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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 (33,855 Views)
madhu
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DragonGM
14 Aug 2014, 09:30 PM
It needs to go.
You're obviously not receiving any benefits from it. You would need to be 100% of its non-impact prior to removal otherwise you risk de-stabilising the only growth sector in the current economy. At the moment the banks and the RBA are signalling at least 5 years to any "green shoots" of recovery based on the current 5 year fixed rate. In an already fragile economy, you want to destabilise it further? I assume you voted for labour at the last election?
IngoreMining
29 Aug 2014, 01:47 PM
I notice you guys ignore any of the mining threads on this forum

Why is that?
What is your interest in mining? Spruiker?
Edited by madhu, 29 Aug 2014, 10:12 PM.
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miw
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propertymogul
29 Aug 2014, 12:18 PM
Fair enough the 4 hour mowing job might turn a profit. However after deducting the cost of the mowers (lets say $3k for a ride-on and a normal mower), whipper-snipper ($600), other garden tools ($500), petrol ($200), travel to/from ($200) they may not turn a profit in year 1 (say $20 per hour, 4 hours per week, 46 weeks per year = $3,680 income), so may have to carry forward the loss for a year under the business tests. But you would still classify it as a hobby as it hasn't passed the tests. Not so with property.
You have obviously put a fair bit of time and thought into your reply so I will return the compliment.

Well, the cost of the mower and tools is not a directly deductible expense. You would need to depreciate them across their deemed lifetime. So you could well be cashflow negative in the first year, but if you were not profitable you would have really screwed up on your pricing or be charging a deliberately non-commercial rate.

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You cannot claim MV expenses, other than per kilometer expenses for trips that were *solely* for the purpose of collecting the rent, inspecting the property or repairing the property.


So to summarise you can claim motor vehicle expenses. If you bought a property 100km away, and did 10 trips per year including inspections and repairs that is 2000km. If your total driving for the year was 10,000km that is 20% of your motor vehicle expenses. On a $50,000 car you would be claiming 20% of your depreciation, services, fuel, repairs etc. This could easily work out to a $3,000 - $4,000 deduction for 2,000km of driving which cost you $300 in fuel. A person driving their car to/from work to make money can't make these deductions (normally), although you have already agreed that is an anomaly in the tax system.


The ATO would not accept 10 trips per year on that basis. Maybe if you went personally to somewhere close to collect rent, you could get away with many trips, but my accountant tells me that if the place is not close, the ATO gets very antsy after the second trip in a year. You would have to demonstrate why you were making so many long trips at the very least, and perhaps prove you didn't do anything else on the trip.

Also, if you drive from Sydney to Newcastle and on that trip you visit your mum in Newcastle, then only the miles from your mum's place to the IP are claimable. The ATO site is pretty clear that there is no apportionment between business and private in the case of rental property. Collect the rent on the way home from work? Not claimable. It is significantly more restrictive than MV expenses for something the ATO deems to be a "business."

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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/


This is for what the ATO calls businesses. The ATO does not call rental property a business and have a separate list of what they say you may be able to claim. (mind you like everything on the ATO website it is their opinion and not the law.)

https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Investments,-including-rental-properties/Rental-property-expenses/

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Rental property expenses
What you can claim

You can claim expenses relating to your rental property but only for the period your property was rented or available for rent; for example, advertised for rent.

Expenses could include:

advertising for tenants
bank charges
body corporate fees and charges
borrowing expenses
capital works
cleaning
council rates
decline in value of depreciating assets
gardening and lawn mowing
insurance
interest expenses
land tax
legal expenses
pest control
phone
property agent fees and commissions
repairs and maintenance
stationery and postage
travel undertaken to inspect or maintain the property or to collect the rent
water charges.

Note the absence of home office, self-education and tools that you can claim against business or employment income. So nope. You cannot claim the cost of attending property investment seminars LoL. (You also can't claim repairs and maintenance for damage/wear and tear that did not happen while the property was actually rented out.)

