point is that if you take away negative gearing for individuals, you incentivise the movement of real estate investment to corporations which *can* take full advantage of depreciation and other deductions. This generally leads to concentration of ownership by a small number of large real estate companies. That's not necessarily bad, so long as there's no real monopoly or cartel formation, but a succession of governments have been pretty keen on the idea of "mum and dad" real estate investment being the backbone of household wealth accumulation and retirement planning.
A property is not a business that is creating economic value. Does a property employ any employees? no. (except for paying real-estate agents which does create some employment & tax income which is 7-8% of rents). The main problem with a high cost of housing, is that it is a drain on capital that may otherwise generate economic growth. If average mums/dads spent less money on rent (or a mortgage), then more money would flow to small business, and less money to banks like CBA/Westpac/ANZ etc. Small business is a driver of competition, employment & economic prosperity. If prices are high, banks are extracting an unreasonable amount of wealth for their shareholders that would otherwise lead to real economic growth. High cost of living is also a contributor to inflation. Higher living costs mean employees demand higher wages (assuming low unemployment & employees have bargaining power to increase wages). Strong economic growth also leads to low unemployment & higher wages, but this is a much more natural state of things. If unemployment is low due to strong growth, then interest rate raises make sense because everyone is doing well. But with our current structure, not everyone is doing well, and it is not as 'fair' as it should be to give everyone a fair go.
Property is complicated, especially from an economic benefit stand point. Im sure economists could provide clearer examples but there are economic benefits to property, including maintenance and taxes and housing being considered a product. You also have corporate buildings, leasing offices to businesses, it would be hard to argue that has no economic benefit, even if the entity who owns it has no employees. Industrial land and agriculture also are other cases where real estate has economic benefits. You have managed funds who may allocate units of properties to investors, which isn't significantly different in its structure to that of a managed fund with shares. With all that said, I do agree with you about most of what you mentioned about the problems of high cost housing and the flow on effects. I just don't feel that there is a compelling argument for property to be a lesser investment than other investments. I personally think CGT discounts should be scrapped and more tenant focused rules for investment property ownership, and greater incentives for first home buyers and new builds.
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> None of this is special to housing. You can buy low yielding shares with a margin loan and negatively gear the interest bill. This is harder because, generally, you are less leveraged with shares, but it's still a thing. Being able to use the interest you pay on a loan used for an investment property is what people have the most problems with. As you explained it's no different than investing in shares, but in a social democracy the focus should be on creating housing for people to own and live in and not to be used as an investment. I know the theory is that this just increases demand which then is going to be satisfied by new construction but it's clearly not working. In conjunction with PPOR this creates too much of an incentive to buy an investment property, own it for 5.5 years and move in for half a year just to sell it and get a CGT exemption and then rinse repeat. As long as you're working or create enough tax debt through other investments you get the loan the entire time financed by the government.
I think it's only Australia now that you can claim negative gearing across income streams. All other countries that have negative gearing either never had that attribute or got rid of it.
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New Zealand, Canada, UK and US don't allow it across income streams: https://en.m.wikipedia.org/wiki/Negative_gearing But Japan and Germany do in some circumstances, but they don't have the same incentives due to the rest of the tax and housing system being much more equitable.
I only reviewed one - Canada - and your source says the opposite of what you said, with negative gearing allowed across income streams provided the asset is expected to produce income over the life of the asset, including capital gains income. That's same as here.
> In conjunction with PPOR this creates too much of an incentive to buy an investment property, own it for 5.5 years and move in for half a year just to sell it and get a CGT exemption and then rinse repeat. I don't believe that's possible, or am I missing something? There is a 6 year absence rule which allows you to rent out your PPOR for up to 6 years and still claim the CGT exemption, but it has to have genuinely been your primary residence prior to that. You can't immediately rent out a property and still be CGT exempt 6 years later. It's intended for this kind of situation: > Michael purchased a house in Brisbane and has lived in it for the past four years. It has been his official main residence for the entire period that he has owned it. > > Since then, he has been offered work placement in Perth for a two-year duration. He accepted the placement and moved to Perth and opted to live with his cousin. As a result, he did not treat any other home as his main residence. In the meantime, he has decided to rent out his own residence while he is away, to bring in some extra revenue. > > After two years, he decided to move to Perth and sell his home in Brisbane permanently. Through the application of the capital gains tax property six-year rule, he was able to sell the property and claim the CGT exemption. https://duotax.com.au/capital-gains-tax-property-6-year-rule/
It’s six years because that’s how long a Senator’s term is.
This is absolutely not true for "any business".
Wow finally a good comment on ausfinance. Been so long since I’ve seen any content like this. So refreshing to see a take that isn’t “eat the rich, kill greedy landlords, give me handouts!!”
