Doesn’t It Strike You As Strange…

…that all of a sudden, everyone seems to be talking about plans to axe negative gearing and halve capital gains tax concessions for investors, and that some people think this is just a great idea to punish “the rich” who benefit from it?

Doesn’t it strike you as strange that those in favour of abolishing negative gearing claim this will help fix the federal budget, when savings to the government will be in the order of $3.4-$3.9 billion – just 8% of the budget deficit?

Doesn’t it strike you as strange that despite claims negative gearing is a tax rort mostly used (and abused) by “the rich,” just 22.4% of those with negatively geared property earn more than $100,000 per year?

And most importantly, doesn’t it strike you as strange that outside the political world and those directly connected to it, not one prominent organisation in the country is campaigning for negative gearing to be abolished?

We offer no opinion or directive on political matters, but we do want Australians to know that if this proposal is implemented in its current form, its consequences will be dire.

Negative gearing affects everyone. Why risk so much right now?

Authorised by Jock Kreitals, 16 Thesiger Court, Deakin ACT 2600

Copyright © Real Estate Institute of Australia 2016. All Rights Reserved.

31 thoughts

  1. All they are proposing is to remove the ability for an investor to offset their losses against other non-related income. They can still claim expenses against the income relating directly to the asset, so I don’t see the issue. The proposed changes seem fair to me and will help remove some of the speculative buying that goes on at the moment. The ability to continue negative gearing for new builds will encourage more housing supply as well, so another positive. More building activity and more moderate house prices would be a good thing for this country.

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    1. HI Plug, thanks for your comments. This issue for many people is cash-flow – negative gearing allows investors who wouldn’t otherwise be able to fund a property investment to pull forward the deductions, making it more affordable. Again we’re not arguing whether this is a good or bad concession, simply that removing it suddenly on all existing properties will be a massive shock to the market and a fragile economy. Regarding your suggestion that new builds will be encouraged – building and development companies, the ones who would supposedly benefit most, don’t appear to agree – on the 7th May, The Australian published an article in which Mark Steinhart said these proposed changes to negative gearing could lead to a recession.

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      1. “simply that removing it suddenly on all existing properties will be a massive shock to the market and a fragile economy”

        Labors policy says that it will not apply to existing properties, only for existing homes bought after June 2016. Care to explain why you say it will be applied to all “Existing Properties”?

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        1. HI Nolan, thanks for asking, existing properties are properties that are not new. To clarify, the proposal is that any properties that are being negatively geared prior to 1 July will have a grandfathering arrangement. Any properties that are new will still be able to be negatively geared after July 1, while negative gearing will not be available on existing properties after this time. Sorry if the terms we used confused you, these are the industry terms. If you have any other questions, please let us know.

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      2. Ngaffectsyou, Plug’s comment is completely accurate you didn’t seem to absorb his comments properly with speculative buying issue creating housing affordability. The recession will hit regardless and negative gearing has been one of the causes of it in the first place… I think it would have been more appropriate to have researched the situation properly before releasing such an article.

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    2. So what’s unfair about it? It seems fair in any other business, i.e. if you have a job and another business at the side that’s losing money, you only pay tax for your overall personal nett income. After all, why should you be taxed for income that you never receive?
      Note that not all negative gearers are investors. Many of them (including me) are just normal blokes who don’t have a second house, but need to rent out their places because they have to move elsewhere for a job, and have to pay rent themselves where they’re living. On the other hand, we’re still unable to afford switching our house with one at our new location of residence thanks to the high stamp duty that we’re still saving up for.
      So we’re losing money from paying our mortgage (higher than the rent), while not even living there. When we later sell this house, we are paying tax for any capital gain we receive (which may not be higher than our losses). If we can’t negative-gear against our salary, it’ll only be fair if you could at least offset our losses against your cap-gain tax, which would make the whole thing a swing and roundabout.
      Abolishing negative gearing seems to make no sense whatsoever as far as fairness goes. Why are we being taxed on an income (salary/cap-gain) that we never actually receive? I moved interstate for a job taking into account the entire thing: rent expense (at the new place), salary, mortgage, rent-income, and my nett tax after everything is accounted for. Since then, they suddenly raised mortgage rate for investment properties, which already made life difficult for us. Abolishing negative gearing will put a tremendous pressure on our lives.

