Negative gearing to go?

[hobo-jo]

Talks test the water on negative gearing change

THE Gillard government has sounded out unions over steps to cool Australia's housing market, with measures that range from a new sales tax for investors sitting on large property portfolios, to curbing the popular strategy of using negative gearing for multiple properties.

Senior federal Labor figures and key union backers are believed to have discussed the plan as a way to tackle housing affordability. Details of the proposals, which would apply to home owners with two or more investment properties, have not yet been developed. The talks come before a tax summit planned for later this year.

Read more: http://www.smh.com.au/national/talk...ring-change-20110420-1doxq.html#ixzz1K6OPzkRX

If a tax was bought in to charge those with large property portfolios it has the potential to do some serious damage.

For example if I recall Nathan's numbers he has $6m worth of property; a 1% land tax on the lot (due to the excessive number he holds) could wipe out their positive cash flow which he estimated at $60k pa.*

*If you're reading this Nathan, I was just using your particular situation as an example. No offense intended

 

[BuildingBlocks]

The tax, if it ever came in, would probably just be on new purchases.

Can't see any of the big wigs voting these ideas in any time soon, they will all be affected.

 

[bluestorm]

I expect it eventually from Labor. They have created a massive debt that needs to be paid off, and with falling tax revenue, an eventual removal of negative gearing would be a vote winner for the Labor type voters (ie, dole bludgers, westies). I don't expect it in this May budget. This budget will already be tougher on the "rich" $150K+ family incomes.

I would say Swan will introduce something for the "greedy" property investors in the May 2012 budget, ahead of the next Federal election. Negative gearing is a vote winning target for them.

I'm waiting for this change. it will cool the market even further in 2012. Excellent buying opportunities in 2013.

 

[evand]

You should look at which seats belong to which party and you'll change your mind. Labor is very much close to the city and the outer suburbs have gone Liberal. ie: Mortgage belt, aspirational class etc

and with falling tax revenue, an eventual removal of negative gearing would be a vote winner for the Labor type voters (ie, dole bludgers, westies).

 

[coastymike]

Politically the move to scale back gearing once you have more than one investment property could be a smart move. According to the report 294,000 people hold two investment properties and 88,300 have three. This is a very tiny proportion of the voting population and spread across the various electoral zones so the impact would be minimal.

Would also have very little impact on rents as the majority of investors with one property would see no impact.

I could see this one getting through.

 

[Nathan]

Yep, I am reeading and not concerned.....

The way I see it, is they have no option, they change it and rents will rise... Then a need for more government housing... Political suicide...

 

[hobo-jo]

@Nathan, After re-reading they stated "sales" tax and not land tax, so your prepurchased portfolio may be no problem, especially given you are cashflow+ over the entire portfolio. Re rents rising... perhaps, but investors said the same thing about rising interest rates (that they would raise rents), yet over the last 2 years (on a national basis) we haven't seen much in the way of increase to rents (of course there have been specific pockets/cities which have seen larger increases than others... but on the whole...).

@coastymike, Agreed, the impact would be minimal due to the small number that hold multiple properties, but it would cool the market right down in my opinion. I suspect many who have one property have at some time aspired to hold more, but a tax on buying more than 1 (or reduction in NG benefits) would certainly turn quite a few away from Resi property as a long term strategy IMHO.

 

[oracle]

Politically the move to scale back gearing once you have more than one investment property could be a smart move. According to the report 294,000 people hold two investment properties and 88,300 have three. This is a very tiny proportion of the voting population and spread across the various electoral zones so the impact would be minimal.

Would also have very little impact on rents as the majority of investors with one property would see no impact.

I could see this one getting through.

What would be interesting to see would be if the figure of 294,000 and 88,300 has shown a steady increase in an upward trend? What was the figure of no. of investors with 2 and 3 IPs 10years ago?

Secondly, even partially removing negative gearing will definitely put increase pressure on rents. Investors who run the PI as a business will just pass on the costs. It will also deter PI with 1-2 IPs from buying more because the number might not look as good without NG. Also, there will be quite a few PIs who will decide to dump IPs as number don't add up. Yes, all this will impact on CG prospects on properties, which inturn will be bad for state government as land tax revenue takes a hit.

For me any changes in NG rules will just move PI strategy in Australia which is focused more on CG to Cashflow (like US). Ppl will just stop investing in property unless the rents cover mortgage + expenses + profit + risk premium. Rules of the game will change and Property Investors will adapt to the new rules. It's the renters who will ultimately end up paying higher.

Cheers,
Oracle.

 

[Bigtone]

proposal i have seen is not retrospective so any properties held are not effected.

works like this "moving forward'

first ip 100% NG

Second ip 75% ng

3rd ip 50% ng

4th ip 25% ng

5th ip + no NG allowed

 

[Nathan]

Politically the move to scale back gearing once you have more than one investment property could be a smart move. According to the report 294,000 people hold two investment properties and 88,300 have three. This is a very tiny proportion of the voting population and spread across the various electoral zones so the impact would be minimal.

Would also have very little impact on rents as the majority of investors with one property would see no impact.

I could see this one getting through.