Just because its what you want to hear, doesn't mean its correct. I believe in the free market in general, but negative gearing actually conflicts with this ideal. Property is problematic as a concept in a world with a growing population, because there will always be limited supply (where people actually want to live) Therefore the playing field will never be even, if you can inherit property. And by extension, any concessions granted to property owners simply continues to reinforce this inequality. Negative gearing was brought in to serve a specific economic purpose in the 80s in Australia, but the necessity no longer exists, and it only serves to enrich property investors.
"Property is problematic..." is such a hilarious phrase.
Oh sorry I forgot, it’s your birthright to have a mansion in point piper right? You deserve to have a nice house on land in one of the worlds best cities? You realise in nearly every other major city the vast majority of people live in apartments? Why are Australians the only ones entitled to get a 600m2 block Have a reality check mate you’re so lucky you weren’t born into the slums of the Congo working 100 hrs a week just to get a few grains of rice so you don’t starve. Australians have it too good. Buying a house is easy and achievable if anyone actually wants to do some hard work and sacrifice, but if you want to just work 40hrs a week and chill then that’s on you
> Home owners don't get to deduct costs of owning their home - it's not an income producing investment - but, in return, they don't pay capital gains tax at all. in some countries you can negatively gear your PPOR, this is a change that should really be considered if we don't end up scrapping it all together.
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It certainly wouldn't make it any easier for first home buyers to enter the market
Then it's just even worse middle-class welfare.
People wouldent need to rent if investors didn’t inflate the housing market. They would live in the house they own
Houses would probably be cheaper if owning multiple homes was banned but a government like that has worse problems. I've never felt experiencing the former Eastern bloc would be fun.
Unlike other assets such as equities, real estate losses can be claimed against primary income. This is the leak that tipped the balance. If I could claim my losses in equities against my primary income I’d never pay tax again and the share market would be even more grossly overvalued.
You are talking about capital equities losses, and there is no difference. You can't claim capital real estate losses against your income either. If you sell shares at a loss, that goes to your capital account and you can later use that loss to offset other capital gains, but not income. If you sell a house at a loss, it's the same story. There is no difference. [edited for clarity]
No this doesn’t only apply to real estate, it applies to *any income-generating asset*. Equities are income generating if they produce a dividend, and can be negatively geared the same as real estate - you *can* claim losses associated with *maintaining* the asset — i.e. interest used to purchase — against primary income, just as you can with real estate. And as the poster below me pointed out, just like you can’t claim capital losses against primary income with shares, you also can’t do this with property. Weird how many people think property is somehow special in this regard… I believe that’s largely because there’s this false belief in Australia (thanks to government propping it up) that *property only goes up.* Interestingly this is also probably one reason why our property market is traditionally so overheated while our stock market sucks - the majority of people Aus. speculate (“invest”) mainly in property.
If you borrowed money to buy equities, the interest on that loan is tax deductible. It works the exact same way that property does.
>If I could claim my losses in equities against my primary income Only if you took out a loan to buy them and the losses are due to the ongoing cost of servicing the interest on the loan.
Well you can in exactly the same way. If you have margin loan to buy shares, then you can offset the interest expense against the dividend income earned. If the interest is more, hey presto, you have negative gearing.
You are full of shit.
>Unlike other assets such as equities, real estate losses can be claimed against primary income. You can claim losses from equities against primary income though?
Your explanation about the strategy is also either worded in a way that doesn’t make sense, or again wrong. It’s a strategy that allows people to offset deductible expenses from profits. It doesn’t make sense to purposely negatively gear an investment. If it’s positively geared, it means the NET income overall is still higher (although creating a larger tax bill, the net profit outweighs in increase in tax). The reason investments are usually geared is because borrowing expense (interest charges) can be claimed as a deduction.
I think you're confusing negative gearing with deductions in general, negative gearing is just that you are allowed to deduct more than the total income on the property so that some of it gets applied to the taxable income from your other income sources. It can make sense to purposefully negatively gear a property if you intend to make your profit by selling it for more than you paid (or if it will only have to be negatively geared for a short time.)
I’m more explaining gearing in general and how it works. There’s only so much you can claim on a property.
>it doesn’t make sense to purposely negatively hear a property. Obviously it does because people do it. If you lose $1/year in operational expenses, but gain $2/year in capital value, then you’re making a tidy profit, on paper, overall, or when you sell the property. Making that $1 operating cost more bearable is the way it can be deducted from your *personal income*. This is what is referred to as “negative gearing”. As far as I know Australia is the only place one can offset a property’s operational expenses against their *personal* income. Elsewhere all of the property’s income and expenses are in a separate tax bucket.
In America the interest you pay on your PPoR is a tax deduction against your general income so I don't believe that Australia is thr only place in the world where the property's expenses are offset against their personal income.
