Discussion re Neg Gearing

Will they remove Neg Gearing

  • Yes

    Votes: 10 19.2%
  • No

    Votes: 27 51.9%
  • They will reduce neg gearing % but not remove it

    Votes: 15 28.8%

  • Total voters
    52
  • Poll closed .
As far as I know, Joe Hockey apparently wants discussion regarding reforming the tax system and part of this pertains to whether negative gearing will stay or go. Personally I think a strong force holding it back is that a lot of politicians most likely have investment properties so would be against the idea, but that's obviously not the only force at play.

So the first question is a poll - do you think it will ever be removed?

Secondly, I want to understand the net impact it would have on a property portfolio if negative gearing was removed. If NG was removed, would this mean interest, repairs, and all other expenses are no longer tax deductible?

Assume $100k salary
Assume 4 IPs in portfolio paying $300/week ea and costing say $300/week with interest, PM, water + council, repairs.
$1k depreciation per property

With Negative Gearing
Income = $162,400 pa
Expenses = $62,400 pa
Depreciation = $4k
Tax Paid on $96,000 = $23,467
Income less expenses and tax = $72,533

Without Negative Gearing
Income = $162,400 pa
Expenses = $62,400 pa
Tax Paid on $162,400 = $48,035
Income less expenses and tax = $51,965

Is the above correct?

Or would you be able to claim expenses to offset the income from the properties but not negatively gear (ie if income from properties is $100k you can claim $100k expenses against it but not $150k)?

Cheers
 
There's absolutely no way that negative gearing will be abolished as in your example. Worst (or best, depending on where you're standing) scenario is that losses from a property can not be carried over to offset other income. Meaning that at a maximum, you can say that the property made you no money.
 
There's absolutely no way that negative gearing will be abolished as in your example. Worst (or best, depending on where you're standing) scenario is that losses from a property can not be carried over to offset other income. Meaning that at a maximum, you can say that the property made you no money.

So are you thinking at worst, IP losses would be carried forward to offset future positive cashflow, similar to what happens when investing through a discretionary trust?

Ie - losses are quarantined and can only offset IP income either in the current tax year or rolled over into future years (similar to capital losses and capital gains).
 
In the example given, no mention was made of the rent that was collected.

In Canada, we don't have negative gearing.
All deductions are used to bring the income of the rental to zero.
There are certain deductions, if not used, can be carried forward.

It really is not the end of the world, if NG is abolished.
You may even find the prices of properties could be reduced.
 
It may be a way for the Government to reduce the housing boom in the eastern states without raising interest rates and hurting the rest of Australia. My bet is the RBA would do it if they could.
 
I think they will remove it for established dwellings, but leave it available for new builds (I selected option 3 which was closes choice). I think they'd grandfather existing property purchases (i.e. won't be available for established properties after the date they implement it, but existing investors won't be affected).
 
This old chessnut again... its been baked to death on Somersoft as you can see from what a simple click of the search button turns up -

https://www.google.com.au/?q=site:s...te:somersoft.com+abolishing+negative+gearing+

Enjoy.

As far as I know, Joe Hockey apparently wants discussion regarding reforming the tax system and part of this pertains to whether negative gearing will stay or go. Personally I think a strong force holding it back is that a lot of politicians most likely have investment properties so would be against the idea, but that's obviously not the only force at play.

So the first question is a poll - do you think it will ever be removed?

Secondly, I want to understand the net impact it would have on a property portfolio if negative gearing was removed. If NG was removed, would this mean interest, repairs, and all other expenses are no longer tax deductible?

Assume $100k salary
Assume 4 IPs in portfolio paying $300/week ea and costing say $300/week with interest, PM, water + council, repairs.
$1k depreciation per property

With Negative Gearing
Income = $162,400 pa
Expenses = $62,400 pa
Depreciation = $4k
Tax Paid on $96,000 = $23,467
Income less expenses and tax = $72,533

Without Negative Gearing
Income = $162,400 pa
Expenses = $62,400 pa
Tax Paid on $162,400 = $48,035
Income less expenses and tax = $51,965

Is the above correct?

Or would you be able to claim expenses to offset the income from the properties but not negatively gear (ie if income from properties is $100k you can claim $100k expenses against it but not $150k)?

Cheers
 
Hi Kathryn,

I stated there were 4 IPs bringing in $300/wk each.

The income used was $162,400 ($100k salary + $62,400 rental income).

In your example, the 1K depreciation would not be deductible (at least in Canada)
You would be paying tax on $100k salary

Your IP expenses and income cancel each other out.
 
Assume 4 IPs in portfolio paying $300/week ea and costing say $300/week with interest, PM, water + council, repairs.
$1k depreciation per property

Can't understand your example. If expense = income then you're neutral. The only item that will affect your tax is depreciation. Whether NG is allowed or not will change little in this particular situation.

With IRs as they are, most good investment properties nowadays are no longer negative.

I've voted the last option and would support putting some limits on NG that encourage people to invest in a more healthy fashion.

Heavily NG'ed properties are mainly for speculation and tax minimisation so we should cut them loose by not allowing tax deductions over a certain limit, e.g. $3000 per property or whatever. This is very simple for the gov to implement and will still leave the majority of investors unaffected while cutting out the problematic ones.

Edit: May I also add that this measure would motivate people to use less leverage so that their cashflow is less negative.
 
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Can't understand your example. If expense = income then you're neutral. The only item that will affect your tax is depreciation. Whether NG is allowed or not will change little in this particular situation.

Hi mate,

I wasn't sure whether the abolishment of NG would mean interest, maintenance, rates etc would not be able to be claimed at all which is what the example shows.
 
I wasn't sure whether the abolishment of NG would mean interest, maintenance, rates etc would not be able to be claimed at all which is what the example shows.

Abolition of NG would mean that no tax deduction is allowed for loss. However the way loss is calculated will still be the same, being the difference between total income and total expense (interest and all other holding costs).

In your example, and putting depreciation aside for the moment, there is no loss, therefore no change in your tax situation.
 
Hi mate,

I wasn't sure whether the abolishment of NG would mean interest, maintenance, rates etc would not be able to be claimed at all which is what the example shows.

When you operate a business, you claim all your expenses. It would be exactly the same if they got rid of NG. You claim the expenses against the income earnt. Any excess, I would presume, would be quarantined until a profit was made, or the asset sold.
 
Probably what they will do is only allow deduction on the property side.

So in you example, when both expenses and rental income are the same, the $1k depreciation will not be able to calculate towards the investor's personal income.

and if the investment property earn an income rather than zero, they might apply the company tax rate of 30% regardless of your personal income, and those net income will not affect your personal tax liability?
 
Yeah abolish neg gear, disallow all deductions BUT you must make rental income tax exempt :D

All this record keeping for IPs is a pain in the butt!
 
All but one of mine are neutral or positively geared but if this was introduced there would need to be reductions in stamp duty to reduce transaction costs and any losses would need to be able to be carried over against future rental income.
Land tax should also be reduced as it is excessive IMO
 
Predicting NG to go completely for future players. Timeframe guess 2020. Very quick adjustment...... lots of bridges to be built and most getting over and moving forward....minimal impact long term.
 
Of course losses would be carried forward and offset against future income. This is how the tax system works, just like running a business, which is what you should be doing rather than speculating.It's hardly the end of the world if NG is abolished.
 
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