      If the intention is to stop excessive speculative investment in real-estate, then well why not structure your tax to directly address that? E.g. extra tax rate for your second/third home etc. Rather than using a weird arbitrary rules such as exempting certain losses from being accounted for tax offset, which brings unfair collateral damage for people who are NOT abusing the system.

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    3. Not going to happen ngaffectsyou, apparently only 6% of investors buy new stock which leaves 94% buying established homes of this 94%, 20% (18 investors) will have a dummy spit (those under $120K pa household income) of which 1/3 or 6 will buy new, 2/3 or 12 will not do anything.

      The ratio of supply and will be altered so that the demand for new will be doubled with no way to meet supply as developers cannot bring stock on that fast so prices will rise and those most affected will be first home buyers who will be absolutely priced out of the market.

      Rents will rise by 30% by the end of year 3 as a result of the reduced supply from established properties.
      The entire ALP Policy is flawed and will backfire monumentally as it always does when politicians interfere with the market place.

      In the late 80’s in Elizabeth / Salisbury SA we were getting 8%-11% rent returns on real estate as a result of so called negative gearing we now get 5% returns so a property worth $300K recieving $300.00pw rent today would need to return $24,000.00 per annum rent or $461.00 per week to match the returns from the late 80’s. If you return to a commercial structure then investors will require a commercial return.
      The ALP policy also fails to state what they will replace the tax treatment with if they take away the right to make the claim they lose the right to tax the profits.

      The only other option is run property as a standard business which increases the long term profits whereby investors will not pay any tax on the profits from the property for 15-20 years subject to their investment structure and there are provisions in place to claim business losses against the low income earners salary up to $46K pa but check that with an accountant.

      BTW negative gearing is only your lending ratio, it realtes to negative equity which technically cannot exist, the media definition is just a standard business cash flow and effectively nothing more than a marketing term.

      As for Bowen and Shorten’s illiterate remarks about investors turning up at auctions with the most generous tax benefits in the world and seven negative geared properties they were and are incorrect and not possible, in short the whole argument is nothing but “Political Spin”.
      If they do win and introduce their changes, they double my sales and triple my profits so I am happy to support the ALP Policy but not for the same reasons they believe.

      FYI – the ALP Policy is simple to circumvent so it is essentially “Worthless”

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  2. Gratten modelling states an average 2-3 % price falls nationally, but in areas of high negative gearing, such as regional coastal areas, it is admitted that those impacts may be higher. And that markets tend to overshoot, so initial impacts will be greater again. So how much devaluation, know one can answer. Bill Moss ex head of Macquarie Group property division is on record saying 30 %. Sounds rich. Or is it. post GFC we saw the Central Coast beachfront sales fall 45%. Markets are volitile. Whilst the inner CBD may have a solid buyer base to take up the exit of investors, the regionals do not have an employment or high salary base to uphold market values. Considering some coastal tourist towns beachside apartments are predominately investor to investor sales, these markets will collapse, but again do not have the permanent employment to allow home buyers to finance their purchases. And whilst affordability for first home buyers is an issue, almost a third of the country rent, and will continue to do so. Many by choice or circumstance will never qualify for a loan, even if the current values were halved. Whilst it’s great spin to talk up pushing the investors into new housing, the reality is those new properties are generally more expensive. This is knocking out a lot of current investors, with increased borrowings, that they will not qualify for.So again the limited number of new rentals, that do get bought, will be at a higher rent. That’s just logic, so rents must rise.
    Investors are not stupid, they soon realise that the new unit or house they have purchased, now has a limited resale value, with the only market being owner occupier, to pay hopefully a premium value to their original purchase price. So we will not see the promised new building boom. All the construction bodies HIA MBA , Property Council have all come out against the changes. If construction was going to be boosted, they would support Shortens claims. But they are not. I
    The impacts on tenants rents and the impacts to regional areas, both prices and construction employment, are being completely ignored, in this inner city dominated debate.
    Unfortunately property construction rates need added investment to produce valuations above current construction costs. Take the investment away and it’s the countries tradies that suffer. It’s not the rich vs the poor in this debate. It’s the lefties vs the tradies.