Sorry but the whole top of your explanation is completely wrong. If your deductible expenses for an asset are $9k - that’s your deduction. So profit of $10k and expenses of $9k mean your taxable income is $10k, less your $9k in deductions. The remaining $1k is the taxable income. $1k does not represent the deduction.
Have another read, especially this bit: >**then you get a net $1k deduction that reduces your other taxable income**. We're in agreement here, I'm just using the net number rather than -$10k and +$9k. Re this: >So profit of $10k and expenses of $9k mean your taxable income is $10k, less your $9k in deductions. The remaining $1k is the taxable income. $1k does not represent the deduction. That's the other scenario: >If your expenses are $10k and your income from the investment is $11k, then you get a net $1k tax bill in addition to your other tax liabilities. That bit was actually wrong - it's tax bill **on an additional** $1k, not **an additional $1k tax bill**. I'll correct that, thanks.
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I dunno about you, but if I were to buy a negatively geared property, I’d be hoping for and doing everything I could to make it positively geared as soon as possible. Reno, coat of paint, etc to bring in more rent? Lower interest loan? Whatever it takes. Get that cash flow positive ASAP.
Absolutely. Otherwise you're completely dependent on capital gains.
well you miss the point. rich people love it because they can reduce the amount of tax they pay. why do you think they keep loading up with more and more neg geared propertys.
But the goal of rich people isn’t to pay less tax, it’s to make more money. What is better, earning $200,000 and getting taxes $100,000, or earning $100,000 and getting taxed $25,000? You pay less tax earning $100,000, but you make and keep more earning $200,000. Same goes for property. It’s always a loss to negatively gear. You cannot get band more than you’ve lost, only the tax portion, so you’re worse off. You’re always better off say increasing rent or decreasing expenses - cash flow will be better.
It's mind numbing how many people I talk to who WOULD choose $5000 and pay $1 tax over $10000 and pay $1000 tax
> But the goal of rich people isn’t to pay less tax lol >it’s to make more money. by paying less tax
What? Did you just ignore what I wrote?
You don't understand how tax works
Sorry, can you elaborate? Whether I understand tax or not is irrelevant anyway. If I could get more out of a property and improve cash flow, I’m going to do that. “Oh what’s that? You’ll pay more rent? No thanks. That would increase my tax bill!” - you, probably
I have a masters degree in tax. Your comments show you don't understand negative gearing. I'm not here to give lessons, nor will I elaborate. You can have the last word.
Cool, sounds like you aren’t interesting in adding anything to the conversation. I hope it made you feel good at least.
Two macro issues that seem to be prevalent is 1. People finding affordable rentals and 2. FHB getting a foot on the ladder. Instead of fully binning NG a reimagining may work. Let’s say we only offer NG on new builds. What would the impacts be? You would assume all the investment money would go to new dwellings which would attract a tax break and support with the rental crisis by increasing dwelling supply. It would also mean less competition for established properties supporting FHB getting into a PPOR. I see value in NG looking at the original intent which is to drive building investment. But I don’t think someone buying a 50 year old house and renting it out whilst getting a tax break solves any issues.
New builds are already made more attractive due to depreciation schedule - that probably far exceeds the benefits of negative gearing in the first couple of years. But a big disadvantage of new builds is they tend to be in newer (outer) developments and offer an inferior growth prospect. It’s a catch-22 where we want cheaper rental housing but yields are already so low that the only incentive for investors is capital growth which steers them away from new builds. The exception to this might be inner suburb rezoning but much of that land is out of reach of most property investors anyway. I feel the only solution to rental crisis is significant government intervention- either through supply large amounts of government housing or even more significant incentives for investors. The former is expensive and the latter is “unfair” (welfare for the rich).
This assumes that investors are blind to the fact that their investment is worth less if they ever try to sell it, because the buyer doesn't have the deductibility incentive. The total return is then lower, so supply falls until rents go up enough to bring the returns back up. We ran an experiment in disincentivising investors, particularly in Sydney. First the APRA changes, and then all the falling towers that scared the bejeebers out of everyone. Covid messed with the results by driving rents up everywhere (eventually), but we should be able to see the results of the experiment by how Sydney rents in particular behave compared to the rest of the country once dust settles.
I dig your view. Some tuning of the implementation could have it being of better value for the greater good.
Peak r/ausfinance circlejerk
There’s 1 really good response and then just endless rambling, some borderline illiterate on the subject.
This sub has just become a place for the economically disenfranchised to display their financial illiteracy and express conspiracies about the "rich".
It’s literally mostly all spillover from r/Australia and the amount of idiocy now is off the charts.
Time for a new sub? There’s r/AusHENRY
Negative gearing has been shown to have much more negative consequences than positive in the long run, that is why it is now illegal in all but two countries worldwide: Australia and Japan (New Zealand has just made it illegal too)
I love to be compensated for bad investments. And its great that only a certain percentage of people are able to take advantage of it.
Negative gearing is a fancy term for offsetting the fact you’re not making money.