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Fair enough I actually agree that if you are still making a rental loss after 10 years then you have most likely bought something with a low yield and have probably made a poor investment. However as around 65% of PIs are negatively geared, and Shadow insists that the average PI holds for more than 10 years (he may be right, I haven't seen anything conclusive either way yet) it appears that most PIs are selling while still making a rental loss. I agree that the CPI method would be fairer than the current discount. However any discount applied should be reduced by any tax benefit received through negative gearing, or alternatively negative gearing losses should be carried forward and offset against the capital gain. Otherwise you can get the position where the investor makes a net loss after selling but comes out in front due to the tax laws.


I have done a fair bit of modelling on this and I have been able to create some corner cases where the property was sold in the first 3 years at an overall loss from a combined capital and rental perspective, and in these cases the NG benefit is an actual cash subsidy. I have even been able to configure it such that, with the cash subsidy, you make a tiny profit. But before you go out and apply the strategy, I have to warn you that the return on funds invested is vanishingly small.

In the general case, the NG benefit is simply a zero-interest loan. On an 30-year 80% LVR P+I loan on a property where you can claim 2.5% depreciation where you do not get ahead on repayments, with economic parameters similar to those that currently reign, you start paying back the loan after 9-10 years and it is fully paid back after about 16-17. If you went IO for a portion of the period, those times would extend, and if you change almost anything else it is shorter. Now getting a zero-interest loan is worth real money, of course. By my calculation, the NPV of the NG benefit on a $500k property, assuming you hold until all benefit is played out, is about $10-$13k depending on some factors like inflation rate, rate of capital growth, interest rates etc. It only costs the govt about 2/3 of that, because the govt's cost of borrowing is lower than yours.

If you want to put that in yield terms, if you stop NG and make losses be carried forward, that same investor would need to get about 15 basis points more gross yield, or increase rents by 3% across the board to get back to the same NPV of investment as he had with NG.

So to my mind the hysterical cries about rents going to the moon if NG is taken off are just as far off the mark as the claims that NG represents a loss of a grillion dollars to government coffers. In dollar terms it just isn't that much.

Where NG does bite is that it makes it much easier for the investor to service the loan in the first couple of years, and they can scale into investment considerably faster. It also provides somewhat of a hedge against interest rate spikes and de-risks the investment. You may argue that is a bad thing, but it is certainly not where the activists are focussing their energies.

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I also agree that going forward capital gains are likely to be lower in percentage terms on Aus property in general, and therefore rent will form a larger percentage of the total economic return. However I don't think I'm committing the fallacy you mentioned, in fact the opposite. What I have been getting at is the current laws which allow negative gearing and then getting a 50% discount on the capital gain results in the typical PI that sells within a few years possibly making a total economic return of $10,000 but coming out $16,000 in front due to the tax laws. Or making $100,000 total economic return but only paying 15% total tax on that return.


Yeeeeees...... That is the corner case I was referring to above. Although it is much more like making a $3k loss but coming $5k ahead because of NG. Whatever, the ROI on that investment is so low that only someone with rocks in their head would plan for it. Far better to put the deposit on the house into a term deposit and done with it. My modelling shows the effective tax rate for the entire transaction for someone on a 35% marginal tax rate every year except for the disposal year when they get bumped to 48% converges very quickly to about 23% overall, and then grows very gradually to about 25-26% and stays there forever. It's lower than marginal rate, but it is also pretty comparable most countries' rate for capital gains tax and certainly less tax-advantaged than buying dividend stocks on margin.

What I was getting at on the "fallacy" comment was that I believe most people, when they look at where the economic returns come from, calculate the nett benefit from rent by subtracting all costs, including holding costs, from the gross rent. In fact, you need to split your expenses into two groups - holding costs which you pay regardless of whether you rent the place out, and costs directly related to renting the property out. So interest, rates, land taxes, strata fees, insurance and some maintenance need to be assigned as drags on both rental income and capital gain while agents' commissions and wear and tear need to be assigned to rent alone. The confusion comes from the fact that holding costs are only deductible if you can show that you are making money from something other than pure capital gain. e.g. rent at market rates, development, etc. And the rules are different depending on what you claim to be doing.