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  3. I find it interesting that this country is seriously in a downward spiral.. What was once the lucky country is now being squeezed in all directions to make you and I not only have to work well into our 70s+ but really make it the unlucky country, neg gearing, superannuation et al. Oh, but hold on let’s not let the politician man (gender equal) not let his super or investments be touched.

    What the country needs to do is have a good look at how in 5 years we have had so many new so called leaders and question that. I’m not trying to derail this website by any means. On the topic of Neg gearing, let’s be realistic folks. The 1% of folks (Uber wealthy, no pun intended) have diversity in their investment portfolio. Do you really think they are going to go out each weekend and buy a 3 – 4 bedroom house and have to deal with the bad tenants when they have opportunity to invest in business’s and opportunity that will have a better tax offset or increase in earnings.

    Time to wake up to the fact that it’s the mum and dad investors who are looking for the opportunity to give their / our children – grandchildren the ability to live in a house in the future…Yes prices are going up that’s the reality of a market and the reality of having the opportunity to neg gear if you can still have the chance to stretch a little more to build that portfolio…

    Now if you want to go out and rent and carry on about how things are expensive and blame the rich and blame the govt and blame the guy up the street then YOU! need to seriously look at yourself and work out what can I DO to make my life better. Let’s be honest…. the guy on the dole getting rental assistance does he care if you neg gear? No..

    Does the person with no interest ever in having a mortgage because he likes his/her transient lifestyle care? No

    Does the gullible, naive nay sayer who sits and watches the depressions session (otherwise known as the nightly news) who most likely asks his cousin who’s been studying online gaming for financial advice care. Yes because sadly they know, no better.

    Sell the fear and feared ones will vote…. The sad reality is.. Lets look back at the time of PM PK back in the 80’s when this was last tried…. how long did that last funny how its cyclical and brought up at every other election..
    Remember, the recession we had to have…….

    Recent data from the Australian Tax Office shows 2,033,901 Australians owned an investment property in the 2013-2014 financial year compared with 1,967,000 in the previous year, but the number of people negatively gearing their property dropped from 1,262,000 to 1,218,488.

    The ATO said total claimed losses from investment properties had fallen from $7.9 billion in 2011-12 to $3.7 billion in 2013-14.

    I’ll go back to the kitchen now and make a palatable sized popcorn that can feed an army of trolls whilst I wait to watch the show roll on.

    By the way thanks for having the fortitude to put together this web site. Insightful and hopefully people coming across it can wake up and get educated. If anything go back up and read Bruce’s prose. Very well written if I may say so….

    Liked by 1 person

  4. Typical, short term Politicians, rather than long term Statesmen, thinking! 4 year term!

    These changes are biased with property investment unfairly and unjustly singled out.
    Property investment is no different to other investments (shares) or even businesses!
    They are there to make money! Lossed are deductions and profits are taxed!

    Allow the banking of losses for 5 years, to allow future loss recovery agianst future profits, would provide some measure of fairness, as per other investments. Property typically become positive geared in 5 years, particularly if rent increases are expedited!! Renters are obviously not important to politicians.?

    The real question is ” Is it the skyrocketing tradesmans costs, oveseas land banking by stronger economies, or mums and dad investors, that are actually driving up housing costs.”

    Interesting, Will a reno become a new building, or has this been ignored?
    Will the lost Reno’s be compensated by new builds.
    I though urban sprawl was an issue.
    High rise unit complexes just support Big Business not Small Business! increase? Hardware importers not corner hardware!

