on average, the PI when they sell has received a tax break funded by other taxpayers that will never be recovered, i.e. it has not just been 'deferred' as you claim.
This is different from your earlier claim that the majority must be selling before making any rental profit.
But let's look at your new claim...
'on average, the PI when they sell has received a tax break funded by other taxpayers that will never be recovered'
'Other taxpayers' are not funding anything. All the 'funds' (i.e. tax payments to the government) come from the property investor. Imagine you go to the shop, buy some groceries, pay $20 today and defer payment of $4 until tomorrow. No other shoppers need to 'fund' the $4 that you deferred payment of until tomorrow.
i.e. it has not just been 'deferred' as you claim.
If losses were quarantined, then those losses would be claimed later against future rental income. No 'other taxpayers' need to fund this. The tax either flows from the investor to the government in the future (under current NG rules), or it would flow from the investor to the government in the present (if losses were quarantined).
Either way, it is the investor who is paying the tax to the government. It's just a change of timing. 'Other taxpayers' are not involved.
This is different from your earlier claim that the majority must be selling before making any rental profit.
But let's look at your new claim...
'on average, the PI when they sell has received a tax break funded by other taxpayers that will never be recovered'
'Other taxpayers' are not funding anything. All the 'funds' (i.e. tax payments to the government) come from the property investor. Imagine you go to the shop, buy some groceries, pay $20 today and defer payment of $4 until tomorrow. No other shoppers need to 'fund' the $4 that you deferred payment of until tomorrow.
i.e. it has not just been 'deferred' as you claim.
If losses were quarantined, then those losses would be claimed later against future rental income. No 'other taxpayers' need to fund this. The tax either flows from the investor to the government in the future (under current NG rules), or it would flow from the investor to the government in the present (if losses were quarantined).
Either way, it is the investor who is paying the tax to the government. It's just a change of timing. 'Other taxpayers' are not involved.
Seriously Shadow, you are the master at changing the terms of an argument. If you concede a point occasionally, it would do wonders for your credibility.
So if we can agree on approximately 15 years to make an accumulated rental profit. And we're saying 10 years average hold time (I think it would be less for PIs). That means that well over 50% (probably 70-80%) have sold at an accumulated loss on which they receive a tax break that will never be recovered. Do you agree that this means over 50% of the net rental losses to date have resulted in a permanent tax break for PIs, not just a deferral?
No, there is no tax break. Negative gearing is not a 'tax break' unless you define 'tax break' as any tax that the government doesn't collect - so for example the government gives you a 70% 'tax break' by only taxing you at 30% instead of 100% of your income.
You need to look at this logically. There are two potential scenarios.
1. Losses can be immediately claimed against personal income.
2. Losses are quarantined and claimed against future rental income.
Under either scenario, the losses can be claimed. Neither scenario gives a 'tax break' compared to the other scenario.
Where you are going wrong is you are comparing scenario 1 with this scenario...
3. Losses are never claimed against income.
Now, obviously both 1 and 2 give a real tax break versus 3. But 3 is not a valid scenario. It doesn't exist. It's not on the table.
The comparison is between 1 and 2, and in each case the tax ultimately paid by the investor is the same.
Quote:
over 50% of the net rental losses to date have resulted in a permanent tax break for PIs, not just a deferral?
If my explanation above doesn't make sense, then answer this...
They have resulted in a 'permanent tax break' compared to what alternative?
How long do you think it takes to turn a rental profit on average? I would say around 7-8 years. And then another 6-7 years for the rental profits to match or exceed the accumulated losses.
In my experience, where I started with an ex-PPOR that was bought at 90% LVR, it was definitely cash positive in the 6th financial year. So it went cash positive somewhere between 4.5 and 5.5 years I guess. However, there was an unusually fast period of rental growth in there, and inflation is lower now, so I think your estimate of 7-8, maybe even 9 years is probably OK for these days under a regime of minimum P+I repayments and 90% LVR. Most people will be quicker than that because most people repay faster or at least stack cash in offset accounts. The period to recouping the losses will be shorter, simply because a much higher percentage of your minimum P+I repayment is principal by then and nett rental income grows faster as time goes by. If the PI is stuffing cash in the offset, then it will be much shorter.
On average, though, I would expect that a PI who stopped at one IP would be cash positive and have recouped the accumulated loss in under 10 years simply because most of them would buy at considerably less than 90% LVR and would pay off the loan significantly faster than required.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
On their sale price (paid by the purchaser) they pass on $330,000/11 in GST = $30,000. I think it is a lost cause explaining it to you.