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I think we're getting somewhere, and I think you have made a valid point about the distribution of PIs. However I think the point you have made also means that you are wrong about your conclusion "that I believe most would have been cashflow positive at the time of sale."

I'm now actually starting to agree with you that it's entirely possible that the average investment property has been held for 10 years or more. This would be due to a large portion that have been held for 20-50 years bringing up the average. A small percentage of PIs would hold these properties and these are more likely to be the PIs that hold multiple properties.


Yeah. I don't totally disagree with you here. But also bear in mind that if *every* property was held for exactly 20 years, if you took a snapshot at any given time, the average holding time to date would be only 10 years. I definitely believe that most IPs would individually be cash positive at time of sale. But to say that the majority of properties have "paid back" the NG "loan" from rent by the time they are sold is a much stronger statement and may well not be the case. They pay it back from CGT at disposal though.

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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. Secondly, approx 65% of total rental properties are negatively geared. So for any given sale of an investment property, there is an approximately 65% chance that the property was negatively geared, all else being equal. Thirdly, even including all the properties that have been held for 10-50 years the total stock generates a loss. One would think that the property that's been held for 30-50 years would generate profits to cover 5-10 of the negatively geared properties, however that doesn't appear to be the case.


I have seen no stats on what the exact average holding time for an investment property is. However, there are 9.3M dwellings in Australia and the average number of property transactions in any month across the country seems to have been about 40k or fewer from 1993 to 2011, making the average holding time for residential property as a whole about 20 years. So unless you can show me the data, I have to respectfully disbelieve the claim that 50% of properties purchased in a given year are sold within 5 years. I do know from my own experience that if you don't plan to hold a property for *at least* 10 years and probably more like 15, then you are making a bad investment decision to buy it. Opportunities or problems may come up sooner to make you sell it, but as a starting plan 10-15 years would seem to be the minimum. The exception here would be people who are in the business of buying properties, improving them in some way, and then selling all or part of the property for profit. But this is to my mind (and the ATO's mind) a completely different business. The value is added elsewhere.

You do need to be a little careful with the interpretation of snapshot stats. For example, assume a world where every property was held for 12 years. Initial LVRs and rental yields were such that properties became positively geared after 8 years. If you looked at the stats, they would seem to tell you that the rental stock as a whole was negatively geared, and in fact at any given time 65% of the stock would be negatively geared but it would also be true that every single property would have been positively geared at time of sale.

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So the tax break given by negative gearing is not deferred as you claim.


I don't think I have ever claimed this. If I did, then it doesn't even make sense.

What I and others claim is that the tax break is purely that tax is deferred. The ATO gets their dollars back in full, but they get them back later. The time value of that deferral is the tax break, if you call it a "break" at all, since it applies to every side business that obeys the guidelines and I don't accept that the guidelines are any easier for own-to-rent. In fact in some ways they are harder, because there are so many ways you can stuff up such that what would seem to be quite legitimate expenses are *never* deductible. (Example: repair the guttering on your new property before the first tenant moves in - you cannot claim that as a rental deduction, and you cannot claim it as a purchase expense, and it is not capital works so it is not deductible ever.)

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For the bulk of sales it is not recovered as the gain on sale (which is when it might be recovered) is discounted by 50% so is only approximately 50% recovered.

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.


I disagree. Imagine a case where someone has an investment property they bought at 80% LVR for 500k that they held for 10 years. Being a person who believes that NG is the only thing that makes the investment worthwhile, they sell exactly when the property becomes neutrally geared. Over the course of that 10 years they have made a tax loss on the property every year and paid $20k less tax than they otherwise would have because they have a cumulative tax loss of $57,142. (marginal tax rate is 35%) You could say they "owe" the tax man $20k. Now they are going to cut and run with bags of the tax man's money!