It is, and it applies to any form of business investment that doesn't make money. If you had a job that paid $100,000 a year and a side business that lost $20,000 a year, would you expect to combine both on your tax return to have a net income of $80,000 a year, or have the government say "Tough titties about your loss, you have to pay tax on the $100,000 anyway"?
I recall my wife had that situation, she had a hobby business which required some capital investment to set up, which meant she made a loss the first year, but she owed tax on her PAYG income because her employer for her regular job made a blue on her withholding amounts, but they wouldn't allow her to offset the loss on the hobby business income to cancel out her PAYG owing amounts. All she could do was carry over the loss to the next year. Unless I am remembering the details incorrectly (which is possible)
Tax offset and tax deductions are two different things. Tax deductions reduce your taxable income thus reducing your taxes. Offset reduces the amount of taxes you're paying. You can't apply an offset amount to reduce your earnings to pay less tax. I know it's confusing but that how the ATO see it. It's all in how they calculate your taxes.
It’s a non-commercial business loss. Not deductible against salary & wage income
Non-commercial loss rules may apply. People can't deduct losses for business activities unless they meet certain criteria
Ironically you’ve proved his point - these business losses are restricted to be applied against wage income.
Not necessarily. What makes negative gearing so lucrative is the non cash deduction (i.e. depreciation). I can make $5-10k profit in rental income but depreciate $20k of the building's value and suddenly I'm at a "loss" of $10-15k.
That, and the property is appreciating at the same time. So its triple dipping.
But the building is degrading. That will come home to roost one day. Maybe not for you if you sell it, but for the next buyer.
Yep, plus all the rules around claiming it as your PPOR even though you've rented it.
That's a good point, although claiming depreciation on the building increases the capital gain. And depreciation is an idea favourable to the tax office ... It prevents the taxpayer from claiming the entire capital expense when it occurs. Stopping negative gearing is a complicated way of saying that you can't run a business based on residential property, or if you do, you'll be faced with a tax situation unlike any other business. It will destroy investment in residential property because it would no longer make much sense. Why do so many people think that's a good idea?
Yep but if you use the 6 year rule you keep resetting the main residence period, effectively depreciating the asset to zero and paying no CGT on the sale. Negative gearing makes logical business sense. It's here for a reason.
But you are making wealth (the price of the property generally going up). And still getting an offset
But that wealth is not money in your bank account, so it's not fair to have to pay tax on it until you realise the gains by selling it (that's what CGT is for)
> less properties on the market that probably 'should be'. Huh? A tax incentive for property development leads to less properties on the market.. some logic there..
Considering it's historically been 80% of established builds being bought by investors this market strategy fails fairly strongly to encourage new builds.
Do you mean that 80% of residential investment properties are established builds, because there is no way that 80% of all housing is bought by investors. And if it does mean that one in five investment properties is a new build, that implies that residential investors are much more likely to buy a new build than other property buyers, since we do not build anything like 20% new houses a year. In which case this actually is evidence against your point. It means that residential investors are stimulating new housing investment.
Of course that's 80% of residential investments not all residential properties. That's a very creative way of trying to spin what I said. Yes, 1/5 of investment properties bought each year are new builds, but that means 4/5 are not new builds but established property. So the NG/CGT as an incentive to build new homes and increase supply results in only 1 new build for every 4 established properties added to the pool of investment properties. The fact that investors make more gains from the price rises associated with reduced supply gives an incentive to an investor to buy an established property.
Hahahahha, 50% of all stats are made up, 80% of all people know that.
My assumption was there would be less turnover. Course correct me pls.
What do you mean by "turnover"? If you mean people buying/selling, then stamp duty is biggest hurdle to this, not negative gearing.
Yeah that's what I meant. The stamp duty point is good.
>the gov missing tax revenue from the credits of negatively geared properties This is like saying the gov missing tax revenue for allowing any tax deductions or not taxing everyone at 100%. The concept of negative gearing is fine, and is consistent with every other tax deduction you make. People love linking housing affordability to it, cause it's simpler to blame these people instead fixing the systematic problem (local, state and federal gov planning).
I wonder if making each council the size of an electorate would help introduce a ‘big picture’ vision instead of “my slice of the pie”.
If I want to have a milkbar, I take out a loan to buy a building. I have other one off expenses (fridge etc) as well as ongoing expenses (stock, interest on my loan.) When it comes to tax time, I take my income subtract my expenses and come up with my taxable income (very simplified.) Negative gearing is the same, but my business is providing rental accommodation. If it’s valid for the milkbar, it should be valid for the landlord. Not an accountant, but I’m pretty sure you could do the same if you take out a loan to buy shares.
