Financial Review Article



From: Glenn M

Anybody have a read of the Financial Review today (Tuesday 26th June). On the front page one of the writers states that "Negative Gearing on Property is a rort" (have paraphrased). On Page 63, the writer goes into more detail suggesting that the Government should now turn it's attention to removing negative gearing from Investment Properties.

The Article discusses how negative gearing was re-introduced by the former Labour government as a result of Property owners persuading the Government that " was causing a shortage of rental Property and pushing rents up". The discussion then dismisses Property owners arguments by stating "It is doubtful whether that was ever true".

Scary Stuff when the media start talking this way!!!

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Reply: 1
From: Kevin Forster

I don't think the government will stop negative gearing outright - too many property developers and marketing companies would go broke.

One solution the government may look at is to deal with properties (or investments) in isolation - that if a property makes a loss then the loss is carried forward until the property makes a profit and the profit is offset against the previous years losses. Else the loss can offset income from other sources of investment like shares, other properties, etc.

This way the loss wouldn't reduce earned income and could only be used to offset passive income. The tax base would not be eroded by negatively geared properties.

They are currently doing this with some other schemes like agricultural investments, etc.

My thoughts

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Reply: 1.1
From: G V

I have been reading Negative Gearing by N.E. Renton. He has talked on most of the aspects of negative gearing(scary when you read but a good book for reading). View given by kevin is one of them. As I will be going for my first IP in the near future with negative gearing any input on how long it will be before ATO implements its any new law would be appreciated.


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Reply: 2
From: Michael Yardney

I remember the days when negative gearing was abolished well. (showing my age)
The fact is that the change in the tax law meant fewer people bought investment properties and the lack of supply of rental accommodation DID push up rents (the old supply and demand equation.)
What usually happens (as it did then) was that the change was not retrospective -only new deals were affected. Remember negative gearing only works well when there is substantial capital growth to make up for the cost of the negative gearing and if you are negatively geared it restricts the number of properties you can afford.
Michael Yardney
Metropole Properties
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Reply: 2.1
From: Robert Forward

Most people that know me here know that I am an ANTI NEG GEARER.

My thoughts are the sooner the Government get rid of neg gearing the better. I am tired of all these properties that are losing you money. Investing is supposed to make you cash. If you however wish to buy something that makes a loss then that is your choice, deal with it.

To help offset the dropping of Neg Gearing all the states should be made to radically reduce the stupid "Stamp Duty" and "Land Tax" components. This will be an advantage in helping turn neg geared properties around.

But these are my thoughts and I do hope they come true.

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Reply: 2.1.1
From: Duncan M

>If you however wish
>to buy something that makes a
>loss then that is your choice,
>deal with it.

Nothing like three-times-recycled dogma to make for a boring post..

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Reply: 3
From: Cathy Baxter


You will find that if you are still eligible for family assistance that Centrelink does not allow a deduction for negative geared property. They ask specific questions about investment property and what income you receive from that property, any taxable deductions are not allowed to reduce your income for family allowance purposes.

So in some respects the government is already onto this and could then extend it further.

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Reply: 3.1
From: Duncan M

Unless one operates as partnership with ones spouse.. Family Assistance benefits will then still apply..

But you're right, I feel it is indeed the thin end of the wedge, a sign of things to come.. It's annoying that they choose one form of negative gearing, what about those families negative gearing into shares?

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Reply: 2.1.2
From: Sim' Hampel

Some sort of capital gains tax deferal system would be nice too... where you can "roll over" the CapGains from one IP to the next when you sell to fund another acquisition.

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Reply: 3.1.1
From: Gee Cee Cee

I am only a young guy compared to some of the posters above. However I can remember when neg gearing was last abolished.

All the doomsday investors sold out. No one bought inv prop. Developers went back to mustering cattle.

Fortunately for the long term investor the supply/demand scenario turned around.

I can remember units or houses becoming vacant and virtual auctions by renters desperate to rent properties that I owned.

I am talking quality tenants that had good jobs and could not find anywhere to live.

Whatever happens it happens. Life is just full of re-assessing everything all the time.

Gee Cee

The old conservative unemployed BBQ bum.

(Or should I head for that cliff & jump now/)
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From: Scott Marshall

The Gov. has stopped buying public housing and is now providing rent assistance for low income/dole/baby factory workers.
Can't see them putting the rents up by getting rid of neg. gearing can you?
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Reply: 4
From: Terry Avery

Hi Glenn and everyone,

I haven't access to a paper copy of AFR, only the online version and this
article was not online today. From the tone of what you describe this
article may not have been written by one of their staff reporters but
perhaps by a welfare lobby group who are always trying to make the playing
field level not by improving the situation for the poor but by having those
with money join the poor. I once read a comment somewhere about capitalism
and the writer complained about this attitude and that until someone could
explain to him how making the rich poor helped the poor he would keep
building his wealth and contributing to a strong capitalist economy. Anyway
I digress.