During that 10 years, property prices have been increasing at a steady 5% per annum. They have been claiming 2.5% depreciation allowance on the structure, and now the cost base, nett of depreciation and purchase expenses is $484,175 and they sell it for $775,000. After commission and marketing costs they nett $755,000.

Capital gain is $755,000-$484,175 = $270,825. Convert from Capital profit to Ordinary income by multiplying by 0.5: $135,412

Let's just pretend this did not blow them into a higher tax bracket. They pay $47,394 tax. With the $20k they stole it works out to $27394.37 tax over the entire transaction.

Now let's suppose that the govt foiled our would-be thief by disallowing negative gearing on the day before the property first settled. They are stuck with it for 10 years. Other than the quarantining, nothing changes.

Capital gain is still $270,925. Converted to Ordinary income it s still $135,412. BUT now, instead of the $20k tax break over 10 years, they have a carried forward ordinary income loss of $57,142 which they can offset against the ordinary income from capital gain. So the taxable income from the capital gain becomes ($135,412-$57,142)= $78,270 and the tax payable at 35% is $27,394. Does that number look familiar?

That 50% rule is *not* a discount. It is a fudge to convert capital gain into ordinary income and still have the tax rate on capital gain comparable to what it is in other countries for big capital gains and at the low end of the scale for small capital gains. At the time I called it for what it is: an incentive for people to get out of property and into shares.

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miw
31 Aug 2014, 06:08 PM
Well, the cost of the mower and tools is not a directly deductible expense. You would need to depreciate them across their deemed lifetime.
I know it's not really relevant to the debate but FYI, for a while now, small business have been able to immediately write off asset that cost under $6,500. Although they are looking at reducing that back to $1,000.
https://www.ato.gov.au/business/small-business-entity-concessions/in-detail/income-tax/simplified-depreciation-rules/

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Also, if you drive from Sydney to Newcastle and on that trip you visit your mum in Newcastle, then only the miles from your mum's place to the IP are claimable.
Depends what the main purpose of the trip is and what is incidental to the trip. If in doubt, don't visit your mum. Call her instead :)

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Note the absence of home office, self-education and tools that you can claim against business or employment income. So nope. You cannot claim the cost of attending property investment seminars LoL.
I don't believe the rules are that different for property investors. Those items were left out because they are not as common for property investors. If you can show that you spend some time managing your property from home, you could claim for home office use - 34c per hour is the easiest method. You can claim for property seminars if they relate to producing your assessable income from property. True, if you attend the seminar before buying a property, it's not deductible. But that's the same for a business seminar before starting a business or a work-related seminar before starting a new job.

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You also can't claim repairs and maintenance for damage/wear and tear that did not happen while the property was actually rented out.
There won't be much wear and tear if the property is not rented out. Regardless, if the property is vacant for a short time but is available to rent, repairs will generally be deductible.

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In fact in some ways they are harder, because there are so many ways you can stuff up such that what would seem to be quite legitimate expenses are *never* deductible. (Example: repair the guttering on your new property before the first tenant moves in - you cannot claim that as a rental deduction, and you cannot claim it as a purchase expense, and it is not capital works so it is not deductible ever.)
True this might catch people out. But it is capital in nature so it will reduce the eventual capital gain. Which makes sense to me - because it's the equivalent of someone paying a higher price for a place that doesn't need the initial repairs.

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During that 10 years, property prices have been increasing at a steady 5% per annum. They have been claiming 2.5% depreciation allowance on the structure, and now the cost base, nett of depreciation and purchase expenses is $484,175 and they sell it for $775,000. After commission and marketing costs they nett $755,000.

Capital gain is $755,000-$484,175 = $270,825. Convert from Capital profit to Ordinary income by multiplying by 0.5: $135,412

Let's just pretend this did not blow them into a higher tax bracket. They pay $47,394 tax. With the $20k they stole it works out to $27394.37 tax over the entire transaction.

Now let's suppose that the govt foiled our would-be thief by disallowing negative gearing on the day before the property first settled. They are stuck with it for 10 years. Other than the quarantining, nothing changes.