Problem with this is that is what land tax is for already....

It was to punish the rich in england for coming over and buying too much.

Personally investors help the government and would be silly if they punished investrs because it may buy them a term in govt, but will burn them when the prices go up....

Investors market will absorb anything just like woolworths will absorb the prices of bannanas @ $13.99kg currently because thats the price due to the cyclones...

 

[Ausprop]

"THE Gillard government has sounded out unions over steps to cool Australia's housing market'

any colder and it would be frozen! they risk tipping the market into freefall

 

[Tillie]

They could implement this as well as introduce rent assistance for small income earners to cover the possible rent increases.

 

[coastymike]

I think the impact on rents would be minimal. You would have at least 294,000 trying to increase rents and those properties are spread all across Australia. Unless the 294,000 were concentrated in one area you will have a few investors trying to increase rents to recover their costs but if others aren't doing the same (and if they have one property they wouldn't need to) then it won't lead to an increase in rents.

 

[zed_kid]

proposal i have seen is not retrospective so any properties held are not effected.

works like this "moving forward'

first ip 100% NG

Second ip 75% ng

3rd ip 50% ng

4th ip 25% ng

5th ip + no NG allowed

I’d be ok with this.

I can see the ads already though ‘gubmit gonna take yer murney! Get in now before the tax breaks are gone!’

 

[Savanna100]

A HIA media Release just hit my inbox, I've reproduced it in full, believing this would not affect copyright and that HIA would want it distributed. It just shows how much our politicians DONT GET IT !!!!.

"Gillard Must Deny Plans to Introduce a Vendor Tax on Investment Properties, says HIA
Today’s reports in the media that the Federal Government is considering a new sales tax on investment property as well as a reduction in negative gearing benefits is disturbing and damaging to confidence in an already struggling housing market, says the HIA.
“The suggestion that the Federal Government has plans to introduce a new sales tax on investment housing has all the hallmarks of the disastrous move to introduce a similar tax in NSW in 2004. This tax led to home building in NSW grinding to a halt, a situation from which the state has struggled to recover,” said HIA Chief Executive, Mr Graham Wolfe.
“The Prime Minister or Treasurer must deny today’s media claims immediately before substantial damage is inflicted on home building in Australia,” said Mr Wolfe.
“Investment in rental property has already slowed to a trickle and the premise that Australia’s housing market needs cooling is deeply flawed.”
“The residential construction industry is in the grips of its worst downturn in decades,” said Mr Wolfe. “Residential building activity is forecast to fall to 143,000 housing starts in 2011, down by 15 per cent from 168,700 starts in 2010.”
“Suggestions that negative gearing should be removed are also ludicrous. Allowing taxpayers to claim interest expenses on borrowings is entirely appropriate – it is not a tax rort. Income from rental properties is assessable, and expenses should be deductible. This is the basic premise of Australia’s taxation system”.
“In totality, the cost to revenue of negative gearing is less than $2.5 billion per annum, which is around half the amount the Federal Government will raise through its newly introduced flood tax. Yet, despite its small quantum, negative gearing is crucial to investment in rental housing,” said Mr Wolfe.
“After the disastrous flirtation with the quarantining of negative gearing on rental investment property in 1985, and NSW Labor’s dire experience with a vendor tax, I doubt the Gillard Government is really suggesting such a strategy,” said Mr Wolfe.
“But the Federal Government does need to clarify its position on today’s reports”, said Mr Wolfe."

 

[tobe]

a) it shouldnt be on number of IPs held, that is just going to create a bias towards low yield high prices. If the first couple of properties are going to get the green light to negative gear, then your want the deduction to be the biggest you can. It should be based on the purchase value of the property.

b) there should be an exception for newly built homes, and perhaps for specific areas. for instance regional areas may barter an exception with the federal government to push develpment etc.

 

[tom32]

This seems like the most complicated tax I have ever read of.

What a Joke.

Reduce land tax to 1% but uniform across Australia for everyone including PPOR owners.

Why should a PPOR owner not pay for the upkeep of the surrounding infrastructure and an investor who owns 1million or more land pay double, 2.2% in some states?

We need a universal, fair and efficient tax system. Not yet more complications!

Henry understood this when he suggested a 1% uniform tax. Now instead they are opting for the most complicated system one could possibly think of? I guess next you will be able to get a rebate for carbon offsets depending on the species of grass you plant.

This tax is purely political. A universal land tax drives development and capitalisation of well connected land this idea will drive only gaming of the system.

 

[dan c]

This seems like the most complicated tax I have ever read of.

Agree 100%. The tax system needs to be made simpler, rather than adding on ridiculous complications like the ideas mentioned in the article.

Why should someone with 5 properties be taxed differently to someone with three or four properties? It doesn't make sense.

And why are they conversing with unions regarding negative gearing?

Bizarre.

 

[Ausprop]

And why are they conversing with unions regarding negative gearing?

Bizarre.

why wouldn't they be? - half of labour are hard core unionists. that's what we voted for.

 

[bene313]

If they want a tax grab on property why stop there? How about:

- no PPOR land tax exemption
- no PPOR CGT exemption
- no negative gearing