Negative gearing on the way out

[pi2012]

Source: The Age

NEGATIVE gearing is disappearing as a tax strategy for landlords, and it seems it won't be missed.

Falling interest rates and rising rents over the course of the financial crisis have made it increasingly hard for landlords to make deliberate losses to offset their other income for tax purposes, and the Government's Henry Review has the practice under the microscope.

But if we are to believe what landlords themselves have told a research project conducted for the Australian Housing and Urban Research Institute, they won't much mind.

...

 

[jingo]

NEGATIVE gearing is disappearing as a tax strategy for landlords, and it seems it won't be missed.

He seems rather definite about this - but my understanding is that this is just a preliminary review and the recommendations will be debated in parliament?

Does anyone know for sure?

Regards Jason.

 

[willfong]

I think he means disappearing as in properties are becoming positively geared, not the legislative aspect of it.

 

[Pushka]

Yes, just through natural reduction in things like Interest rates. We wont be positively geared for a while though - a new apartment has so many $$$ of depreciation.

 

[Propertunity]

NEGATIVE gearing is disappearing as a tax strategy for landlords

No, it is not. Who wrote this rubbish? ...Peter Martin, and his qualifications in tax matters as they relate to PI are.......?

It may well be disappearing because of many IPs being CF+ from day 1 of purchase but it will not, IMO, be disappearing as a tax strategy.

This argument has been had before - many threads & posts for / against. I won't reiterate it all again. But this is just 'shock-jock' journalism and not worth the paper it is written on.

 

[HiEquity]

Well the reductions in top marginal tax rates (thanks Howard and Costello!) in recent years have certainly made it less attractive than it was for many - that would be behind the majority of any reduction methinks.

No doubt Mr Rudd would want to redress that situation with a return to 60% marginal taxes so those high income earners can pay for his stimulation! Then negative gearing would be back in fashion!

 

[Player]

Increased interest rates (to circa 20% as in the banana years) would also ensure gearing becomes negative by default.

 

[The Fence]

Get rid of NG & or CGT ...then tenants will pay more cause the Gov. can't cope with housing the people...simple.

 

[natedog]

"""Get rid of NG & or CGT ...then tenants will pay more cause the Gov. can't cope with housing the people...simple."""

Spot on Thorpey!

 

[Peter Parker]

And if you want to comment direct to the author, the article's also on his blog:

http://petermartin.blogspot.com/2009/04/your-landlords-not-that-mean.html

 

[troyhunt]

Falling interest rates and rising rents over the course of the financial crisis have made it increasingly hard for landlords to make deliberate losses to offset their other income for tax purposes

Deliberate losses? If I wanted deliberate losses I'd up the rent by 50% on every property and let them sit vacant. I couldn't be happier no longer having any losses! Very loose journalism.

 

[jingo]

I think he means disappearing as in properties are becoming positively geared, not the legislative aspect of it.

Hi willfong,

Thanks for clarifying this. After re-reading the article I think I misunderstood the angle he was coming from.

I think the government would be very brave to fiddle with -ve gearing again! Especially in this uncertain economic climate.

Regards Jason.

 

[jingo]

This argument has been had before - many threads & posts for / against. I won't reiterate it all again. But this is just 'shock-jock' journalism and not worth the paper it is written on.

I guess journalists know that -ve gearing is such a hot topic and that it will draw a reaction from both investors and non investors alike! I agree though, the article was rather sensationalistic!

Regards Jason.

 

[AUSPROP...]

don't rule out its abolishment tho, along with div imputation. This govt has not been afraid to unleash unproductive yet populist policies to the detriment of the greater good. the 50% discount on CGT is very much at risk... assets that you currenlty hold may become more valuable.

I would welcome its demise (neg gearing) - bring back decent yields.

 

[TheBacon]

I wonder if owning a rental property means I must support the Libs and talk down Labour?

Ah yes, since Rudd beat Howard we have the GFC, increased refugees, etc. Couldnt possibly be that the boom we had had nothing to do with the Libs and the bust has nothing to do with the ALP?

I agree that the ALP can be populist, but no more so than the Libs/Nats.

Note - this is not a direct response to any particular post above - but most of the posters on this board in general.

 

[BayView]

Falling interest rates and rising rents over the course of the financial crisis have made it increasingly hard for landlords to make deliberate losses to offset their other income for tax purposes, and the Government's Henry Review has the practice under the microscope.

...

Why on earth would anyone want to make a "deliberate loss"?

 

[HandyAndy888]

I read somewhere that back in the early 90s they tried to get rid of this and it went catastrophic. Rents shot up, landlords got out, which made the government look really bad. They rectified this and "apparently" will never happen again.

 

[Propertunity]

Couldnt possibly be that the boom we had had nothing to do with the Libs and the bust has nothing to do with the ALP?

I agree that governments of all persuasions are largely irrelevant with regards RE booms and busts, or more widely the whole economic cycle. Sure they do tinker around the edges but really have no control over the bigger picture.

 

[Propertunity]

Why on earth would anyone want to make a "deliberate loss"?

Quite right. Who in their right mind would deliberately lose $3 so that coould get $1 back in tax?

 

[Propertunity]

I read somewhere that back in the early 90s they tried to get rid of this and it went catastrophic. Rents shot up, landlords got out, which made the government look really bad. They rectified this and "apparently" will never happen again.

The REI Aust has a policy document:
http://www.reiaustralia.com.au/documents/REIAPolicy_on_Negative_Gearing-5Apr06.pdf

18. The concept of negative gearing has been the subject of much debate in
Australia for many years, mostly in relation to property. The significance of the issue can be judged by the frequent references to it in the Federal Parliament as well as in the media, and the actions taken by governments in the past, particularly in 1985. In July 1985, the Treasurer announced quarantining of the tax benefits of negative gearing. This meant that incurred losses from mortgage repayments exceeding net rental income could only be carried forward to reduce future tax liabilities from capital gains tax. Over the next two years, house prices and rents spiralled upwards and as an indication of the sensitivity of this issue, the negative gearing tax laws were reinstated in 1987 to allow negative gearing in its original form. Only six months later, there was clear evidence from ABS data (Catalogue No. 8731), that the reintroduction of negative gearing had encouraged significant numbers of investors back into the residential property markets. Between July 1985 and September 1987,the changes to the laws on negative gearing were thought to have been mainly responsible for the downturn in building activity. Likewise, the subsequent reinstatement of the laws on negative gearing was thought to be the primary reason for encouraging significant numbers of investors back into the residential property markets.

Of course there are opposing POV (as you'd expect).