Capital gain is still $270,925. Converted to Ordinary income it s still $135,412. BUT now, instead of the $20k tax break over 10 years, they have a carried forward ordinary income loss of $57,142 which they can offset against the ordinary income from capital gain. So the taxable income from the capital gain becomes ($135,412-$57,142)= $78,270 and the tax payable at 35% is $27,394. Does that number look familiar?

That 50% rule is *not* a discount. It is a fudge to convert capital gain into ordinary income and still have the tax rate on capital gain comparable to what it is in other countries for big capital gains and at the low end of the scale for small capital gains. At the time I called it for what it is: an incentive for people to get out of property and into shares.
I don't understand the link you're making between delaying the tax deduction if negative gearing was disallowed and the capital gain "fudge".
Edited by Aussiehouseprices, 31 Aug 2014, 09:58 PM.
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miw
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Aussiehouseprices
31 Aug 2014, 09:48 PM
I know it's not really relevant to the debate but FYI, for a while now, small business have been able to immediately write off asset that cost under $6,500. Although they are looking at reducing that back to $1,000.
https://www.ato.gov.au/business/small-business-entity-concessions/in-detail/income-tax/simplified-depreciation-rules/
This is something I was not aware of. Looks like a case where it might be strategic to depreciate rather than claim the full cost immediately in a few cases, though.

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Depends what the main purpose of the trip is and what is incidental to the trip. If in doubt, don't visit your mum. Call her instead :)


Yeah. This was always my view. "Incidental" is one of those weasel words though. I always imagine I am trying to make my case to a judge rather than to a forum. maybe it would come down to whether you spent more time at your property or more time at your mum's.

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I don't believe the rules are that different for property investors. Those items were left out because they are not as common for property investors. If you can show that you spend some time managing your property from home, you could claim for home office use - 34c per hour is the easiest method. You can claim for property seminars if they relate to producing your assessable income from property. True, if you attend the seminar before buying a property, it's not deductible. But that's the same for a business seminar before starting a business or a work-related seminar before starting a new job.


Personally I wouldn't say they were less common for property investors. Why would they say you can claim for your phone and postage but leave out home office? Similarly for seminars. These are things that are specifically listed for business and employment but are left out of all the lists and worksheets for rental property(not in business). I do note that if you have scale and show that you spend significant time on rentals, then you can apply/assert to have your activity classed as rental property (in business), in which case all the business deductions would be available, presumably including home office and self-education. And you can even access the small business concessions. Could it be that this is what you are referring to?

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There won't be much wear and tear if the property is not rented out. Regardless, if the property is vacant for a short time but is available to rent, repairs will generally be deductible.


yes. This is exactly my understanding - as long as the wear and tear occurred in connection with the rental business, it makes no difference whether you do the repairs while tenants are there or in between tenants. In fact, you can even claim for repairs after you take it off the rental market as long as the wear and tear occurred in relation to a tenancy.

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True this might catch people out. But it is capital in nature so it will reduce the eventual capital gain. Which makes sense to me - because it's the equivalent of someone paying a higher price for a place that doesn't need the initial repairs.


It is a stupid anomaly. The guidelines are pretty clear about what is a capital expense and what is a current expense while the property is being rented out. Yet painting the bathroom ceiling is a capital expense the day before the first tenant signs a lease and a current expense the day after the first tenant signs a lease. In fact, it is still a current expense if you do it after you take the property off the market and you are tarting it up for sale. As a capital item, you are entitled to depreciate over 40 years, but this is ridiculous because in fact you'll have to do it again in 10. So in fact it is something that does not contribute to resale value, you pay for it in present after-tax dollars, and you get to claim 50% of the residual at disposal - in future dollars.

Or look at it in another way for the kind of behaviour it promotes. You are actually quite a bit better off to *not* do any repairs that would not normally be capital items, rent out at a reduced rate because of defects, and then do the repairs and claim after 6 months when you can raise the rent. The tax man suffers

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I don't understand the link you're making between delaying the tax deduction if negative gearing was disallowed and the capital gain "fudge".