Your comparison is incorrect, negative gearing allows you to offset the costs of managing one asset against income from another source. In your milkbar example, it would be like taking the losses from milkbar (the asset) and offsetting it's against an income from a second job you might have. This is not allowed. For any asset such as shares only profits are distributed as dividends, losses are not distributed. In the case of loans to buy shares the interest can only be deducted from gains on the same asset class not gains from elsewhere.
>negative gearing allows you to offset the costs of managing one asset against income from another source. This is what has always done my head in, and is often left out of the discussion. This is my idiot understanding: NG on an IP allows people to offset losses on it against their taxable income gained from other employment. You can't start a little business at home and deduct associated losses from the income earned from your "normal" job. But if someone's "second income stream" is an IP they can deduct losses that from their "normal" job. Right? If NG is meant to incentivise the supply of rental/investment properties, is it working? Less than a million new homes were built over the last decade, 920k iirc. Pretty low. I read one estimate that the cost to the govt of NG on property will be $6bn annually once people come off fixed terms. Like, if the aim and justification is to *increase the supply of housing*... mate, don't you just wonder whether that sum of money could be a bit more than a tax break
Absolutely, your comparative example of starting a side hustle business and than offsetting it's cost against income from a job is spot on. Try doing that and see how quickly ATO will be up your backside auditing you however do it with property and you are doing the nation a favour of building new homes when in reality they are just sucking up existing supply and opposing all new builds. NG is only sustainable for an investor if their property prices go up, new supply has the opposite affect of reducing prices, hence why we there is so much resistance to opening supply.
Well that's disappointing. Do people not know about this nuance or is it willfully ignored? If NG's justification is increasing the supply of housing but it doesn't achieve that aim, and, at the same time people largely see it is a *personal* tax break that totals 6bn/year... mate. That just seems like a rort to me, I gotta say.
> Your comparison is incorrect, negative gearing allows you to offset the costs of managing one asset against income from another source. So the milkbar expands to doing deliveries. They have two streams of income - on prem, and delivery. They make heaps more from delivery, lose a bit with on prem, but it is great marketing for the delivery business. How is that different from Bruce O'McBruceson whose primary income is his salary, but also has a rental unit?
2 things that are incorrect in your comparison 1. Bruce can't be compared to a business, Bruce is an individual and the business is an entity. For example a business is allowed to deduct it's expenses against revenue before paying taxes but an individual cannot deduct cost of living against their income. Business is the asset like how the house is the asset, Bruce can only be the owner in both cases you can't compare him to an asset. 2. Even in your example where the business has 2 streams, both streams are from the same business, aka from the Milkbar, in the case of Negative Gearing,an Investigation Property loss is being offset against an income that is completely seperate from Investment Property such as an income from a job. The income from job has no connection to said property they are independent of each other.
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The main reason commercial property can be empty for months is that the typical tenancy is for years with limited opportunity for the landlord to break the lease or increase rents. For the landlord, contracting with a tenant is a huge deal, much more than residential tenancies..so waiting longer for the right tenant who will pay what you want is more rational than it would be for a residential landlord.
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Many people would argue that housing is a critical need for society and it shouldn’t be mixed in with running a milk bar (or any random business). There’s a good book (and movie) called The Lorax that illustrates the point well.
What if I ran a supermarket or a medical practice? Defining essential or critical is very tricky.
If it was essential we'd nationalise shelter. But in reality we dgaf if people live in tents were here to make fat stacks lol if the dregs gotta live in tents fck em.
You're probably right. A lot of people think it should be dropped, or dropped for property investment anyway. With negative gearing people are hoping to make money from capital growth in whatever investment they've negatively geared. They're prepared to take a loss on income with the associated tax benefit (assuming they have enough income from other sources). It doesn't always work out that it's a net gain. You can make a loss on income, the value of the investment may fall, leaving only the reduction in income tax for the period. Could be a net loss even then.
Another way of saying 'prepared to take a loss on income' is that they are prepared to offer lower rents than they would otherwise. A blindingly obvious point that is completely obscured in rage against high house prices.
The government can’t afford to house people and maintain the properties (think housing commission on a huge scale) They incentivised the public to buy houses as an investment to make rentals more readily available through tax law. Not as many people as you think can save sufficient money as a deposit for a home regardless of the market. Most can barely put a bond together. If everyone sold their rentals (which a lot of people have been doing due to the government tinkering with NG rules) it would have an enormous negative impact on available rental housing (like we’ve been seeing only it would be 10fold at least) that’s why. Where do you propose to house all the people who need to rent?
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A lot of renters are not in a position to buy the place they rent, even at a reduction in price. So there would still be demand for rentals but lower rental supply = more expensive rent.
