Negative Gearing under spotlight AGAIN

[Paul@PFI]

http://www.smh.com.au/business/the-...ains-and-negative-gearing-20140715-ztasc.html

David Murray has re-enlivened the debate about scaling back some of the tax benefits driving property
- SMSF loans
- Negative gearing
- CGT concessions

 

[Redom]

Yep, it'll come under the spotlight time and time again particularly while we're in a budget consolidation phase.

Doesn't mean much in terms of policy outcome, apart from continuing (enriching?) the policy debate about it.

It should be considered as part of any tax review, its a big tax concession/expenditure and it does distort incentives in the debt/equity portfolio mix. So his points are valid.

Treasury do some background analysis on this almost every year (whether it hits the public spotlight or not). A review will just hash out what has already been said/what is known.

Doesn't mean any government will change it though. At least not anytime soon.

 

[Peter_Tersteeg]

On another note, I've noticed that costs of ownership (council rates, property management, etc) seem to be higher than many other parts of the country. I've also noticed that renal yields are higher. Seems to me that if costs increase for the investors, sooner or later the market passes this onto the tenant.

As for negative gearing, who really cares? It's always popular to 'review' NG but nothing ever seems to happen. If it does, no doubt the market will go into turmoil, then adjust and stabilize. There will be winners and losers but ultimately no big deal. The period of turmoil will likely create some opportunities for investors as well.

The most likely scenario however, is the papers will run a few articles, then forget about it until the next report comes out.

 

[Redom]

Haha this is a pretty accurate summary of how the process works...

The most likely scenario however, is the papers will run a few articles, then forget about it until the next report comes out.

 

[Paul@PFI]

Or its the Hockey softening process for next years budget......What a tax windfall if they changed either CGT or limit neg gearing. That could also be a boom for the SMSF industry...The SMSF would truly become a tax scheme. The effects could be inflationary on rents if tax costs hit owners - there are enough pressures on rents at present...

I notice they never seem to argue that they could remove land tax or stamp duty.

 

[Redom]

Hockeys people probably dont mind land tax...its relatively efficient at the end of the day, easy to impose, implement, etc.

Some people at Treasury believe its a great way to generate revenue. From memory Andrew Leigh (ex Treasury, Labor rep) wrote a paper on its efficiency...

Stamp duty on the other hand...

 

[Redom]

I'd think they'd go for super before negative gearing/CGT changes.

the obvious low hanging fruit and the big ? of this years budget.

Negative gearing is a form of 'middle income' redistribution...your hitting way to many voters to go near it (and thats why they dont).

Or its the Hockey softening process for next years budget......What a tax windfall if they changed either CGT or limit neg gearing. That could also be a boom for the SMSF industry...The SMSF would truly become a tax scheme. The effects could be inflationary on rents if tax costs hit owners - there are enough pressures on rents at present...

I notice they never seem to argue that they could remove land tax or stamp duty.

 

[THEGREAT888]

Negative Geared

How does it work when NG was abolished.

If an individual have 2 properties
one positive geared and another were negative geared.

Will the positive geared income be offsetting the negative geared and the TAXABLE income from wages does not reduced eventhough the offset does bring down the negative geared amount to zero dollars.

Example
INCOME ON POSITIVE GEARED PROPERTY $10000
INCOME ON NEGATIVE GEARED PROP -$15000
WAGES $30000
TAXABLE INCOME IS EQUAL to ($10000-$5000)=0+$30000=$ 30OOO.
Negative geared amount (-$5000)was disregarded.


or

The positive geared added onto wages to get the result of the taxable income, with the negative geared is considered zero income ?

EXAMPLE
INCOME ON POSITIVE GEARED PROPERTY $10000
INCOME ON NEGATIVE GEARED PROPERTY - $5000
WAGES $30000
TAXABLE INCOME IS $10000-$5000+$30000=$35000
Positive geared income added to the wages as taxable income.

WOULD YOU THINK THE SCENARIOS ABOVE are POSSIBLE

PLEASE SHARE

 

[pinkboy]

renal yields are higher

Now you're taking the p!$$..........




pinkboy

 

[BLTN]

Hockeys people probably dont mind land tax...its relatively efficient at the end of the day, easy to impose, implement, etc.

Some people at Treasury believe its a great way to generate revenue. From memory Andrew Leigh (ex Treasury, Labor rep) wrote a paper on its efficiency...

Stamp duty on the other hand...

This is exactly correct. People hate land tax because it is so transparent (and it's just a 'bill' each year). But tax is a necessary evil, and if inefficient taxes such as stamp duty are removed, with efficient taxes like land tax increased, the overall impact is that you will pay less overall tax for the same outcome. Obviously there will be winners and losers, but the taxpayer on the whole would pay less tax due to increased efficiency of the tax dollars they are paying.

 

[BLTN]

The biggest implication I can think of for the removal of NG is that it would make depreciation almost worthless.

I would think that a large majority of properties are only slightly negatively geared, until you apply depreciation.

This could have big consequences for developing, and the purchasing of new builds in general.

 

[coastymike]

I remember hearing the same thing back in 2002 when I started working for a public tax practitioner. 14 years later and still hearing the same thing. Chicken little the sky is falling.

Keating tried it and it was removed. Any government who trys it will be voted out at the next election.

Tax review. We already had the henry tax review and most of that wasnt even implemented. Australian politics is a bit like an episode of Yes Minister.

http://youtu.be/on2I1U-F3BY

 

[Corey Batt]

The biggest implication I can think of for the removal of NG is that it would make depreciation almost worthless.

