How might this affect us?

[arriety]

Negative gearing claims soar
http://theaustralian.news.com.au/common/story_page/0,5744,17697154%5E25658,00.html

Is it a possiblity that the Government will remove Negative Gearing? It has done once before?? Should I be worried?

 

[Todd]

Not that i was around at the time they last withdrew the ability for negative gearing claims, but from what i have read, it was a disaster, i dont think they could be so silly as to do it again...

 

[arriety]

Doh, I should rephrase that! Will the government stop negative gear claims?

Actually last time I think it was a Labor government so maybe a different govern. might want to try lowering the claims or something.. Hope not.

 

[Boyd 2]

Negative Gearing

I don't think they'll ever totally abolish negative gearing associated tax concessions after the attempt in the mid 80's failed spectacularly. More likely that the tax concessions will be reviewed and possibly tightened, and property investors put under the microscope a bit more closely during audits. Personally, the tax breaks are a contributing factor to my property investments but not the leading factor.

 

[Monopoly]

Once bitten.....

I can't say with any certainty that negative gearing will never be abolished, but I do believe wholeheartedly that regardless of which government is in power, none will be willing to make the decision to end negative gearing because of its importance to the housing market.

It was abolished once before, but it soon backfired on the pollies and they reintroduced it quick smart!!!

 

[RichardC]

There's no need to limit -ve gearing, nor to abolish the FHOG to deflate the RE bubble. The money spent on inflating assets is at the whim of the gov. If they switch off the presses (a Lib gov did this in the early '60s) then nobody will pay the (inflated) price for your bricks n mortar. ergo Deflation (under the guise of a credit squeeze.)

There are funds with untold wealth designated in Yen, Yuan, and US$. But to buy Aussie mortgages they must first buy $A. They can only do that if our reserve bank actually "prints" that money. If Johnny and his Res Board mates ever thought that inflation was inflation, no matter whether it showed in retail prices, property prices or stock prices (a reasonable position) then they should stop "printing money".

This scenario would wrack absolute devistation on "complacent" investors. All I'm saying is be aware, be alarmed at your own discretion. LOL

bill

 

[The Y-man]

The other important thing to keep in mind is that your investments should work (i.e. make you money) regardless of the tax regime - i.e. the deductions may give you better performance, but should not be solely reliant on it.

Having said that, I believe I am about to throw some money at an "investment" purely for tax reasons.......

Cheers,

The Y-man

 

[Merovingian]

The other important thing to keep in mind is that your investments should work (i.e. make you money) regardless of the tax regime - i.e. the deductions may give you better performance, but should not be solely reliant on it.

Just to put my $0.02 in, I agree 100% with The Y-man. Tax benefits are only an "added bonus" when investing in real estate.

And as a side note, anyone who invests in real estate primarily for tax breaks, is a moron.

 

[geoffw]

Having said that, I believe I am about to throw some money at an "investment" purely for tax reasons.......

I did that once. I won't ever do it again.

1. The investment was disallowed, retrospectively, some years later. If ATO had not changed their mind, and given back a little latitude, I would have lost my house and everything else.
2. Tax laws can, and do, change. Even some of the investments now approved by ATO apparently depend on the promoter (agricultural scheme or whatever) fulfilling criteria every year for the life of the investment. If they fail in some way, ther investor can lose deductability, perhaps retrospectively. That's scary. (I still have a little money in onve such scheme).

 

[The Y-man]

I did that once. I won't ever do it again.

1. The investment was disallowed, retrospectively, some years later. If ATO had not changed their mind, and given back a little latitude, I would have lost my house and everything else.
2. Tax laws can, and do, change. Even some of the investments now approved by ATO apparently depend on the promoter (agricultural scheme or whatever) fulfilling criteria every year for the life of the investment. If they fail in some way, ther investor can lose deductability, perhaps retrospectively. That's scary. (I still have a little money in onve such scheme).

Thanks Geoff.

If a product is disallowed down the track, I assume you need to pay up all tax benefits derived + penalties..... or is there more?

Cheers,

The Y-man

 

[geoffw]

Plus interest at their rate- it was around 13% from memory.

Having said that- it's possible, but I don't know if it has happened.

When I invested in the agricultural tax effective schemes, the ATO ruling system was in its infancy, and my schemes, on the advice of several eminent QCs who assured us all that the sche,es were quite kosher, did not apply for a ruling.

 

[Mike F]

When Mark Latham was appointed shadow Treasurer a couple of years ago, he floated the idea of changing negative gearing policies on Lateline. By the middle of the next day he announced that he got it wrong and his party was not thinking of changing it at all.

This then led to the famous quote from Peter Costello that Mark Latham's policies don't even last 'from Lateline to Lunchtime'

So I aggree that the Government would be unlikely to make big changes to negative gearing for fear of negative voter reaction - especially for a Liberal Government, as well as a public housing crisis due to a lot of investors selling out.

Cheers
Mike F

 

[Peter 14.7]

It should be noted....

I think (please correct if wrong) last time the Labour Government did not cancel NG but modified it to mean you could not transfer the loss to another income source, i.e. your job.

The idea was the losses would be recouped against the future rental as property goes +CF.

No one liked this, money went out of property, and it all imploded for the construction industry, agents, etc...