    But unfortunantly, Politicians will always choose the easy, not best solution.
    Tunnel vision, not big picture!

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  5. I get very angry when this negative gearing and capital gains raises it’s ugly head. I tried to amass some future funding buying property only to get ill and survive on a pension having to sell my own principal place of residence in Surfers and I’ve lost all my $120,000 of superannuation have credit card debt to the hilt and house-sitting because I can’t afford to live in one if my investment properties that I almost paid out in order to prop up another 2 apartments bought before the crash and I’ve had between minus $70,000 to $30,000 earnings for the past five years so not much negative gearing nor any capital gains for the foreseeable future and we are classed as rich. What a load of crap. That’s laughable. I’d sell the whole frigging lot if I could but I’d still owe the bank.

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  6. We all know that the really wealthy pay very little tax and therefore their stated taxable income is very low. anything that is pushing housing prices up should be seriously questioned. A friend noted that in European countries instead of investing in residential as is done here, people are incentivised to invest in capital and business which actually creates employment and growth,

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  7. Negative gearing can backfire if the investor loses his or her income stream. Taking away negative gearing does not take away the legitimate deductions for a property. Property investing might be more at risk by uncontrolled development impacting its future resale value.

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  8. To Peter Fry ,, the only reason that in Europe people don’t invest in properties is that their is no capital gain so they find other alternatives in investing

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  9. My “work” income is around $70K P/A. I am then required to pay tax on the amount that is left after my work related expenses are deducted.

    My “total income” is also taxed in a similar way in that, my “rental income” is added to my “work” income and then the cost associated with generating said rental income are deducted from this.

    The myth that other tax payers are propping up my investments gets me a little hot under the collar, as I can only claim up to the amount of tax that I would be required to pay if I had nothing to deduct. No additional money flows back to me from the government (ie other tax payers) if I claim more (as a tax deduction) than the total amount of tax that I would be required to pay.

    Negative gearing is not the end goal for investors, or at least it shouldn’t be, as this still means that you are paying more to support your investment than you are getting in return and therefore, you are losing money each financial year. I would love to be in a position where I had my investments positively geared, that way I would be making money on my investments…

    Another thing to note is that most, if not all superannuation funds have a diverse range of products that they invest the funds into, including property…. So this means that each and every superannuation fund (and therefore each and every Australian taxpayer) will be impacted by any decision to make changes to the negative gearing guidelines. If superannuation funds fail to see property as a good investment, then they will invest in other areas and this could have DIRE consequences for the property market.

    As for capitol gains tax changes, well, once again I am not taking any money from other tax payers when I realise any of my properties, I am simply keeping a fairer share of what my investment achieved in growth over time. This growth (assuming there is some) is as a result of the risk and sacrifice that I made to purchase and support a property for someone else to live in..

    If the changes come into effect, I won’t be rushing out to sell any of my properties, as they are protected (for the moment) under the grandfathering caveat, but I can assure you that I will be keeping my rent rates in step with market rates. This will simply mean that I will be able to increase the rent at the next lease renewal to reflect the upward trend that will result from the law of unintended consequences due to new investors entering the market without the benefit of negative gearing. They will simply have to rent out at higher rates to make the risk of investing worthwhile. The end result will be a win for me I guess, as will be closer to having a positively geared portfolio 🙂

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  10. Your original comments – aluding to punishing the rich and “dire” consequences, and saying you have no view about whether removing negative gearing is good or bad – strike me as half articulated and somewhat disingenuous. There is nothing inherently objectionable about the proposition that expenses should only be deductible when they are “necessarily” incurred in producing assessable income. This has nothing to do with “punishing” anyone, and informed debate on this country would be much better served if organisations such as yours refrained from such hubris and paid more attention to dealing in facts. And since capital gains are only taxed at 50% for individuals what really is the justification for allowing losses to be “brought forwatd” as you trumpet? As for the point about “tradies”. This conflates the issue of actual demand for building services with the means and methods of their delivery. It is specious to simply declare that “mums and dads” make up the bulk of neg gear investors and without them tradies will have no work. Come on – raise the discussion above half articulated emotive rubbish. We have been complaining for years about the press and pollied being simplistic and yet you trot out this disingenuous rubbish.

