Removal of negative gearing is a tax deferral. Sounds like the issue you have is with the 50% cgt discount if held for more than 12 months.
No it would only be a deferral if it was offset against gains that are taxed the same as the losses. As the CGT is treated differently and discounted it only partially recovers (on a percentage basis) the rental losses claimed. If it were quarantined and added to the cost base (if not recovered by rental gains) it would be a deferral and would give a different result.
Refer above. If 65% of total investment property stock is negatively geared, and in a given years IP sales 50% were purchased in the last 5 years, it would mean that for most investment property sales the PI has not turned a rental profit yet. I'm not sure if you agree or disagree with that, let me know. However it does contradict what Shadow said if you agree. If you disagree, please explain.
Where did you get the statistic that 50% of IP sales were purchased in the last 5 years?
propertymogul
29 Aug 2014, 12:47 PM
No it would only be a deferral if it was offset against gains that are taxed the same as the losses. As the CGT is treated differently and discounted it only partially recovers (on a percentage basis) the rental losses claimed. If it were quarantined and added to the cost base (if not recovered by rental gains) it would be a deferral and would give a different result.
Let me rephrase it a different way. If the 50% CGT discount didn't exist, then the tax paid by the investor would be exactly the same after negative gearing removal. Is this not so?
Where did you get the statistic that 50% of IP sales were purchased in the last 5 years? Let me rephrase it a different way. If the 50% CGT discount didn't exist, then the tax paid by the investor would be exactly the same after negative gearing removal. Is this not so?
The 50% is from that article we've been discussing which said that 50% of PIs sell within 5 years.
While yes if the 50% discount were removed, and negative gearing were removed, tax paid would be the same. However that is changing two variables. What Shadow and Peter F have argued is that by changing one variable, i.e. removing negative gearing, the negative gearing benefit would simply be deferred. However, for that to be true we would also need to change a second variable, i.e. either add the accumulated loss to the cost base, or remove the CGT discount.
propertymogul
29 Aug 2014, 12:56 PM
The 50% is from that article we've been discussing which said that 50% of PIs sell within 5 years.
While yes if the 50% discount were removed, and negative gearing were removed, tax paid would be the same. However that is changing two variables. What Shadow and Peter F have argued is that by changing one variable, i.e. removing negative gearing, the negative gearing benefit would simply be deferred. However, for that to be true we would also need to change a second variable, i.e. either add the accumulated loss to the cost base, or remove the CGT discount.
Edit add: Can I take it then Trojan that you agree with me that it appears most investment property sales would occur while still negatively geared?
The 50% is from that article we've been discussing which said that 50% of PIs sell within 5 years.
Leaving aside we haven't verified whether that statistic in the article is correct, you are making the same mistake again. 50% of those property investors selling within 5 years does not mean 50% of investment properties are sold within 5 years.
Its like trying to say 50% of couples have kids within 5 years of marriage therefore 50% of all kids were born within 5 years of their parents getting married. Its simply not correct.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
Leaving aside we haven't verified whether that statistic in the article is correct, you are making the same mistake again. 50% of those property investors selling within 5 years does not mean 50% of investment properties are sold within 5 years.
Its like trying to say 50% of couples have kids within 5 years of marriage therefore 50% of all kids were born within 5 years of their parents getting married. Its simply not correct.
Did we not conclude that the article was referring to transactions in a given year? Assuming transaction levels are similar from year to year then the percentage could be applied. That is, if year 1 and year 5 transactions are both 200,000, then 50% of those properties purchased in year 1 would be sold by year 5.
Regardless of whether that statistic is correct or not, you do agree that around 65% of investment properties are negatively geared? That is out of the total pool. And I think you've also agreed that the less savvy investors are both more likely to be negatively geared and are more likely to sell in a shorter time frame. Which therefore means out of the transactions in a given year, the sales
1. Come out of a pool of properties of which 65% are negatively geared 2. The 65% that are negatively geared are more likely to sell
Did we not conclude that the article was referring to transactions in a given year? Assuming transaction levels are similar from year to year then the percentage could be applied. That is, if year 1 and year 5 transactions are both 200,000, then 50% of those properties purchased in year 1 would be sold by year 5.
