The Current Climate of Negative Gearing

March 23 2016

Latest data from the Australian Taxation Office shows that net rental profits declared by taxpayers rose to $6.7 billion in 2013 from $4.2 billion in 2008.

According to the new ATO statistics based on taxpayer’s 2013-14 tax returns, total losses from investment properties have fallen from $7.9 billion in 2011-12 to $3.7 billion in 2013-14. With the current value of rental losses claimed falling, and rental profits declared rising, the new figures raises questions regarding the changes to negative gearing and capital gains tax.

In an interview to Financial Review, Property Council chief executive Ken Morrison said that “the value of the deductions is declining in line with interest rates”. Lower interest rates cut the cost of money investors borrow and – as a result – the loss they can claim on tax.

Despite Labour’s hopeful expectations to end negative gearing on existing housing purchased after July 2017, while leaving negative gearing as an option only for buyers of new properties, many real estate experts disagree with the changes.

REIWA President Hayden Groves argues that such changes will simply mean investors will re-direct funds to those assets that are unaffected by the rule change.

“Existing housing stock would be ignored as an investment option and this would put immense pressure on the supply of rental stock and, inevitably, we would see rents rise”, Mr. Groves said.

REIWA President Neville Sanders is also urging the Government to retain negative gearing and capital gains tax in its current form for the purpose of property investment.

“The current taxation arrangements provide many Australians with the opportunity to invest in property and augment their savings, in particular their retirement savings, and at the same time improve rental affordability through an increased supply of rental housing,” Mr Sanders said.

Limiting negative gearing to new dwellings could scare people off the market and restrain the supply of rental properties. Prime Minister Malcolm Turnbull called the proposals “very damaging” to home owners and would put them “at risk”. Mr Turnbull told Parliament: “This will eliminate all investors from the established property market.”

What are your thoughts? Will changes to negative gearing boost supply for new housing or hold back Australian property investment?

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