I would think that a large majority of properties are only slightly negatively geared, until you apply depreciation.

This could have big consequences for developing, and the purchasing of new builds in general.

It would certainly make it harder for spruikers to sell their OTP apartments/units etc.

 

[Peter_Tersteeg]

Now you're taking the p!$$..........




pinkboy

It's a very general observation, but it seems to hold reasonable true for median value properties when comparing the major East coast capital cities. Certainly when I compare Melbourne where you're doing well to get a 4% yield on purchase to Brisbane where a 5% rental yield is a little above average.

The ongoing holding costs in Bris are definitely higher though. Rates. Water. Management fees.

 

[Redom]

The efficiency argument for taxation isn't generally about $$$ collected, but more about the incentive impact it has on the economy, output, growth, etc.

All taxes are disincentives and distort behaviour (Ha @ UK's window tax back in the day!). However, the more efficient ones are those that don't actually change behaviour, unless of course their excises/specifically designed to change behaviour.

Its why the 'rents' tax is a pretty nifty one in design - it takes a portion of 'excess rents' beyond normal returns away. Capital will still be allocated to those sectors because they generate above normal returns!

But this is all playing in theory...in reality, politics makes it very difficult to actually improve the efficiency of the tax system.

This is exactly correct. People hate land tax because it is so transparent (and it's just a 'bill' each year). But tax is a necessary evil, and if inefficient taxes such as stamp duty are removed, with efficient taxes like land tax increased, the overall impact is that you will pay less overall tax for the same outcome. Obviously there will be winners and losers, but the taxpayer on the whole would pay less tax due to increased efficiency of the tax dollars they are paying.

 

[Ausprop]

just do it already, then we can see what happens and end this stupid debate

 

[neK]

It would certainly make it harder for spruikers to sell their OTP apartments/units etc.

I cannot believe how little some people understand the concept of negative gearing....

Was having lunch the other day with a friend. Their parents had just sold an investment property and wanted to give them a lump sum of cash - advancement of inheritance if you want to look at it in that way.

Now my friend isn't stupid by any means, they work in the private sector and earn over $180k.

They have an IP and said they didn't know where to park the funds because it affect their negative gearing. I tried explaining to them that they would pay less in interest payments to the bank as a result and all it kept coming back to was they would pay tax.

They also some how had the notion that once a property became positively geared you couldn't make it negatively geared and positively geared is a bad thing.

I tried to explain to them in simple terms - you give me $1, i give you back 30c. How does that sound to you? Obvious response was "that's a bad deal" - That's what negative gearing is. Oh but I still don't want to pay more tax... so i don't know where to park the money.

No wonder spruikers are able to make so much money.

 

[BLTN]

The efficiency argument for taxation isn't generally about $$$ collected, but more about the incentive impact it has on the economy, output, growth, etc.

All taxes are disincentives and distort behaviour (Ha @ UK's window tax back in the day!). However, the more efficient ones are those that don't actually change behaviour, unless of course their excises/specifically designed to change behaviour.

Its why the 'rents' tax is a pretty nifty one in design - it takes a portion of 'excess rents' beyond normal returns away. Capital will still be allocated to those sectors because they generate above normal returns!

But this is all playing in theory...in reality, politics makes it very difficult to actually improve the efficiency of the tax system.

Ah yes, but wouldn't the deadweight loss be lower as well? It doesn't technically refer to efficiency in that respect, but more 'efficient' behaviour should result in a lower deadweight loss.

But yes, you are 100% correct in regards to theory vs reality. Trust me, I work in an area where politics trumps logic and efficiency on a daily basis!!!!

 

[HotRod]

I cannot believe how little some people understand the concept of negative gearing....

Was having lunch the other day with a friend. Their parents had just sold an investment property and wanted to give them a lump sum of cash - advancement of inheritance if you want to look at it in that way.

Now my friend isn't stupid by any means, they work in the private sector and earn over $180k.

They have an IP and said they didn't know where to park the funds because it affect their negative gearing. I tried explaining to them that they would pay less in interest payments to the bank as a result and all it kept coming back to was they would pay tax.

They also some how had the notion that once a property became positively geared you couldn't make it negatively geared and positively geared is a bad thing.

I tried to explain to them in simple terms - you give me $1, i give you back 30c. How does that sound to you? Obvious response was "that's a bad deal" - That's what negative gearing is. Oh but I still don't want to pay more tax... so i don't know where to park the money.

No wonder spruikers are able to make so much money.

Heard that one before with similar friends.

To high tax payers the object of the game is to pay less tax.

Doesn't matter they have less disposable income as well.

Anyhoo, as I have said before, I think the best way to get rid of NGing is to either grandfather current ones and not allow any more OR to allow to carry forward losses much like CG losses. Only when the property starts to go PGing that the losses can offset the gains and thus no extra tax is paid until all the losses are used up.

 

[Redom]

Haha yep, the deadweight loss would be smaller.

From my experience in government policy, i completely get your politics trumping logic and efficiency quote!

Ah yes, but wouldn't the deadweight loss be lower as well? It doesn't technically refer to efficiency in that respect, but more 'efficient' behaviour should result in a lower deadweight loss.

But yes, you are 100% correct in regards to theory vs reality. Trust me, I work in an area where politics trumps logic and efficiency on a daily basis!!!!