"Where do you propose to house all the people who need to rent?" Tents probably lol. Renters are losers hahahahaha
Negative gearing on property is truly awful and should be removed if we want to have any hope of avoid feudalism in the next 20 years. The first defense people put up for it is "But it's the same as every other investment" and while that's true, every other investment is more productive that investing in bricks. Buying shares or starting a business can create jobs and growth. Bricks can't. It would be better if buying pre-built properties was less attractive than other investments to make some of our capital actually work for the economy. The only thing worse that speculating on house in vulture capitalism. Secondly, negative gearing allows owners to decouple their property costs from their income. You can buy a property and not be that concerned that the rent isn't covering the majority of the mortgage. You'll get a good portion of it back at tax time and then make 10% capital gain on the property per year due to the extra demand created by the negative gearing arrangements. Oh, did we mention that you get an exemption on that capital gain? Bazinga!! If you removed negative gearing, investors would have to weight the value of the asset against the income it generates. If it doesn't cover most of the spread then you will be less inclined to outbid others on the property. This will reduce the amount that housing appreciates as there will be less demand.
Negative gearing was out of fashion (less people doing it) due to low interest rates in last few year but will now make a come back. There are some who want it scrapped but there are fears that in doing so will crash the property market when everyone offloads their IPs. This will also reduce the number of rental properties causing rental prices to go bonkers. Pretty much what we're seeing now with interest rates rising sharply.
negative gearing is only worthwhile when you are expecting a capital gain significant enough to offset your losses. I don't think anyone is expecting significant capital gains at the moment.
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Given that investors cannot offset their losses on IPs if they scrap negative gearing then they will raise their rental prices to recover the difference. Clearly you know nothing about investing.
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You want to keep it on tangent? Ok then, what makes you think if someone sell their IP it'll go to another investor? Most likely it'll be sold to a owner occupier than an investor as they will abandon property investment without negative gearing.
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>From your comments, I don't see how rents are going to go up? Doesn't surprise me at all that you can't see it. Good chat mate and good luck LOL
The dude is right. The new owner occupier was previously a renter. That means for every investment property that leaves the market, there is one fewer renter also. Supply goes down by one, demand goes down by one. How is that obviously 'price (rent) goes up'?
number of new build will go down due to price fall, so years later the problem will be worse
>I can see that it may of begun as a stimulus to get more housing created and people investing into the market space. >However, it also seems like that period is long gone Wow, I didn't know we no longer have a housing shortage. Why the hell are their people droning on and on about it everyday?!?
The fact the rich love it so much should tell you a fair bit about it.
Its a tool set up by the rich, for the rich to reduce their taxable income. Who pays for it ? the poor of course.
My (uneducated and possibly ignorant) opinion is that you probably shouldn't be able to deduct a loss from an investment in a non productive asset.
Negative gearing is consistent with other business and taxation principles - the cost to make a profit is deducted from your profits that are taxed. Makes sense and is fair. What isn't fair is not paying tax on the capital gains of your house, just because you lived it it. Make $100K capital gains on shares? Taxed. Do it on your house? No tax... WTF?
Another whinge post. NG means the investor is cashflow NEGATIVE. It’s not sone magic free money. Please educate yourself. Like any other business, because property investing is a business, only profit is taxed. Now, if there is a loss, which is incredibly common, there is a tax offset. The main thing here is that the investor is losing money for the period. It’s not free money from the government. Pack of peanuts here.
How does negative gearing reduce the quality of new IPs?
If you get rid of negative gearing, less supply of housing for renters , so overall the gap widens with wealth, and the not so wealthy get even more poor. Which you don’t want of course.
Tried before. Caused massive increase in rents.
Will be coming in handy this year. Interest rates up = costs up = more to deduct
there aren’t many countries in the world that do it…. I wonder why
The ALP tried explaining this same sentiment to the electorate a few years ago, and lost. Whatever you think of it, negative gearing is here to stay.
There's been articles on negative gearing, *clearly highlighting* that over 80 or 90% of investor loans, go to *existing dwellings*. They do not create stock, they do not create a place to live, they steal a home, that a home owner may like to purchase. This wouldn't be so bad, if investors, weren't subsidised by the tax payer, in that the gearers are claiming this against their tax and therefore, paying less tax. Based on the rental crises and excessive house prices, it's quite clear, it doesn't work, period, it does drive housing prices up. You're absoloutely, not wrong to think it's bullshit, it very much is. Though you're asking the wrong sub, this place is about 50% /r/australia folk and young angry people now (I don't blame them) - the few investors remaining here don't bring emotion to the table, they follow the legal rules to make a profit and this shitty policy, if they admit it or not, has worked.
It’s just a way for rich people to dodge taxes
So you benefit from something (inheritance, likely involving property) which is ridiculously tax-advantaged - no estate tax, gift tax, or capital gains tax on PPOR sale) - and then bitch about negative gearing? Negative gearing only works because those people in the 47% tax bracket pay so much tax to begin with. If we lowered the top marginal rate there'd be less incentive to negative gear. Owner-occupiers entering the market get a lot more incentives than investors. I'd be happy to scrap negative gearing if we also scrapped all the owner-occupier incentives. Deal?
