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.