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  11. The neutrality of this article should definitely be questioned give the large number of real estate companies sponsoring this post. No negative gearing = lower house prices = less commission for these mobs.

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  12. yeah sure the construction industry isn’t a real industry and doesn’t provide jobs? lets be like europe with 25% unemployment? ha ha!

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  13. Hi TK34, I am in a similar situation (may be). Negative gearing was never my goal and never will be! I do negative gear however, I’m “Busting my Boiler” to be positively geared so as when my retirement comes around, I’m hoping I will not need center link. (work hard & be honest). I believe the small amount I claim from negative gearing now will more than ease the burden and pay benefits on tax payers in my later life. I believe if I end up positively geared, I will be paying tax anyway!!!

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  14. The private sector investment in rental housing is very important to ensure enough housing stock is available to meet the demand for rental accommodation. Without it the Government would need to apply much more of the “Public Purse” to providing Housing Commission accomodation to meet the demand. A policy that dis-allows negative gearing is a disincentive to invest in rental accommodation. If you only allow new builds to benefit from negative gearing rents will rise. Most new builds are in fringe suburbs not established suburbs. If you abolish negative gearing on existing property there will be less investment on rental properties in established areas. With fewer rental properties available in established areas the competition to rent properties in these areas will bid up the rents. Potential renters in these areas will look to the next suitable suburd increasing demand there and bidding rents up. Over time the ripple effect will work it’s way through the rental market and increase rents everywhere. Overall the result will be a lower level of rental housing available. Pressure will increase on the government to provide more Housing Commission accommodation. I don’t think the Housing Commission makes a profit so the “Public Purse” bears the cost. Properties do not remain negatively geared for ever. After about five years rents are covering outlays and then tax is paid on the positive rental dollars. If the property is sold Capital Gains Tax of 30% is payable. In my view the proposed change to negative gearing is a bad policy and goes against the fundamental principle of taxation which is ” any outlay necessarily incurred for the production of assessable income is a deduction for tax purposes.”

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  15. To Quote your early reply “Again we’re not arguing whether this is a good or bad concession, simply that removing it suddenly on all existing properties will be a massive shock to the market and a fragile economy.”

    Misleading to say the least

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    1. How is this misleading? Perhaps you don’t understand what we are disputing – the labor (and greens) policies (ie the method for removal) are almost certain to cause hundreds of billions of dollars worth of negative effects for everyday Australians. Our position has now been effectively reinforced by the only two companies who’ve modelled the policy – and we might add that labor and the greens have failed to model the policies themselves or provide any evidence that what we are saying is incorrect. Pretty clear cut we’d say!

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  16. Self invested interest from your industry you have artificially pushed the market into unsustainable levels your unethical approach has left a generation unable to ever purchase you never once mention the mining and oil industry and prior to yhat automotive i dustry that kept this country going for 20 years but alas you crow about the ramifications of what will happen to your industry and the country you and the banks should of thought about that before propelling us into such a situation 1 negative investment is ethically acceptable 20 _200 is not shame on you all no ethics what so ever your greed has left us all vunerable shame shame shame on you

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    1. Hi Ana, getting this straight – you believe the real estate industry is responsible for negative gearing? It’s actually been around for more than 100 years and is Federal Government policy not an initiative of the real estate industry. We’re not debating it’s worth, simply stating that Labor’s proposal to remove it won’t work in the way they claim and worse, will cause negative effects for our economy. The position we’ve taken has now been backed up by two independent researchers – the only two who have actually modeled the policy. We believe it would be irresponsible of us not to speak up.

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