No we did not conclude that at all. That is still merely your extrapolation. The article was talking about a percentage of property investors and not a percentage of investment properties.
I have 2 acquaintances who invests in property 1 of them bought a single investment property of the plan, couldn't seem to make the numbers work and sold as soon as it completed. The second one keeps their property long term. She has 82 investment properties.
So my observations around me fits the article's statistic that 50% of PI sell within 5 years and 50% keeps more than 5 years But 1 investment property was sold within 5 years and 82 was kept more than 5 years.
No we did not conclude that. The article was talking about a percentage of property investors and not a percentage of investment properties.
I have 2 acquaintances who invests in property 1 of them bought a single investment property of the plan, couldn't seem to make the numbers work and sold as soon as it completed. The second one keeps their property long term. She has 82 investment properties.
So my observations around me fits the article's statistic that 50% of PI sell within 5 years and 50% keeps more than 5 years But 1 investment property was sold within 5 years and 82 was kept more than 5 years.
Regardless of whether that statistic is correct or not, you do agree that around 65% of investment properties are negatively geared? That is out of the total pool. And I think you've also agreed that the less savvy investors are both more likely to be negatively geared and are more likely to sell in a shorter time frame. Which therefore means out of the transactions in a given year, the sales
1. Come out of a pool of properties of which 65% are negatively geared 2. The 65% that are negatively geared are more likely to sell
Regardless of whether that statistic is correct or not, you do agree that around 65% of investment properties are negatively geared? That is out of the total pool. And I think you've also agreed that the less savvy investors are both more likely to be negatively geared and are more likely to sell in a shorter time frame. Which therefore means out of the transactions in a given year, the sales
1. Come out of a pool of properties of which 65% are negatively geared 2. The 65% that are negatively geared are more likely to sell
You seem to be avoiding the obvious here
I don't know. I haven't seen any reliable statistic which describes what %age of investment properties are negatively geared. Do you have links to any reliable statistics for me to examine?
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
However, due to the high rate of churn amongst PIs that are less savvy, out of the properties that sell most would still be negatively geared. This is supported by three things - that 50% of properties purchased in a given year are sold within 5 years. So out of the properties that sell in a given year approximately 50% were purchased in the last 5 years.
1. The article talks about investors, not investment properties (as Trojan has pointed out).
2. The article is a second hand account of somebody else's survey that the article says was conducted 'a few years ago' (from the date of writing the article, which is also unknown). We really know nothing about this survey. It also seems very 'convenient' that it comes out with nice round numbers like 25% and 50%. I wonder if there were only four respondents to the survey?
I think the article about the survey can be safely ignored. We need better data.
propertymogul
29 Aug 2014, 12:56 PM
While yes if the 50% discount were removed, and negative gearing were removed, tax paid would be the same. However that is changing two variables. What Shadow and Peter F have argued is that by changing one variable, i.e. removing negative gearing, the negative gearing benefit would simply be deferred. However, for that to be true we would also need to change a second variable, i.e. either add the accumulated loss to the cost base, or remove the CGT discount.
We just need to assume that if losses had to be quarantined then investors would simply hold the property for long enough to offset all the losses, even if that's not what the average investor is doing currently (which we don't know for sure). The forced quarantining of loses would drive a change in behavior - investors would hold for longer if necessary to deduct their losses. There would ultimately be no increase in tax revenue for the government. There might even be a loss of revenue if fewer investors entered the market as a result of the change, or if prices fell, leading to a reduction in stamp duty and land tax revenue.
While yes if the 50% discount were removed, and negative gearing were removed, tax paid would be the same. However that is changing two variables. What Shadow and Peter F have argued is that by changing one variable, i.e. removing negative gearing, the negative gearing benefit would simply be deferred. However, for that to be true we would also need to change a second variable, i.e. either add the accumulated loss to the cost base, or remove the CGT discount.
Its not about the number of variables which need to be changed. Its about which tax law is causing the anomaly and in this case, its the CGT 50% discount law.
Also, you point out that 25% of PI sell within 12 months. You do realise the 50% CGT discount does not apply to properties held for less than 12 months. Therefore those sellers would have paid full tax on any CG they made.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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