Troy Bramston wrote on the 27th June 2015 in the Australian.
Abolishing negative gearing or the capital gains tax discount could lead to rents increasing by almost $10,000 on average each year and severely restrict the supply of new housing, given about one-third of new dwellings are financed by investors.
A report by ACIL Allen Consulting for the Real Estate Institute of Australia and the Property Council of Australia, confirms that tax breaks on investment property are mainly used by middle-income earners, with two-thirds of investors earning a taxable income of less than $80,000 a year.
The report argues that removing or restricting negative gearing and the 50 per cent CGT discount — which is being considered by Labor — would dampen investment, reduce the supply of new housing and increase rents.
The report, Australian Housing Investment: Analysis of Negative Gearing and CGT Discount for Residential Property, also warns that any move to limit or abolish the tax benefits could distort investment decisions away from property and impact negatively on asset prices and investment returns.
Negative gearing and the CGT discount cost about $8 billion a year. The report finds that if investors were no longer able to carry forward losses it is likely that some of the average net rental loss — $9500 in 2012-13 — would be added to rental prices. Ken Morrison, the chief executive of the Property Council, said negative gearing and the CGT discount helped to improve housing affordability. “They tick all the boxes by increasing supply, giving people an opportunity to get into the housing market and helping ordinary Australians build wealth for their future,” he said.
REIA chief executive Amanda Lynch said the report underscored how those taxation arrangements increased the supply of housing and boosted economic growth. “This isn’t some tax lurk for the wealthy, rather an incentive for people on low to average incomes and it has benefits for the broader economy,” she said.
PROPERTY INVESTORS ALREADY PAY A DISPROPORTIONATE AMOUNT OF TAXES AND THE MOST DISCRIMINATED AGAINST.
I am always amazed at the number of ill informed people pushing for the abolishment of negative gearing based on such a narrow view of the situation.
It’s such an easy target without considering the larger consequences because we often miss the bigger picture when we get lost in the detail.
We should be doing the exact opposite of abolishing negative gearing for investment properties because Property Investors are already so heavily discriminated against that frankly I wonder why people still take the risks which can be enormous for the unsuspecting.
Those ordinary Australians who take the risks of investing into property should be provided more help rather than less help because:
- It increases supply of rental properties in the market and in so doing keeps rents down for tenants.
- It increases supply of property numbers and thus help keep prices and affordability down.
- Helps ordinary Australians provide for their own retirement and saves the government billions in future pension payments.
- Has a huge domino effect for the economy which everyone benefits from. Especially now when we are coming off a resource boom. We need GDP to be around 2% to 3% to keep unemployment rates down to 5%.
- As the government only provides a small percentage of public housing required (around 4%), property investors (supplies 96%) saves the government billions of dollars in providing the huge shortfall required to house tenants.
- The deductions claimed by property investors are no different to those deductions claimed by any other form of investments such as shares or businesses.
- So why is it ok to negatively gear into Shares or Businesses but not into Properties?
- Why is it ok to claim a 50% exemption on Capital Gains Tax by Share Investors and Business owners but not for property investors?
- Property is already heavily taxed and provides a disproportionate amount of tax revenue to both State and Federal governments in the form of stamp duties, land tax, Council Rates, GST Input Taxed (cannot claim a credit back on GST paid on rental properties whereas Businesses can claim the 10% GST back), stamp duty on Mortgages etc.
- Property Investors are already heavily discriminated against and I am surprised any one would take the risks associated with property investing.
- Take Land tax as an example. Land tax is such a regressive tax that it taxes you simply for holding a property, irrespective of whether you are receiving a rental from it or whether the property has gone up in value or not.
- Imagine if Share investors had to pay a tax for simply holding shares irrespective of whether they received dividends or capital growth.
- Imagine if Businesses had to pay a tax simply for owning a business even if it made losses or the Business value never went up.
- But property investors have to pay a tax called land tax just for holding a property.
- And should you buy a property you have to pay a disproportionate higher rate of stamp duty when compared to other investments.
Founder & Non Executive Chairman Chan & Naylor Accountants
PS. Contrary to popular belief (usually pushed by misinformed) most property investors are not rich people getting a tax advantage over poor people.
PPS. Most property investors are ordinary Australians trying to provide a retirement asset for themselves and take extraordinary risks at times in doing so. They should be entitled to get the same tax deductions as people who invest in shares or businesses.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.