tax system for IPs - good or bad

From: Ian Findlay


Hi all,

I agree with GoAnna. The tax system in Australia encourages IPs by giving tax breaks. This basically derives from the problems governments with housing poorer people.

There are two options:
1. Encourage the private sector by tax breaks (Australia)
2. Build up public rental properties e.g. council houses (UK model).

I prefer option 1 (not just because I benefit from the tax breaks) but also owners tend to take better care of their property and will turf out bad tenants. In option 2, the state is too cumbersome to look after its rental properties and many fall into severe disrepair thus lowering rental income etc. There is also the tendency for rental ghettos to be formed which over time only have troublesome tenants and ultimately no-go areas.

GoAnna is right that I have experience of overseas rental property (I have a unit in South London). The UK has no tax breaks (neg gearing etc) for IPs other than very limited CGT exemption therefore most units are owner occupied unless rents totally pay mortgage which is only beginning to happen now with lower interest rates.

From my experience it is not cost effective to have IPs as investment vehicles in the UK unless you own them outright and can charge high rents.

This leaves only shares which may be fine, but again no tax advantages. This is why most the % of people having shares (outside super) is low (<25% compared to 70% odd for Oz). The main savings vehicle in the UK is super and the vast majority of people make compulsory contributions before tax i.e. compulsory salary sacrifice.

I, with many others in this forum suspect, feel that it is better to encourage people to save for their financial future rather than spend and depend on the state particularly with the very scary projected demographics leaving almost no young people to pay for a huge aged population through their tax dollars.

What I'd do is:
1. Have a spending tax (you can call it a GST if you like Mr Howard).
2. Compulsory super for everyone.
2. Increase rate of super contributions for both employee and employer but offset by having compulsory salary sacrifice.
3. Tax free interest on savings up to a set amount say $10,000
4. Tax on credit card buying (say 0.5%), which would help fund a pension safety net for lower earners.

I've probably said enough to go off topic and get shot down in flames,

Ian
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1
From: Dave :)


Ian,

I agree with all your points except one - the last one. I would hate to be taxed on credit card purchases. I LIVE off my credit card and use it for 95% of all my purchases/bills throughout the month. I then pay off the balance before the interest free period lapses. If I was taxed on a typical month's credit card spending, at .5%, I'd be up for an extra $400 per year. True, not much, but I'd rather be paying that in land tax on a good piece of real estate somewhere.


Cheers,

Dave
 
Last edited by a moderator:
Reply: 1.1
From: Ian Findlay


David,

I also live off my card and pay it off every month. However whats best for
society may not be best for individuals. Perhaps a tax then on interest
applied to credit cards? This would allow those who pay off every month no
cost but those who don't get slugged. This might encourage people to pay
more of their credit cards off and avoid interest?

I'm sure the banks wouldn't be too happy though . .

Ian

Ian,

I agree with all your points except one - the last one. I would hate to be
taxed on credit card purchases. I LIVE off my credit card and use it for
95% of all my purchases/bills throughout the month. I then pay off the
balance before the interest free period lapses. If I was taxed on a typical
month's credit card spending, at .5%, I'd be up for an extra $400 per year.
True, not much, but I'd rather be paying that in land tax on a good piece of
real estate somewhere.


Cheers,

Dave



To reply: mailto:propertyforum.3423@bne003w.webcentral.com.au
To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
To login: http://bne003w.webcentral.com.au:80/~wb013
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1
From: Dave :)


good point!!

....ok, you twisted my mind's arm, I agree with all your points!
 
Last edited by a moderator:
Reply: 1.1.1.1
From: Ian Findlay


No way.

I love my own IPs too much to be a Socialist!
Getting political, I believe that both capitalism and socialism are bad but
actually in their pure sense socialism is good.

Now I'm on the subject anarchy is best, then socialism. However both only
work well if 100% of people are perfect, this ain't anywhere near so both
are dismal failures.

Unlike many people I suspect, I spent some time in Eastern Europe as it was
recovering from communism. Actually living in a communist world (albeit
rapidly changing) was a real eye opener and it does have many attractions.
The problem is that in the West we only hear the wrongs of communism not its
benefits. No system is perfect.

For example it could be argued that for an average person, communism is
better than democracy i.e. no worries about job security as you have a job
for life, no worries about health care - free, free holidays, excellent
social welfare. Saying this I also saw the disadvantages - no incentive to
work hard as everyone paid the same so naturally people got lazy, then
society got lazy. All told I prefer democracy.

The imperfect best of both worlds is the consience of socialism resting on
the financial rewards of capitalism.

Sorry about the political ravings of a loony,

Ian

-----Original Message-----
From: propertyforum Listmanager
[mailto:listmanager@bne003w.webcentral.com.au]
Sent: Friday, 11 May 2001 15:23
To: Recipients of 'propertyforum' suppressed
Subject: RE: tax system for IPs - good or bad


From: "Michael Croft" <croft@asiaonline.net.au>

David and Ian,

You'll both make good socialists yet!

Michael Croft ;^)



To reply: mailto:propertyforum.3446@bne003w.webcentral.com.au
To start a new topic: mailto:propertyforum@bne003w.webcentral.com.au
To login: http://bne003w.webcentral.com.au:80/~wb013
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1.1.1
From: Rasputin .


A reaaly socialist suggestion would be to give all people the same superannuation scheme as pollies, and then to erradicate wage cases forever simply link all wages to a % of pollies wages. then when they get a rise we all get one :)
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1.1.1.1
From: Robert Longmore


sadly we have a compulsory superannuation, unfortunately the government has negated its effectiveness buy TAXING IT, and more than once i might add.
 
Last edited by a moderator:
Top