It was in answer to a claim that you somehow eventually end up paying fewer dollars of tax under NG if you dispose of the property while still negatively geared vs. the case where you have to carry forward losses to disposal. This is because capital gains are converted to equivalent ordinary income before tax is assessed, and carried forward losses are carried forward as ordinary income, not as capital gain. Except in the case where overall you are in the red, the dollars you pay are identical under either scenario. With NG the dollars you pay are delayed, is all. Or, put another way, capital gains are converted to ordinary income, but you can never convert ordinary losses into capital losses.

I do see the 50% "discount" as a fudge. Since capital gain happens at a delay - often a very significant delay - to the initial investment, to me the correct and fair way to assess tax is to use CPI to change the income to real income, or to tax capital gain as a separate taxable item at a lower rate. Australia (and Canada, I think) use the 50% fudge so there is only one number for your taxable income. I can see why this method is chosen - in high inflation situations the effective real tax rate rises, creating fiscal drag. Or you could say the government is rewarded by a higher tax take for poor fiscal management. Your choice. It certainly encourages short-termism.

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miw
1 Sep 2014, 05:22 AM
Personally I wouldn't say they were less common for property investors. Why would they say you can claim for your phone and postage but leave out home office? Similarly for seminars. These are things that are specifically listed for business and employment but are left out of all the lists and worksheets for rental property(not in business). I do note that if you have scale and show that you spend significant time on rentals, then you can apply/assert to have your activity classed as rental property (in business), in which case all the business deductions would be available, presumably including home office and self-education. And you can even access the small business concessions. Could it be that this is what you are referring to?
No, I'm not referring to that. Normal property investment is a fairly passive activity. So home office would be minimal.
Seminars are deductible if they relate to producing income from the property.
https://www.ato.gov.au/individuals/ind/rental-properties---claiming-travel-expenses-deductions/?page=8
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Shadow
29 Aug 2014, 01:33 PM
Some more data which may help the debate...

The proportion of taxpayers with an IP was about 20%, and the proportion of investors who are negatively geared was about 65% in 2011-2012.

I expect the proportion negatively geared would be lower now due to the fall in rates. Note the dips in 2008 and 2009 when rates fell.

http://www.propertyobserver.com.au/forward-planning/investment-strategy/market-trends/31158-slight-fall-in-number-of-negatively-geared-property-investors.html

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I wouldn't be surprised to see it resume a rising trend sooner or later. The very low interest rates will continue to push prices up, which will in turn begin to erode the savings made by them in the first place and NG will very likely continue to increase in popularity.

Ironic really, everything that helps make housing more affordable ends up making it less affordable as the response to falling costs simply translates into an increase in asking prices.

Realistically, most things aimed at making housing "more affordable" is really just aimed at allowing people the ways and means to take on ever-increasing sized mortgages. They have the interests of the vendor in mind, not the buyer. As long as there is an endless stream of credit to fuel it.........
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Aussiehouseprices
1 Sep 2014, 10:03 AM
No, I'm not referring to that. Normal property investment is a fairly passive activity. So home office would be minimal.
Seminars are deductible if they relate to producing income from the property.
https://www.ato.gov.au/individuals/ind/rental-properties---claiming-travel-expenses-deductions/?page=8
OK. I stand corrected. That does indeed imply that there could conceivably be a seminar that you could claim.
Lef-tee
1 Sep 2014, 01:47 PM
I wouldn't be surprised to see it resume a rising trend sooner or later. The very low interest rates will continue to push prices up, which will in turn begin to erode the savings made by them in the first place and NG will very likely continue to increase in popularity.
I would be a little surprised, actually, because banks just won't lend as much as they would back in the mid-2000s. It could conceivably happen though. The 2013 aggregate tax numbers will be interesting.

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Ironic really, everything that helps make housing more affordable ends up making it less affordable as the response to falling costs simply translates into an increase in asking prices.


