I still find it interesting to ponder exactly what would happen in the extremely unlikely event it were removed.
For all the arguments that it would have no effect, the lobby groups representing investors certainly seem very unwilling to find out. They are obviously afraid of something for this issue to provoke such a response from them every time it is raised.
I do find it difficult to believe that there would be no impact at all on demand for investment property - which is now the biggest driver of housing demand in our biggest market - when everybody suddenly finds that they can no longer make such a claim against their total income.
But with our entire political class being one big vested interest, I doubt that we'll find out any time soon.
All that would happen is the wealthy would find better investments, the poor renters would have to pay more for their housing. It is the reason the government has the incentive in place. Peter
To to be as clear as I should have been, I was talking more about the oft-bandied about proposal of grandfathering existing arrangements while allowing new claims to be made on new builds only.
Existing negatively-geared rentals shouldn't see any great justifiable hike since the landlord still gets to claim the deduction as long as they hold the property.
But how might it affect the resale value? If I'm a negatively-geared investor wanting to sell, how many other investors would still be as interested when I suddenly can no longer offer them the ability to negatively gear the place as part of the sale?
Just how much are low interest rates likely to offset this?
A few posts ago you were railing against dumb money people who were crowding FHBs out of the market. Now you are saying that FHBs could buy an equivalent new dwelling to what they live in now simply by using the rent they are paying now.
I am not saying they can buy an equivalent dwelling at all. They can buy a new build. They swop their rented 1990's 3x1 on 700m2 and move into a brand new home on 400m2 in a new suburb. This is partly why rental vacancy rates are rising.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
If negative gearing and capital gains taxes were assessed at the same time (either annually or upon sale of the property), Australian real estate would soon find its true fair value.. Tho rental income still taxed on top of regular income.. Until then, the government is encouraging intergenerational theft
It's not a tax concession. It is just application of two general principles of Australian tax law.
1. All income whether from salaries or from main business or from side business or whatever gets pooled into a single figure for the purposes of appraising income tax.
2. Where you have legitimate expenses in earning your salary (except for specific exceptions like travel between place of work and home and the clothes you wear to work) or running your business (like interest, consumables, repairs, running a vehicle) they are deductible against the whole pool in the year they were expended.
The only way in which own-to-rent is in any way different from any other business you might run on the side is that the parameters are very well-defined and no correspondence will be entered into. If you have a sideline doing embroidery and selling embroidery supplies, you might have to justify why you call it a business and not a hobby.
Making any change to NG would amount to making a special case for one particular kind of business. In the past whenever this has been done, it has not ended well or had the intended effect.
Not really true. For normal businesses to claim a loss against other income they have criteria to meet which property negative gearing does not have to meet. So it is a special case for property investors vs other businesses. I've seen previous debate on this on this forum and the general consensus was that if the normal rules for businesses were applied to property it would effect around half of investment properties.
Existing negatively-geared rentals shouldn't see any great justifiable hike since the landlord still gets to claim the deduction as long as they hold the property.
You speak as if it were individual landlords who set rents. They don't. They take the market price which is determined by both LLs and tenants. In my experience the market is pretty efficient over time and numbers, although there are always examples of sweet deals for tenants around.
There would be a delayed increase in yield but you would only notice it in aggregate numbers over time through a slowing down in capital growth and speedup in rent increases. I wouldn't expect the average gross yield to increase by more than a percent or two, and in the final washup it would be almost entirely expressed in rent increases, because house prices are in the end governed by the boundary conditions of geography and the cost of building new stock, neither of which would change. Maybe there would be an overall softening in the market for places that nobody wants to own as their home but which many people are prepared to rent for a while.
You would also see some decrease in the average gearing of investors which is also consistent with an increase in yields. Back before the deregulation in banking when LLs were mostly pretty-much ungeared, gross yields were much higher - up to 10% in some cities.
piccolo
18 Aug 2014, 02:36 PM
Not really true. For normal businesses to claim a loss against other income they have criteria to meet which property negative gearing does not have to meet. So it is a special case for property investors vs other businesses. I've seen previous debate on this on this forum and the general consensus was that if the normal rules for businesses were applied to property it would effect around half of investment properties.
Incorrect. Investing in own-to-rent and stocks bearing dividends have to meet exactly the same criteria as any other business. The general consensus is wrong. If there is a difference, it is that own-to-rent is assumed to be for the purpose of making profit unless deemed otherwise. Some kinds of businesses are assumed to be hobbies unless you can show otherwise. I have seen the odd case where people are playing fast and loose with the rules (most commonly by having the property on the market, but at a rental such that nobody will pay it so the place stands empty) but these guys are playing with fire.
You speak as if it were individual landlords who set rents. They don't. They take the market price which is determined by both LLs and tenants. In my experience the market is pretty efficient over time and numbers, although there are always examples of sweet deals for tenants around.
There would be a delayed increase in yield but you would only notice it in aggregate numbers over time through a slowing down in capital growth and speedup in rent increases. I wouldn't expect the average gross yield to increase by more than a percent or two, and in the final washup it would be almost entirely expressed in rent increases, because house prices are in the end governed by the boundary conditions of geography and the cost of building new stock, neither of which would change. Maybe there would be an overall softening in the market for places that nobody wants to own as their home but which many people are prepared to rent for a while.
You would also see some decrease in the average gearing of investors which is also consistent with an increase in yields. Back before the deregulation in banking when LLs were mostly pretty-much ungeared, gross yields were much higher - up to 10% in some cities. Incorrect. Investing in own-to-rent and stocks bearing dividends have to meet exactly the same criteria as any other business. The general consensus is wrong. If there is a difference, it is that own-to-rent is assumed to be for the purpose of making profit unless deemed otherwise. Some kinds of businesses are assumed to be hobbies unless you can show otherwise. I have seen the odd case where people are playing fast and loose with the rules (most commonly by having the property on the market, but at a rental such that nobody will pay it so the place stands empty) but these guys are playing with fire.
I think you are incorrect on this miw. Are you saying that the negative gearing losses on property have to pass these tests https://www.ato.gov.au/Business/Non-commercial-losses/ that other businesses have to pass in order to offset the losses against other income? If so that would mean that every property that either - generates less than $20,000 in rental income and - has not turned a profit in at least 3 of the last 5 years and - is worth less than $500,000
would not be able to claim losses against other income. This is a lot of properties.
I think you are incorrect on this miw. Are you saying that the negative gearing losses on property have to pass these tests https://www.ato.gov.au/Business/Non-commercial-losses/ that other businesses have to pass in order to offset the losses against other income? If so that would mean that every property that either - generates less than $20,000 in rental income and - has not turned a profit in at least 3 of the last 5 years and - is worth less than $500,000
would not be able to claim losses against other income. This is a lot of properties.
I know you are a rusted on bull but facts are facts. Deal with it. Property gets favourable tax treatment compared to other businesses, because it does not have to pass these tests to claim losses. These tests would rule out a lot of properties and you know it.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy