When is Paul Henry's tax review due?

[DanielG]

I have decided to hold off on purchasing IP #3 and #4 in fear that negative gearing might be abolished. Not only that, but it may be that stamp duty might be abolished. Either way, I dont think its smart to buy a property now just to have the "rules" change on us again.

Does anyone know when this review is due for submission and publication?

 

[Hooray]

Either way, I dont think its smart to buy a property now just to have the "rules" change on us again.

Maybe that explains why you only have 2 IPs?

 

[JIT]

Not only that, but it may be that stamp duty might be abolished.

That would be terrible!

 

[Propertunity]

I have decided to hold off on purchasing IP #3 and #4 in fear that negative gearing might be abolished.

Why would you even consider buying neg. geared property in the present environment when there are cash flow +ve & neutral deals to be had?

Not only that, but it may be that stamp duty might be abolished.

Even if this happens - all it does is add the SD amount into house prices overnight. It is a non-issue IMO.

Either way, I dont think its smart to buy a property now just to have the "rules" change on us again.

Using the same logic you would not put money into Superannuation ever! The rules on super change many more times than those on property. These things should not determine whether you invest or not as Hooray says.

Does anyone know when this review is due for submission and publication?

Who cares? It is only a review and the government of the day will either reject it or cherry pick the bits out of it that it wants.

 

[Rixter]

I have decided to hold off on purchasing IP #3 and #4 in fear that negative gearing might be abolished. Not only that, but it may be that stamp duty might be abolished. Either way, I dont think its smart to buy a property now just to have the "rules" change on us again?

Ahhhhhh that little 4 letter word again, that comes between bringing one's dreams into reality for 99% of the population - fear!

 

[DanielG]

I am quite concerned with all your replies to my post. They remind me of the bull mentality I see on shows such as CNBC and Fox shows, it is quite disturbing.

Either you are all professionals in the financial market and it is in your interest to have people cajoled into investing in property or you are all so confident that fear is no longer a factor....which is what led to Lehmans brother collapse, not to mention would have caused all the other major banks to collapse as well if it wasnt for the taxpayer bailout, ie, the LOOTING of congress from its people.

I can't fathom why no one seems to factor government meddling into the sector as something to be cautious about, as history has showed, govt has a way of destroying wealth with a stroke of a pen.

I have riled against stamp duty and especially the land tax laws, which many of you who have already responded as a tax that should be considered "a part of doing business". No its not! Its the stealing of government from the people to cover their own mismanagement of the economy.

You people really seem to believe that regardless of the taxes imposed, regardless of the restrictions, regardless of the added-on costs imposed, real estate is a magnificent investment. Well, I may not have as many properties as all of you here...but I wonder if you are all in for the same rude shocks that others in the world are experiencing. Oh sure, it appears we are safe for another few years here in Australia, but that black cloud has a way of materializing over the horizon without you noticing.

 

[Pushka]

Stamp Duty is a state tax though, and was supposed to be abolished when the GST was introduced.

 

[Propertunity]

.... or you are all so confident that fear is no longer a factor...

First of all "fear" is to be confronted and exposed for what it is. I'm not saying you should stick your head in the sand and ignore storms that you see arising down the track. See clouds & storms for sure - but then take evasive action. IMO that evasive action does not mean pulling over by the side of the road for a couple of years while you wait for the storms (real & imagined) to pass by when all you could have done is put the top up & turn the wipers on and maybe even hit the gas pedal a bit harder .

I can't fathom why no one seems to factor government meddling into the sector as something to be cautious about, as history has showed, govt has a way of destroying wealth with a stroke of a pen.

That is true but IMO not an excuse to do nothing. What if the stroke of the pen never comes? You just wasted time you'll never get back. Besides which, government meddling lately has been SUPPORTING wealth creation thru real estate.

I have riled against stamp duty and especially the land tax laws, which many of you who have already responded as a tax that should be considered "a part of doing business". No its not! Its the stealing of government from the people to cover their own mismanagement of the economy.

Governments will alwasy mismanage money. People, like you, will always be critical of them for doing so....probably rightly so. People like me, realise their time is better spent investing and ignoring all the 'noise'.

You people really seem to believe that regardless of the taxes imposed, regardless of the restrictions, regardless of the added-on costs imposed, real estate is a magnificent investment.

