Negative Gearing abolishment side effects ?

[msk14]

disastrous to who?

Always a good question to ask. Brings to mind the Oscar Wilde quote, 'the bureaucracy is expanding to meet the needs of the expanding bureaucracy'.

Abolishing negative gearing ... would not affect rents.

Abolishing negative gearing would destory a portion of yeild. All other things being equal, the only way your statement could be true is if rental yeild was maintained at the expense of capital value.

 

[wategos]

Abolishing negative gearing would destory a portion of yeild. All other things being equal, the only way your statement could be true is if rental yeild was maintained at the expense of capital value.

That's right capital values would drop (a lot of negatively geared speculators would exit the market creating selling pressure) but with rents unaffected (same number of properties, same number of people, more renters would become homeowners) the yield rises.

So removing negative gearing would actually make property investing more attractive.

There is a case however for keeping negative gearing on new developments for a period, but not on existing housing.

 

[lyndon01]

A question for those who have thought about the quarantining idea more than me...

If the asset class (or even just "investments" in general) were quarantined from your "non-investment" personal income, so that losses cannot be applied against your personal income, what happens to any positive income from the investments?

Assuming the investment was negatively geared to start with, once it turns positive you would be soaking up the accumulated losses for a while, but once that's done, is the income still quarantined to the investment? Eg. that income doesn't get attributed to my personal income unless I distribute it to myself or something?

This sounds like not a bad idea to me, almost like having your investments inside a company with less hassle. Perhaps the income in the investment would be taxed at 30% and generate franking credits to distribute (like a company) as well.

The money I initially need to pump into the investment to soak up the losses can also be a loan on commercial terms, so when the principal of that loan is paid back I pay no tax on it.

I wonder if the current arrangements are cheaper to implement/administer and provide roughly the same tax breaks...