Thanks for your perspective.
Negative gearing is fine, it would likely make sense to adjust the laws so that only brand new properties would be allowed to deduct losses against other income as this would incentivise more properties to be built and is in line with most other investments, but this would likely need to be done if/when the government decides to overhaul the entire tax system. Basically the amount of work required plus the likely political blowback from any changes regarding tax mean that this is going to stay in the too hard basket for a long time.
Nah. I’m totally disgusted with the way we tax property in this country, but negative gearing is a bit of a red herring. Negative gearing relates to income tax, and it is an important principle of the way we do income tax that the tax is on net profit after expenses. This is why we have all kinds of other deductions for investment in your personal income earning capacity. It’s important because the rate of income tax is relatively high compared to say, business growth rates or typical margins, so we only apply it to the profitable surplus, not gross revenues. It is also progressive (different rates for different amounts of profit), so the amount of profit matters and needs to be counted correctly. The only alternative to this way of doing things would be to have every property investor run a company or business, which is seen as impractical. The real problems with property taxation are cap gains treatment and a general lack of property holding taxes.
I’ve got a 5.6% gross yield on a property I bought in Perth in 2021. 5.2% on one in Brisbane in 2020 and 7.15% on another with a granny flat bought in 2018. If you’re negative gearing as an investor in a rental market like this you’re doing it wrong.
The logical problem with Australia's negative gearing is being able to pretend your entire life is a business with a total profit loss, combining your personal wage from employment plus your actual business, an investment property. The practical problem is Costello's stupid capital gains discount, which makes NG viable because your 'business' gets full fat tax discounts, but only half taxed capital gains tax when selling. Why should investment gains be taxed less than actual productive wages? The answer they give is 'inflation' but I didn't get a 7% tax break this year on my wages to counter inflation. And the core underlying problem is that banks will lend you far more money for property than they will for any other business. Shares make more money, but try going to a bank to borrow 2m to invest in shares vs 2m to invest in three properties.
\>Am I looking at this too simplistically? Yes, you are
Cool. Break it down a little for me pls?
1. average joe is ignorant of how the real world works, stick head in sand 2. NG is there to allow landlord to rent the property out BELOW COST 3. Tenants are paying BELOW COST 4. Tenants are still whinging it expensive 5. IF there is no NG, then tenant will have to pay above cost (landlord are not charities) 6. If rent is expensive now, imagine rent twice as much
Thanks for your perspective.
> NG is there to allow landlord to rent the property out BELOW COST No it's not. Negative gearing doesn't just apply to property.
> IF there is no NG, then tenant will have to pay above cost (landlord are not charities) > If rent is expensive now, imagine rent twice as much That’s being simplistic too. If negative gearing was removed and property became a less attractive investment, what would that do to property prices?
Some people have very short memories because we know exactly what it would do to prices. Just the threat of a change to negative gearing had property prices dropping. You are exactly right.
>what would that do to property prices? if rent is high enough, it keeps going up, see US
So private persons, paying more money for private rentals, to private owners, instead of taxpayers subsidising private businesses? CRAZY! I KNOW! /s
>CRAZY! I KNOW! even more crazy, we have a population with first world education cannot understand basic maths
Yeah subsidizing private transactions is the best way to use taxes, duh /s
There is no economic rationale for allowing NG tax deductions for an investment in a financial asset purchased on a secondary market. It's a tax rort.
You're basically right. NG should only apply for new builds and with a sunset period. There's no national interest in having NG on established housing
But we already have that in depreciation. I’d say there is no need to keep it even for new builds.
Reasonable
Business have negative gearing...why shouldn't a person's investment business? I made 100k and lost 10k this year.I made 90k total this year so I pay tax on 90k only....how doesn't this make sense?
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Spoiler alert: everything benefits people who already have money. You really think that if they get rid of negative gearing that people without money will somehow be advantages? Either prices stay the same and it's just as hard to get into the market, or they drop and the people who have money no longer need negative gearing and it's still hard to get in the market.
I agree and have owned resi IP in the past... I think there should negative gearing for people who meet certain criteria; NO AIRBNB, cheaper rent, tenant assist etc (just a thought)
Seems to be the most rational vibe going atm. Not inherently bad/wrong, just a tool to be implemented effectively or not.