It has proven to make some of us very wealthy. I guess that's why we are rather partial to it.

Well, I may not have as many properties as all of you here...but I wonder if you are all in for the same rude shocks that others in the world are experiencing. Oh sure, it appears we are safe for another few years here in Australia, but that black cloud has a way of materializing over the horizon without you noticing.

Woooooooo, scarey

Look DanielG, you have done well to get a couple of IPs under your belt - you are to be congratulated on that. It is more than 80% of the population ever do. But can you imagine Donald Trump or Richard Branson or Warren Buffet allowing fear to conrol their actions to make wealth. You need to 'break-free' a bit mentally and go up a level IMO.

 

[Aaron Sice]

Either you are all professionals in the financial market and it is in your interest to have people cajoled into investing in property or you are all so confident that fear is no longer a factor....which is what led to Lehmans brother collapse, not to mention would have caused all the other major banks to collapse as well if it wasnt for the taxpayer bailout, ie, the LOOTING of congress from its people.

Lehman collapsed because they were the only viable competition to Goldman Sachs - Goldman's ex minions all form the Fed, treasury, treasury advisory.... Lehman's weren't granted a lifeline from the Fed regardless of being one of the oldest banks in America.

So you see, there's more to the story than you realise.

And the more you realise, the more you'll want to invest in property.

 

[JamesGG]

It's due by the end of the year.

The government has also already voted to ignore a couple of the likely recommendations, so I wouldn't be placing too much importance on anything written therein until (read: if) it's actually legislation.

 

[Hooray]

Fine, Daniel. The world is a cesspool of vice, governments and banks want to enslave us. We're going to have another Depression. Given all that, I suggest buying guns, canned food and gold and living in the bush to await the inevitable armageddon.

Sounds like fun. Hope you enjoy it.

Why am I confident? Because property forms the greatest part of the wealth of voters. The government has every incentive to protect it in the interests of self-preservation. A new government messing with -ve gearing, when the conventional wisdom is that rents skyrocketed the last time that happened? They don't have the balls.

 

[Rixter]

I can't fathom why no one seems to factor government meddling into the sector as something to be cautious about, as history has showed, govt has a way of destroying wealth with a stroke of a pen.

The govt already abolished negative gearing back in the mid 1980's only to reintroduce it back in again 18 months later because the private investors were baling out leaving the tenants to fall back onto the public purse for accommodation.

Not only did they reintroduce it quick smart but they also increased it to entice the same investors back again.

The govt has since realised its cheaper to pay an investor tax cuts. For every $1 they (the govt) pay they indirectly create another $4.50 from taxes (ie payroll, stamp duties, GST etc) collected down the track.

In other words give an investor $10,000 in tax cuts and increase revenue by $45,000 - sounds a pretty good business decision to me.

 

[HiEquity]

Now let's just get one thing straight!

Who is Paul Henry?

The Treasury Secretary's name is Dr Ken Henry, as per this link.

If a property makes financial sense to you then buy it. If it doesn't then don't. I reckon there is one in the former category somewhere out there for me - better get on to finding it!

Spending that effort worrying about stuff you can't control is a waste IMO.

 

[DanielG]

Lehman collapsed because they were the only viable competition to Goldman Sachs - Goldman's ex minions all form the Fed, treasury, treasury advisory.... Lehman's weren't granted a lifeline from the Fed regardless of being one of the oldest banks in America.

So you see, there's more to the story than you realise.

And the more you realise, the more you'll want to invest in property.

I have studied indepth the reasons behind lehamns collapse so I am well versed in the topic. Listing all the reasons here was not appropriate, but the fact that they took their leverage from 14:1 to 44:1 (ie, their borrowing capacity vs their actual capital) was a clear strategy driven by a lack of FEAR. Read any document or testimony, all participants in the lehmans collapse have stated that their was no fear in pursuing these deals, regardless of the risk.

And yes, I understand fear should not grip you to the point of inaction, thats unreasonable, but I do believe that caution when buying into assets in the half a million range is a sensible approach, especially when whispers of taxes are circulating. Fine nothing drastic may change, but if a report is out in two months, I dont see how holding off for two months until we know the detail is unreasonable. The alternative is to be locked into two more properties and facing whatever taxes Rudd imposes, or is it SMARTER to wait 2 months, and if there is something I dont like, I can then change my strategy.