Don't be so naive how the heck can the developer pass on this cost to the purchaser. The price of the house is determined by its location and previous sales of homes in the area. It has nothing to do with whether it is GST liable or not. Before GST developers made bigger profits and more marginal builds were possible. Post GST a big chunk of the developer profit got taken out to cover this tax, this is just a fact.
If two developers built two identical homes side by side and one was sold the day before GST and one was sold the day after, did the purchaser pay the extra cost due to GST or did the developer? Of course it was the developer as she could not charge more than than the price set by the market, the banks would not value the home as worth more because of the GST that had to be paid would they?
If you still don't get it you are really slow
You pick the strangest fights on topics you have read about in a text book, yet have not one idea of how things work in practice, and just refuse to admit it when you are wrong.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
If two developers built two identical homes side by side and one was sold the day before GST and one was sold the day after, did the purchaser pay the extra cost due to GST or did the developer? Of course it was the developer as she could not charge more than than the price set by the market, the banks would not value the home as worth more because of the GST that had to be paid would they?
True, but in the longer run developers held off on builds that would not recoup GST, so the GST increase in developer costs flowed through both to developer builds and existing housing.
There is only one place for costs to come from in the end, and that's the buyer.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
True, but in the longer run developers held off on builds that would not recoup GST, so the GST increase in developer costs flowed through both to developer builds and existing housing.
There is only one place for costs to come from in the end, and that's the buyer.
The buyer pays the same price regardless of the GST liability. Whereas the developer loses profit due to the GST. The only person who is ends up with less money in their pockets due to the GST liability is the developer. So my point stands it is paid for by the developer.
Actually the problem is still out there, a lot of these developments have only become profitable due to the purchase of cheap lots during the downturn. When there are boom time prices growth it also is not an issue as the loss gets swallowed up in the time it takes to build. However, this problem will show up again no doubt about it, as developers are always selling in competition with existing homes that have no GST liability. There is no way for the loss to be covered except by accepting the reduced developer profits. I believe this will be a drag on inner city small scale spec builds until they either remove it or put GST on all home sales.
The number of viable new home builds has been reduced permanently. Maybe this is a good thing, it keeps house prices high with a permanent drag on supply and it does deter marginal building in excesses which can destabilize markets eg Ireland, US.
I am neither for or against GST on new homes I am just stating how the tax works in practice.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
Before GST developers made bigger profits and more marginal builds were possible. Post GST a big chunk of the developer profit got taken out to cover this tax, this is just a fact.
If two developers built two identical homes side by side and one was sold the day before GST and one was sold the day after, did the purchaser pay the extra cost due to GST or did the developer? Of course it was the developer as she could not charge more than than the price set by the market
I think you need to check your facts...
Quote:
The Effect of the GST on the Real Estate Market
As an overall conclusion, the GST legislation provides concessions and therefore incentives for the purchase and lease of second hand residential investment property, over commercial property, by reason of the fact that most residential property sales and leases will be GST free. This may lead to a slight reduction in relative values of commercial property as against residential property.
In terms of prices, the fact that GST will be payable upon new properties will bring up the value of established properties in both residential and commercial markets. The inflation effect of GST which Treasury estimates will be 2% to 2.5% to the economy overall. Private commentators in the property market estimate that for real estate it is likely to be 5% to 7%. The inflationary impact will feed through to commercial leases (through CPI adjustment clauses) and generally, to property values as property values consistently adjust for inflation.
An off-the-plan purchase occurs when you enter into a contract to purchase new residential premises before the construction is completed. At this stage you are purchasing a contractual right to have the premises built.
Generally, you pay a deposit and sign a contract with the developer. You pay the balance of the purchase price on settlement.
On settlement, you are purchasing new residential premises and the purchase price will include GST.
And developers aren't losing profits, if they can't pass on the GST liability, they instead claim credits from the ATO to reduce their overall tax bill...
And developers aren't losing profits, if they can't pass on the GST liability, they instead claim credits from the ATO to reduce their overall tax bill...
You have missed the whole debate. We all know how to cost GST.
Drgonzo
23 Aug 2014, 08:01 AM
Anyone who buys an investment with the intention of making a loss is an idiot.
Anyone who thinks that anyone buys an investment with the intention of making a loss is an idiot.
Definition of a doom and gloomer from 1993 The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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