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Good News: Treasury pushing remodel of Negative Gearing for only new homes!; Corrupt and vested real estate interest run for cover!
Topic Started: 14 Aug 2014, 09:26 PM (33,866 Views)
Aussiehouseprices
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Shadow
22 Aug 2014, 05:22 PM
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.


If my explanation above doesn't make sense, then answer this...

They have resulted in a 'permanent tax break' compared to what alternative?

I bet you're comparing it to 3.
Shadow, I haven't read the majority of this thread, so sorry If I've missed something. But I'd like to add a couple of thoughts:

Your option 3 is a reality for people who have a negative-gearing strategy. Those that buy a negatively-geared property for the tax deduction, sell before it becomes positively geared, and then look for their next negatively-geared property. I imagine this is a substantial portion of the mum and dad investors who think that a tax deduction means you get it all back at tax time and that prices always go up.

This is a tax break (or tax deduction) for people with no intention of ever making a profit aside from a capital gain. It has created a large hole in government revenue. The government noticed the exact same issue with loss-making businesses a while back, and closed the loophole by introducing the non-commercial loss rules to limit the ability to offset certain business losses against other income. Something similar needs to happen with property to make property speculation less appealing and reduce the risk and severity of bubbles.

Also a minor point but your option 1 is more valuable to the investor than option 2 due to the time value of money.
Trojan
22 Aug 2014, 01:46 PM
I am more than happy for the government to remove negative gearing. In fact, I prefer it to be removed. It will mean less competition from the mums and dads investors who can't see past negative gearing.
Are you saying there would be downward pressure on prices if negative gearing was removed due to fewer buyers? If so, I agree.
Edited by Aussiehouseprices, 23 Aug 2014, 03:06 PM.
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skamy
23 Aug 2014, 12:31 PM
You have missed the whole debate.
No, I haven't.

Quote:
 
We all know how to cost GST.
I don't think you do...

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Post GST a big chunk of the developer profit got taken out to cover this tax, this is just a fact.
The developer claims it back from the ATO, they don't lose profit.

And...

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you are purchasing new residential premises and the purchase price will include GST.
the purchase price will include GST. From the ATO themselves, so yes, in new properties, the buyer pays for the GST component. And as you're talking about developers, and not vendors, you're obviously talking about either new or substantially renovated properties, so GST is liable.

So how can your assertion...

Quote:
 
The buyer pays the same price regardless of the GST liability.
be true, if the purchase price will include GST?

Quote:
 
The price of the house is determined by its location and previous sales of homes in the area.
This is only a small part of the equation, you've over simplified it.
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miw
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Aussiehouseprices
23 Aug 2014, 03:01 PM
Your option 3 is a reality for people who have a negative-gearing strategy. Those that buy a negatively-geared property for the tax deduction, sell before it becomes positively geared, and then look for their next negatively-geared property. I imagine this is a substantial portion of the mum and dad investors who think that a tax deduction means you get it all back at tax time and that prices always go up.

This is a tax break (or tax deduction) for people with no intention of ever making a profit aside from a capital gain. It has created a large hole in government revenue. The government noticed the exact same issue with loss-making businesses a while back, and closed the loophole by introducing the non-commercial loss rules to limit the ability to offset certain business losses against other income. Something similar needs to happen with property to make property speculation less appealing and reduce the risk and severity of bubbles.
Actually, option 3 is the antithesis of of what you are describing. :-) In option 3, losses cannot be deducted against any income. Ever. What you are describing is a situation where losses are deducted immediately, and then the tax is never paid at a later date as in option 2.

I would add that in this scenario, the govt does recoup the tax at a later date in most cases because when any capital gains event occurs in option 2 you would get to reduce your assessed capital gain (after the 50% "discount") by the full amount of carried forward losses whereas in option 1 you don't.

Option 2 is a viable option, but only if it applied to all businesses, just not one particular kind of business. To my mind it further disadvantages the PAYE taxpayer against business owners when it comes to tax. I would certainly be firing up an ABN and creating the "miw contract consulting and house rental" business and not accepting a salary from an employer.

Aussiehouseprices
23 Aug 2014, 03:01 PM
Are you saying there would be downward pressure on prices if negative gearing was removed due to fewer buyers? If so, I agree.
There would be, briefly. Until enough people worked out how little NG really benefits you in the long run and how to structure their business without it. And rental yields would rise just enough to recoup the average benefit of NG.
Edited by miw, 23 Aug 2014, 05:00 PM.
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Aussiehouseprices
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miw
23 Aug 2014, 04:58 PM
Actually, option 3 is the antithesis of of what you are describing. :-) In option 3, losses cannot be deducted against any income. Ever. What you are describing is a situation where losses are deducted immediately, and then the tax is never paid at a later date as in option 2.

I would add that in this scenario, the govt does recoup the tax at a later date in most cases because when any capital gains event occurs in option 2 you would get to reduce your assessed capital gain (after the 50% "discount") by the full amount of carried forward losses whereas in option 1 you don't.

Option 2 is a viable option, but only if it applied to all businesses, just not one particular kind of business. To my mind it further disadvantages the PAYE taxpayer against business owners when it comes to tax. I would certainly be firing up an ABN and creating the "miw contract consulting and house rental" business and not accepting a salary from an employer.