 

[dallee]

It would be wonderful if stamp duty were abolished. However, even if it did go, my bet would be that the property market would price it back in just like the first home buyer's grant. I think it makes better sense to make decisions on fundamentals such as demand, supply and interest rates, rather than taxes and grants.

 

[chilliaa]

I have studied indepth the reasons behind lehamns collapse so I am well versed in the topic. Listing all the reasons here was not appropriate, but the fact that they took their leverage from 14:1 to 44:1 (ie, their borrowing capacity vs their actual capital) was a clear strategy driven by a lack of FEAR. Read any document or testimony, all participants in the lehmans collapse have stated that their was no fear in pursuing these deals, regardless of the risk.

And yes, I understand fear should not grip you to the point of inaction, thats unreasonable, but I do believe that caution when buying into assets in the half a million range is a sensible approach, especially when whispers of taxes are circulating. Fine nothing drastic may change, but if a report is out in two months, I dont see how holding off for two months until we know the detail is unreasonable. The alternative is to be locked into two more properties and facing whatever taxes Rudd imposes, or is it SMARTER to wait 2 months, and if there is something I dont like, I can then change my strategy.

At the end of the day you must invest based on your own risk parameters. I am not suggesting you are correct or incorrect in your assessment. Why dont you jot down some figures, take some of the assumptions you are worried about and calculate the net end figure. Does it still stack up or not?

I can tell you i listen to my fears very closely hopefully they prevent me from making stupid investment decisions. When confronted with them i:
1)I try to calculate the financial impact of those fears
2) rationalize the probability of them; and most importantly where possible
3) how can i hedge the risk of those fears.

Generally the net result is that i either dont proceed with the investment because i cant make the numbers stack up, or i cant find logic to overcome my fear, or i conquer the fear based on intelligent analysis.

 

[chilliaa]

I have decided to hold off on purchasing IP #3 and #4 in fear that negative gearing might be abolished. Not only that, but it may be that stamp duty might be abolished. Either way, I dont think its smart to buy a property now just to have the "rules" change on us again.

Does anyone know when this review is due for submission and publication?

How does my statement above impact with regards to your fear:

Well i couldnt give a toss whether negative gearing is abolished or not, i only invest in property where i can achieve at worse a cash flow neutral position BEFORE tax effect.

Abolishment of stamp duty: in my opinion this is a cost added on to the purchase price which just means that the investment decision must be able to stack up including the cost of stamp duty. If the investment decision stacks up i go ahead regardless of its possible change in the future. (and i'm hedging my position against future movements through the cash flow derived).

 

[pully]

i agree it will be interesting to see what is decided and implemented following the henry review in terms of all taxation, but particularly any issues for property investing.

of course it is not just in terms of the costs of acquiring property like stamp duty, or holding like land tax but when we decide to exit and sell, CGT is/can be an issue.

no doubt once the new rules are announced an army of advisors will moblise
and promote strategies to minimise potential damage.

we might be lucky and the new rules might be favorable to promote property investment?

but yes the treatment of tax is important. having the rules change often is not helpful. this also applies to super.
regards.

 

[mja]

Hi Daniel,

It's a review; it doesn't mean that all recommendations will be implemented. Don't let fear hold you back, but don't be stupid about it either. Do all your sums without the tax benefit in mind, and if it makes sense - buy!

Let's say that negative gearing is not abolished. What will be your reason to not invest then? Higher interest rates? Too much unemployment for fear that tenants won't pay their rent?

There are *so* many positive cash flow deals out there, I agree with Propertunity - you'd be mad to just look at the negative cash flow ones out there.

If those deals are negative *today* - at interest rates of ~ 5%, what will they be like when interest rates rise?

Best of luck!

 

[Raja]

Oh sure, it appears we are safe for another few years here in Australia, but that black cloud has a way of materializing over the horizon without you noticing.

Hi Daniel,

Predicting storms and rain is not always accurate but I think BOM do a good job. Black clouds have a way of materializing over many things in life but I wouldn't worry too much over things I cannot control that may or may not happen in the future. If it rains I can control the opening of the umbrella.

There are probably greater risks in life than deciding whether or not to buy another IP.

But I think it is good that you have thought of future scenarios that may affect your investments. So if negative gearing is abolished what do you think will happen to house prices and rent?