Yes. As some dude from Perth keeps harping, supply and demand. If supply and demand are such that people will pay "X" for something, and then you give some portion of the population "Y" to help them pay for it, then those guys will quite happily offer "X+Y" for it. This will increase supply, but at a higher equilibrium price point, "X+Y-d". So in fact for those people who get given the "Y", it becomes more affordable by "d" and for everyone else it becomes less affordable by "Y-d".

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Realistically, most things aimed at making housing "more affordable" is really just aimed at allowing people the ways and means to take on ever-increasing sized mortgages. They have the interests of the vendor in mind, not the buyer. As long as there is an endless stream of credit to fuel it.........


Actually, I just think it is because the policies are poorly thought out. To my mind the only way to reduce the price to the final consumer, whether they be renters or OOs, is to reduce the cost of creating new supply. Giving money to buyers will bid up the price until new supply comes because of it. Futzing around with the way property is taxed after it has been built may shift the balance between owning and renting, but will have little to no impact on overall cost of accommodation, because it does nothing to alter supply or final demand.
Edited by miw, 1 Sep 2014, 03:46 PM.
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miw
1 Sep 2014, 03:13 PM
Actually, I just think it is because the policies are poorly thought out.
I would argue they are masterfully thought out...

It must take quiet a few meetings to design and sell policy that will raise their own net wealth as offering assistance in the affordability for younger generations ( when in fact they are doing the opposite long term ) . They would see jail terms for adjusting policy that grants them gains in their other assets but property is a sacred cow in that regard as cant ask them the pollies to not own the house they live in.

Im sure anything that threatens that net wealth is abandoned well before it even hits the note pad in brainstorm sessions ( or passed on to be delayed until they have made their dollars )
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miw
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1 Sep 2014, 03:57 PM
I would argue they are masterfully thought out...

It must take quiet a few meetings to design and sell policy that will raise their own net wealth as offering assistance in the affordability for younger generations ( when in fact they are doing the opposite long term ) . They would see jail terms for adjusting policy that grants them gains in their other assets but property is a sacred cow in that regard as cant ask them the pollies to not own the house they live in.

Im sure anything that threatens that net wealth is abandoned well before it even hits the note pad in brainstorm sessions ( or passed on to be delayed until they have made their dollars )
Could be, but I just don't give them credit for that much competence. The policies can just as well be explained by populist thinking and ignorance as by malice. And remember that for a politician, the biggest boost to nett wealth comes from re-election in most cases.

I've spent time trying to influence the people who formulate policy, (a little bit in the legislature but mostly in the PS) and if they have that much understanding, then in general they hide it very well.

In any government the most powerful departments are treasury and finance. These guys fight like kilkenny cats not to give up a single shekel of income, which is what they would have to do for most policies that would make supply cheaper. On the other hand, if you want to create a new home-vendor grant, that is spending and you can steal that from less powerful departments.
Edited by miw, 1 Sep 2014, 05:20 PM.
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I would be a little surprised, actually, because banks just won't lend as much as they would back in the mid-2000s. It could conceivably happen though. The 2013 aggregate tax numbers will be interesting.



If the banks don't keep lending out more it's going to be difficult for prices to keep surging upward. Unless well-heeled foreigners buy them all with cash.

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Actually, I just think it is because the policies are poorly thought out. To my mind the only way to reduce the price to the final consumer, whether they be renters or OOs, is to reduce the cost of creating new supply. Giving money to buyers will bid up the price until new supply comes because of it. Futzing around with the way property is taxed after it has been built may shift the balance between owning and renting, but will have little to no impact on overall cost of accommodation, because it does nothing to alter supply or final demand.



I think they were originally poorly thought out but now are deliberately maintained because funding a comfortable retirement by selling houses has become so incredibly popular - there are a lot of voters who are now dependent on ever-rising prices and almost our entire politician cohort right across the political spectrum is also heavily invested. Vested interests have total domination of the situation.
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