There would be, briefly. Until enough people worked out how little NG really benefits you in the long run and how to structure their business without it. And rental yields would rise just enough to recoup the average benefit of NG.
Whoops, yeah I misread the three options and therefore framed my response incorrectly. But my point is the same. Shadow seems to be saying that negative gearing is a non issue because people will either pay tax now or pay it later. I disagree because of the reasons I mentioned.
Edited by Aussiehouseprices, 23 Aug 2014, 06:15 PM.
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miw
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Aussiehouseprices
23 Aug 2014, 06:14 PM
Whoops, yeah I misread the three options and therefore framed my response incorrectly. But my point is the same. Shadow seems to be saying that negative gearing is a non issue because people will either pay tax now or pay it later. I disagree because of the reasons I mentioned.
Yeah. There is the time value of money. At the moment it is 2/3 of 3/5 of stuff all though. The major benefit is in cashflow, which does have the benefit to government coffers of speeding up supply and generating more profits that can be taxed down the road.

In times of high inflation NG is much more useful. But then again in times of high inflation you get absolutely reamed by the way CGT is calculated, since there is no discount for CPI. You can make a real capital loss and still have to pay a shitload of tax on it.
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Shadow
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Aussiehouseprices
23 Aug 2014, 06:14 PM
Whoops, yeah I misread the three options and therefore framed my response incorrectly. But my point is the same. Shadow seems to be saying that negative gearing is a non issue because people will either pay tax now or pay it later. I disagree because of the reasons I mentioned.
People will either claim the losses against personal income now, or claim the same losses against IP income in the future.

Can you describe a scenario where you believe people would not claim the losses?

You say investors are getting a tax break. A tax break compared to what?

You seem to be saying property investors should be forced to pay tax on a sum of income greater than the income they actually receive?
Edited by Shadow, 23 Aug 2014, 07:20 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Aussiehouseprices
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Shadow
23 Aug 2014, 07:17 PM
People will either claim the losses against personal income now, or claim the same losses against IP income in the future.
Can you describe a scenario where you believe people would not claim the losses?
That's what I described a few posts up.

Quote:
 
You say investors are getting a tax break. A tax break compared to what?
They are getting a tax deduction compared to not getting a tax deduction.
Quote:
 

You seem to be saying property investors should be forced to pay tax on a sum of income greater than the income they actually receive?
Yeah, if they have the goal of only ever making property losses. Same thing happens with non-commercial losses.
Edited by Aussiehouseprices, 23 Aug 2014, 07:59 PM.
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Shadow
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Aussiehouseprices
23 Aug 2014, 07:50 PM
That's what I described a few posts up.
In the scenario you described, the losses were claimed.

Can you describe a scenario where you believe people would not claim the losses?

Quote:
 
They are getting a tax deduction compared to not getting a tax deduction.
Under what scenario would they not get the tax deduction?

The deduction is available whether losses are quarantined or not. The only difference is which income it gets deducted from... IP income vs personal income.

Quote:
 
Yeah, if they have the goal of only ever making property losses. Same thing happens with non-commercial losses.
Why would anyone have the goal of making losses?

But if they do make a loss, why should they pay tax on income they didn't receive?

Quote:
 
It has created a large hole in government revenue.
There is no hole in revenue. The government was never eligible to receive tax revenue on income not generated. If there is a loss then there is no income to tax.

You are saying property investors need to pay tax on income they never received. It doesn't make sense. How can you tax something that doesn't exist?
Edited by Shadow, 23 Aug 2014, 08:19 PM.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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Chris
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Shadow
23 Aug 2014, 08:13 PM
In the scenario you described, the losses were claimed.

Can you describe a scenario where you believe people would not claim the losses?


Under what scenario would they not get the tax deduction?

The deduction is available whether losses are quarantined or not. The only difference is which income it gets deducted from... IP income vs personal income.


Why would anyone have the goal of making losses?

But if they do make a loss, why should they pay tax on income they didn't receive?


There is no hole in revenue. The government was never eligible to receive tax revenue on income not generated. If there is a loss then there is no income to tax.

You are saying property investors need to pay tax on income they never received. It doesn't make sense. How can you tax something that doesn't exist?
Shadow, you always put your spin on things, try and baffle people with bullshit and be persistent in both until people stop replying, which in your mind probably means you have won.

People stop replying because it is clear you are delusional and come to the conclusion that it's just to hard to try and change the mind of had demented.

Whether deferred or not what would you call the claiming of losses in any form? Because you have to wrestle with the fact that people are 'declaring' losses and you have to ask yourself 'why do they do that?'. I can tell you they don't do it for shits and giggles, they do it because there is an advantage to doing it, the world sees it as a financial advantage, tax break, tax reduction, free money but you say different.

If there not tax deductions or tax breaks what are they then? You tell us mate because at the moment your Robin Caruso on this matter, you need to start telling everyone what you believe NG is if it is indeed not a benefit to the IP owner.

If you can't articulate this without having a conniption, or waffling then for the love of all things holy just stop posting on this topic pls.
Edited by Chris, 23 Aug 2014, 08:36 PM.
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Bardon
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Chris
23 Aug 2014, 08:35 PM


If you can't articulate this without having a conniption, or waffling then for the love of all things holy just stop posting on this topic pls.
Chris, as an outsider looking into this thread, I hope you have learned something and also realised that others will judge you based on what you don't know.
Edited by Bardon, 23 Aug 2014, 08:47 PM.
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