Yep exactly should be there for those who actually help provide affordable housing not exclusively profit both ways via rent and tax returns (deductions)
Australians love net loss investing every other country doesn’t work like this and gamble in “shelter”
I think it's fine in principle - property investment isn't a perpetually loss-making exercise in the same way that, say, [horse racing](https://www.ato.gov.au/law/view/document?locid=%27FOI/1013879P%27&PiT=19960207000001) may be, so the losses are incurred in attempting to make a profit and that's the principle on which deductions work. That said, I also think a capital gains tax should apply to unrealised gains on land holdings (i.e. before property sale/crystallisation of gains) due to the infrequency with which some properties are sold (50 year + owner occupiers are among the most egregious examples). Australia [already has a framework for this](https://www.businessthink.unsw.edu.au/articles/tax-unrealised-capital-gains-land) in relation to unrealised international share investments and I think there's a compelling case for it to apply to property as well. It will bring forward costs for property owners but should also depress prices given banks will need to factor in these future costs when awarding mortgages. The article I linked in this paragraph talks about such a potential property CGT change in more detail.
I don’t see way people complain about the tax laws. Are they shit yes but it it what it is it’s just most people a too dumb to take advantage of them.
Thanks for your perspective.
Haha yup. It's going to leave a crater in the governments budget this financial year. RBA cornered itself with stupid low cash rates and these rate rises are basically going to jam a decades worth of inflated housing debt right up the ATOd back door. Basically the wealthy will pay even less tax while the poor eat 20c noodles in a tent to clean up this mess.
First of all it is a Ponzi scheme. Basically it is great whilst more people do it. If system EVER changes, ppl in it will be bankrupt. That is the shortest explanation I can give. If gov takes longer view of system for the prosperity of the country into account, it will be watered down or abolished. If they want to be voted back in they leave it. So, rise up or be a part of the problem.
Negative gearing allows cheaper rentals for those who can't afford market rates. Negative gearing has taken a good idea and created a monster. I have no idea how this will be resolved
Negative gearing is fine - it’s the CGT discount that is the real rort (combo’d with NG to convert PAYG income into CG)
It's a legal scam and drain on our economy
So hilarious all the people on finance reddit who are anti markets and anti finance.
It’s long since been invaded by r/australia
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That is bullshit - the law says you cannot leave a property deliberately vacant and claim deductions. It must be [genuinely available for rent](https://www.ato.gov.au/Individuals/Investments-and-assets/Residential-rental-properties/Rental-property-genuinely-available-for-rent/).
https://www.youtube.com/watch?v=gqFPhsO-2W0
Lol. Sigh. Yeah..
There is a whole industry of advisors built to hype and make money out of it. So yeah, you're probably correct.
Yes you are completely wrong, negative gearing is not some awesome free money. You don't get a dollor back at tax time for every dollar you lose on your IP. With housing It's just to encourage people to invest in housing and supply rentals so we don't have issues. The truth is housing as an investment is not good returns and thats why super and big investment firms don't touch it. If you want to end the rental crises we going to need to offer more. But people are uneducated. So get educated and learn about it. Don't just hate and be jelly. Edit: I just want to add that the tiny shit box places you talk about are what IP investors try and avoid as IPs are 20-30year investments so the value is purely in the land.
Thanks for your perspective.
No. It's a complete rort and needs to die if we're to achieve any long term alleviation in house affordability
And tell us, is the negative gearing of equities still ok with you, oh wise one?
Yes - I don't see equities = housing although I understand both are potential investment vehicles. Despite that, I broadly disagree with the concept of housing as an investment (in extremes) and think CGT discounts and negative gearing give an unfair advantage to developers. Having a cap on amount of properties that you can negatively gear would be fine. But it's generally the greed and the tax systems that support it that mean inequality thrives. Edit: also - there's no need to get like that either. I can express an opinion (albeit a strong one) and you're allowed to disagree - but I'd hope we can do that with some sort of respect
Agree with your last sentences, sorry for being snarky.. Also agree with the need to limit investing in property. Some sort of caps on negative gearing (1 property max) sounds reasonable. I think stamp duty should be abolished too, to encourage property turnover and remove penalty for downsizing etc.
Thanks! And totally agree. Stamp duty reform is probably overdue. Anything that supports the idea that anyone can own a property I think I'd a good idea (although it might be a pipedream at this point) - because let's face it - everyone needs a place to live.
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Why would cutting NG result in less rentals?
Total Rubbish, housing would become affordable
negative gearing is fine, the capital gains discount is not
Property investor here who has benefitted from Negative Gearing in the past (now property is positively geared). When you see a tax provision you don’t like it is useful to ask yourself the question “What will happen if we take it away?” There will be fewer rental properties and rents will rise. Property investors will suffer, but so will renters. That will be the price of greater justice.
Its not a big deal at all. Without it though you wouldnt have as many rental options in better suburbs. As a property investor its really not very good as it stops you acquiring more properties. I dont think I have ever met a pi who did it on purpose for tax reasons. Its usually like me who bought one cause it was a good deal and would go positive in a few years. Most investments unless youre buying in like 7% yield will be negative in the first 2-5 years. When they got rid of it before it just caused a bigger rental crisis. Im a developer and was a property manager and Ive spoken to probably 1000s of investors dont know any who did it for the tax breaks they were keen to get it positive nobody wants an investment losing money.