Like Mike I was around in 1985 when the labour government abolished negative
gearing on new properties, not existing ones. What an unmitigated disaster
for them. Not because of any pressure groups but because investors voted
with their feet and stopped buying rental properties. Supply dried up,
demand went up, rents went up and who missed out? The poor sods who couldn't
afford to pay the increased rents. What a caring socialist government labour
were. Building development went down so not only did labour have the welfare
lobby crying loudly but the building industry as well. Anyone remember a
share boom leading up to 1987? Simple maths show you where investors put
their money.

So the government reversed the decision on negative gearing. Did they return
it to the status quo? NO!!! They were so frightened of the disaster they had
created they added the sweetener of allowing all the deductions during the
two years they had abolished it. Plus they brought in the capital
depreciation allowance of 2.5%.

With changes to depreciation you see them now trying to reduce their
generosity of years ago. Will they abolish negative gearing again? It is
always a possibility and others have pointed out the alternatives. The
Americans did it but stuck to their guns so IP investing is a different
ballgame over there. Over there they have rent controls to stop landlords
increasing rents but that is a whole different discussion.

In conclusion it is my opinion it would be a very brave decision to make and
any fans of "Yes, Minister" will understand the import of that statement.


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Reply: 5
From: Dale Gatherum-Goss


One of the biggest hurdles against the Government stopping negative gearing is that less "investors" will hold property. In turn, this forces the Governments to invest in property themselves to provide housing for the unfortunates who cannot afford to buy their own.

This appears to be against current policy of selling the farm, as it were.

However, it can and may happen and so the best strategy is to protect yourself as much as possible, and of course, buy positively geared properties.

Bye the way, if the Government were to scrap negative gearing, it will result in a glut of properties coming on the market and forcing prices down as "ignorant investors" bail out because they were only in for tax reasons alone.

Potential there for those of us serious about building portfolios.

Just some thoughts from an old accountant.

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From: Apprentice Millionaire

>Like Gee Cee (whom I regret not catching up with at the BBBQ) I remember that property
>prices took a big hit and yields went up dramatically. So if it happens again I for
>one will be out there buying bargains.

If history is going to repeat, where do I vote to abolish negative gearing? :)

Apprentice Millionaire
(aka Jacques)
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Reply: 5.1
From: Apprentice Millionaire

Hi Dale,

>Bye the way, if the Government were to scrap negative gearing, it will result in a
>glut of properties coming on the market and forcing prices down as "ignorant investors"
>bail out because they were only in for tax reasons alone.

Which makes me think that there would be many properties in Queensland that would be up for sale, all those properties the two-tiered operators pushed with their negative gearing spiel.

>Just some thoughts from an old accountant.

What are you talking about, Dale? You don't even have grey hair! :)

Apprentice Millionaire
(aka Jacques)
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From: Robert Forward

On 6/26/01 7:51:00 PM, Duncan M wrote:
>>If you however wish
>>to buy something that makes a
>>loss then that is your choice,
>>deal with it.
>Nothing like
>three-times-recycled dogma to
>make for a boring post..

What is your problem Duncun.... Tell me where was this posted twice before for it to become "three-times-recycled dogma" cause I don't think I've read those posts. Give me the links so I can read them too.

A boring post. Mmmm.

A boring reply from you to. Mmmm.

Are you Neg Geared to the hilt are you and don't want the government to take away the benefits?

I can admit these current laws are sweeteners for investors but mate if you want to get out of the rat race you'll need to do better then that. Think outside of the square and you'll see a whole new life.

But once again they are my thoughts, as boring as they are.

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Reply: 5.1.1
From: Rixter ®

Statistical figures provided to the Government pollies show that for every $1 the govt pays out to investors who utilise the negative gearing tax benefits, indirectly puts back an extra $4 into the the governments coffers.

The extra taxes they (the govt) are now getting, as opposed to what they would not be getting if they abolished negative gearing, are being generated from the associated taxes they is involved in the building industry to build, buy & sell IP. ie building material sales taxes, mortgage stamp duties, purchasing stamp duties, capital gains taxes, building companies income taxes, sub contractors taxes, builders employees payg income taxes....these are just a few ways the govt recoup the tax benifits they allow to investors.

So as you imagine ..pollies being pollies are all facts & figures men when it comes to making any type of decisions...if its financially in their favour to carry on something its always going to be very hard to rule against it... lets face it in anyones books, if you pay out $10,000 to make an extra $40,000 in your pocket, wouldnt you call that a very wise business decision!!!!!

Happy Investing,
Rixter :)
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Reply: 5.1.2
From: Dale Gatherum-Goss


Believe me, I feel very old and the tax year has not started yet. And, my kind friend, i do have quite enough gray hair . . .


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