The RBA would like to see it brought back in but the Gov knows it would be unworkable for the above reasons. It would also promote homelessness and put a massive increase in demand on the already overworked public housing stock.

So I vote no.

instead Lib and Labour are promising lower top tax rates which will make NG less of a hit for the Govs pocket when all the time through bracket creep everyone is paying 2% a year more tax due to inflation.

When you consider inflation means an Pie today costs $3 and goes up to $3.06, so we get another 0.6c but it pushes your tax higher so you are actually behind. Through in the GST at 30c now 31c and it gets worst.

I predict the top tax rate will be 30c in 2 to 5 years time and everyone will be paying it.

That also why the Gov does not want to fix the welfare trap for low income earners. It could simply abolish welfare-linked wages and say up to $15k no tax. Say heaps on paperwork and encourage single mums to get some work. But all of us would get the deal as well and that would costs $BN’s.

My thoughts, Peter 147

 

[Peter 14.7]

So I aggree that the Government would be unlikely to make big changes to negative gearing for fear of negative voter reaction - especially for a Liberal Government, as well as a public housing crisis due to a lot of investors selling out.

Cheers
Mike F

Agree Mike F.

Also the Gov bean counters on both sides have worked out the marginal seats are full of aspirational voters. These "battlers" have an IP or two or want one.

It is these people that have delivered Liberals victory as they fear a Labour economy more than anyone, depite being blue collar workers.

Peter 147

 

[kevinb]

The down side is if the Government dumps negative gearing - where is going to find the $80 Billion or so that investors have real estate.

 

[Lplate]

Just to put my $0.02 in, I agree 100% with The Y-man. Tax benefits are only an "added bonus" when investing in real estate.

And as a side note, anyone who invests in real estate primarily for tax breaks, is a moron.

I don't disagree however there must be a lot of morons out there because there have been many, many urgers over the years who have focussed their sales pitches on the 'benefits' of negative gearing.

 

[Panic]

Phased out

My position is that NG should be phased out in the next 5-10 years. If the Government wants it abolished then a good plan on phasing it out will work. This might be just the start of it combined with lower tax on income.

Bottom line as many others have said, "an investment must put money in your pocket". I would never rely on NG or other type of subsidize from the Government in my investments (not that I would not accept it).

I think of it this way "Would I open a sandwich shop and sell the sandwiches for less then it costs me to make them and then rely on the Government to pull me out of the hole?" NO.

Thx
V

 

[Lplate]

I don't think they'll ever totally abolish negative gearing associated tax concessions after the attempt in the mid 80's failed spectacularly. More likely that the tax concessions will be reviewed and possibly tightened, and property investors put under the microscope a bit more closely during audits. Personally, the tax breaks are a contributing factor to my property investments but not the leading factor.

Boyd

Well said and this has been happening.

Also, other tiers of government are taking the initiative to harvest more from property owners.

 

[Lplate]

My position is that NG should be phased out in the next 5-10 years. If the Government wants it abolished then a good plan on phasing it out will work. This might be just the start of it combined with lower tax on income.

Bottom line as many others have said, "an investment must put money in your pocket". I would never rely on NG or other type of subsidize from the Government in my investments (not that I would not accept it).

I think of it this way "Would I open a sandwich shop and sell the sandwiches for less then it costs me to make them and then rely on the Government to pull me out of the hole?" NO.

Thx
V

Rents would have to rise, but before that I reckon there would be panic selling - which would result in a dramatic reduction in the availability of rental housing.

Remember too that interest rate increases could be on the way.

The federal government's own statistician has consistently shown that people on low and middle incomes provide a llarge share of the rental housing in Australia. Such owners also provide a lot of welfare housing.

The rental yields on investment property are very low and many owners must already be experiencing great difficulties in meeting their payments let alone making provision for larger maintenance items. Prices have dropped in many areas too.

I think the rental industry is precariously balanced and it would be easy to start a run on the market. The industry is heavily taxed, directly and indirectly and following the boom, all that is holding some owners together is the hope of more capital growth in the near future (!)

Do you think state or federal governments would be able take up the slack and provide government housing if these owners run for cover? From reading the comments of recent entrants into real estate, many would seem to be highly exposed to any slight wobble in the market.

 

[Peter 14.7]

My position is that NG should be phased out in the next 5-10 years. If the Government wants it abolished then a good plan on phasing it out will work. This might be just the start of it combined with lower tax on income.

Bottom line as many others have said, "an investment must put money in your pocket". I would never rely on NG or other type of subsidize from the Government in my investments (not that I would not accept it).

I think of it this way "Would I open a sandwich shop and sell the sandwiches for less then it costs me to make them and then rely on the Government to pull me out of the hole?" NO.

Thx
V

If they did it would change the playing field but opportunities would still exist.

However, the right to make a loss in business including property is fundamental.

Many buisiness plans show no profit for say 3 years as the business grows. Such as a coffee shop where the fitout can well exceed the takings for a while but you have an asset, which if you can build the business, you can sell.

Allow no NG on shares as well and the market would crash.

NG will not go but tax rates will be that the benefit is reduced.

Also as LPate says the state gov and local do a nice business in gouging property over shares each year with rates and land taxs.

Peter 147