According to the ATO website, there is no deductibility for home office for rental property as a side business.
Can you provide a link for this, I've never heard of this exclusion? Fair enough if I'm wrong, my memory is that you can claim a portion of costs like electricity, depreciation on home office equipment like furniture, fittings for the home office. You can't however claim a portion of interest, rent or rates unless your home is your place of business. A quick look at the ATO website seems to concur https://www.ato.gov.au/Business/Deductions-for-business/Home-office-expenses/
You've argued that PI-ing is not a business, which it generally isn't. Your link refers to carrying on a business so does not apply to the average PI. This would be a more appropriate link, but certainly far from perfect.
"my memory is that you can claim a portion of costs like electricity, depreciation on home office equipment like furniture, fittings for the home office."
One probably, technically, could, but the deduction would be bugger all and if one got audited I'd bet one would fail substantiation.
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. 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.
"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). "
I'll bow out of this debate now (due to boredom) but will put out there the following concessions which I think you and Trojan have either made or would not dispute:
1. A significant percentage of investment properties are sold before making a rental profit. This may be around 65% as around 65% of PIs are negatively geared. Out of those that are negatively geared they are more likely to sell in any given year as, on average, they are the less savvy PIs. 2. An even higher percentage of investment properties are sold before making an accumulated rental profit i.e. when accumulated rental profits exceed accumulated rental losses. 3. When the investment property with an accumulated rental loss is sold the negative gearing benefit they have obtained can only be recovered through capital gains which receives a 50% discount and is therefore not recovered on a like for like basis. This means that $50B in net accumulated rental losses since 2001 claimed by PIs absorbs approximately $100B of capital gains.
3. When the investment property with an accumulated rental loss is sold the negative gearing benefit they have obtained...
They haven't obtained a benefit. They have been taxed appropriately given that they made an overall loss. Why should they pay tax on income they didn't receive?
Under Australian tax laws, individuals pay tax on the sum of their individual income minus the sum of their individual losses. The investor has paid the correct amount of tax.
I'll bow out of this debate now (due to boredom) but will put out there the following concessions which I think you and Trojan have either made or would not dispute:It
When I do dispute something it goes around in circles eg "25% of PI sell within a year" "Wait up, I never said 25% of investment properties aren't sold in 1 year because only 500,000 properties are sold every year"
A couple of posts later. "Since we have now concluded 50% of IP are sold within 5 years of purchase"
So after a few pages later, you are still switching between a percentage of PI vs a percentage of investment properties. If a few pages can't sort that out, its going to take a long time to dispute all the conclusions/extrapolations you have jumped to.
But it certainly doesn't make it true just because we haven't got around to it yet.
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