Post on 13-Jan-2017
Negative Gearing
Negative gearing is the practice of using losses on property investments to reduce taxable income .
While negatively gearing property may be a rational and understandable way
for low income earners to minimise tax, do we want an ever-rising share of Australians in leveraged property?
Is it good or bad?
33% of tax benefits from
negative gearing go to the top 10% of income earners which
disproportionally benefit Aussies in high-paying
jobs.
1.3 million
individuals declare rental income and losses each year.
100 years of this tax policy which allows taxpayers to deduct the cost of
investments against their income.
$3.7b in lost revenue to the
government with the cost of the 50% capital gains discount
costing $4 billion a year.
0
5
10
15
20
25
30
Percentage
Occupation
% of occupations with
negatively geared property
(2012-13)
But do middle income earners really benefit most from negative gearing? Let’s look at the distribution
of negative gearing among some common occupations.
Surgeons
Finance Managers
Mining Engineers
Teachers
We recommend using a quantity surveyor to quantify the amount of depreciation and capital works for
residential rental properties.
Contact Baker Affleck Moffrey for more information. 07 5538 3088 || www.bakeraffleck.com
Over
A deliberate negative gearing strategy relies on an expectation that gains from selling the asset at a higher price will be greater, in after-tax terms, than the earlier losses.
However, favouring investment properties over bank deposits may increase the level of risk and debt in the economy. While negatively gearing property may be a rational and understandable way for middle to low income earners to minimise tax, do we want an ever-rising share of Australians in leveraged property? The underlying benefit is the rate at which capital gains (for assets held over a year) are taxed, or discounted by 50%. This creates a large tax cut and increases the appeal of leveraged loss-making investments.
P R O S & C O N S
The main benefit of negative gearing is that it reduces one’s taxable income and hence their tax liability. The taxpayer is able to deduct their net loss on a negatively geared asset against their other income (eg. Salary and wages.).
Negative gearing creates more housing supply as many middle to low income earners can now afford to enter the property market.
Without negative gearing landlords will be tempted to increase rent in order to recoup the tax break.
Nurses
Sales Assistants
With the recent instability of the rental market, we wanted to take a quick look at
what negative gearing really means.