negative gearing

Different strokes for different folks. +CF vs neg geared will always raise an argument. I’ve got both, each aquired for different reasons.

+CF props DO allow you a lot more scope though, i.e. instant income, additional borrowing capacity, etc.

theloanarranger

Growth from negative gearing properties takes patience. You need the growth from properties to become wealthy.

Noone has any patience on this web site. They all want it now.

Ok. I apologise. Even I want a quick fix. I am starting to feel a little anxious paying extra for my latest ve- property knowing that the market has somewhat cooled.

investron,

Just curious as to your position 2-3 years ago?
How has the market improved your portfolio?

Milkman

I think one thing people don’t discuss with pozz gearing is that one still has to pay tax on the profit made weekly. So if one earns $10 net a week, and is in thehighest tax bracket, $4.80 0f that will be taxed. So one is making $5.20 a week.

Investron, I am not sure people are “poo-pooing” neg gearing… I think poss gearing has been a way for some people to get into the market- to buy super cheap properties, as opposed to buying a 300k property in sydney 8 years ago that may now be worth $1 million. Many of us have never been able to afford to do that :o) But of course, I don’t know anyone who’d knock back such a capital gain either.

If you’ve done so well over time, then you can sit back and watch others’ choice of investment strategy and know that it wouldn’t work for you, but obviously it does work for others.

Of course, houses now are so exxy everywhere that pozz gearing means buying cheaper and riskier houses- which is too risky for some of us. But my strategy has always been to buy cheap places, because it’s what I felt I could afford. Now the “cheapies” that were accessible to me years ago are now more than doubled, and don’t seem good value anymore. But then again, my salary has quadrupled since I bought my first place, so I guess I’ve done ok.

Speaking of retirement… I am quite happy to continue working to improve my situation. Pay rises are one way of improving one’s income, and it means we don’t have the angst of constantly thinking about raising rents or selling off an IP to get more money.

kay henry

Agree in principle with paying off your + geared IP’s faster, however the interest on my PPOR is not tax deductible, so i’m reducing my non-deductible debt ASAP, meanwhile building Equity in the property..

Negative gearing is part of my strategy, i for one acknowledge the CG prospects with it, however when it becomes + geared.. i wont be selling it as it’s lost its tax benefits..so achieving a ‘balanced portfolio’ is my goal..

REDWING

“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator

Did that 17 years include the last attempt to abolish negative gearing? Do you remember what the exact terms of the change were? By that I mean, presumably the legislation (regulation?) didn’t say “negative gearing is abolished”, but something about “deductions for interest on loans to purchase investment residential property are not allowable”. Also presumably, some interest was still deductible under some circumstances; do you remember what they were?

I know politicians and others regularly make noises about negative gearing and last time investors managed to make a bigger noise. But speaking as a citizen as well as an investor, I think the tax treatment of residential property investment is excessively generous and will have to change sooner or later.

Cheers,

Ghoti

* * * * * * * * * *

Without music, life would be a mistake.

Thanks Derek. That’s the first case I can think of where a compensatory tax concession stayed in force as temporary taxes so often do [cap].

However, this further reinforces the idea that present tax treatment is overly generous. Let’s say negative gearing remains too hot to touch: what changes to depreciation or CGT treatment do people think might be on the drawing boards?

Actually, just asking the question suggests that fiddling with depreciation allowance would also be extremely politically “courageous”. Which kinda leaves CGT, or something completely new. Anyone got any thoughts?… nightmares??

Ghoti

* * * * * * * * * *

Without music, life would be a mistake.

Negative Gearing Under Attack

Tax concessions for property investors – including negative gearing and
the concessional capital gains rate – are distorting the housing market
and should be reviewed, according to the Productivity Commission’s
review of home ownership.
The investigation into barriers to first-home ownership will also
increase pressure on state governments to follow New South Wales’ lead and
effectively abolish stamp duty for first-home buyers. Rejecting the
states’ arguments that stamp duty does not act as a barrier to home
ownership, the Commission has indicated that increasing the deposit first-home
buyers must save introduces another hurdle.
Both major parties are reluctant to consider changes because of fears
that it could increase rents and discourage investors. Negative gearing
was last tampered with by the Hawke government in 1985, which sent the
supply of rental property plummeting. Two years later treasurer Paul
Keating was forced into reversing that decision when rents went through
the roof.
According to new financial modelling by Deloitte Touche Tohmatsu,
removing the tax benefit from property investments will increase rents by as
much as 80 per cent, putting a greater burden on public housing and
making it harder to save that first home deposit for those still in the
private rental market.
The commission has toughened its stance, arguing that current tax
breaks to investors in property and trusts are overly generous, compared
with other investments such as shares. At present, when an investor sells
a property, capital gains tax applies only on half the profits.
The submission from Professor Cameron Rider of Melbourne University’s
Law School argued for a change to the tax treatment.
“With the capital gains tax discount you have an absolute certainty
that one half of your gain will be tax-free. People have seen the
combination of negative gearing, depreciation and capital gains tax discount
can be marketed as a residential investment product to produce a
significant tax advantage.”
Mr Costello defended the concessional rate of capital gains tax, saying
that the objective was to encourage people to put money into
investments and save for the long term. He has also ruled out abolishing negative
gearing, despite the Reserve Bank’s warnings that “further examination”
is required of the laws that allow investors to reduce their tax by
writing off the costs of an investment property.
Concern has centred on the ability of some investors to purchase
multiple loss-making properties under the current negative gearing tax laws,
with some analysts calling for a limit to be placed on the use of
negative gearing.
However, Housing Industry Association chief economist Simon Tennent
warned that further government interventions in an already cooling
property market could not have come at a worse time.
“To be trying to put out the flames of the inner-city investment unit
market at the expense of mum and dad investors is just dangerous,” he
said.
Macquarie Bank economist Brian Redican lays much more of the blame for
spiralling house and apartment prices on the October 1999 capital gains
tax concessions, which virtually halved the impost placed on investors.
There is no coincidence that the biggest surge in investor borrowing
for housing has occurred since capital gains tax was reduced, says
Redican.
However Redican makes the point that negative gearing is simply not as
valuable in the low interest-rate environment we now live in. Investors
adopting a negative-gearing strategy normally borrow as much as
possible against their rental property. The higher the interest rate they pay,
the bigger the deduction. A property is negatively geared if the cost
of owning it, including interest on borrowings, is greater than the
rental income it produces. The owner can claim a deduction for the
shortfall against other income.
On the flip side, capital growth has been very strong for the past few
years, says Redican, making the halving of CGT an attractive incentive
for investors. Another major driver, he says, is that the increasing
proportion of households on the top marginal tax rate has meant more
people have been exploring tax offsets.
The Macquarie Research Economics study found that negatively gearing a
property was not attractive unless it also had good capital growth
potential. It found that even if negative gearing was scrapped, borrowing
to invest would still be attractive as long as the property was expected
to deliver strong capital gains.
In another blow to property investors in a cooling market, the
Australian Taxation Office recently announced a review from July 1 of
depreciation rules on residential investment, which allow a building’s fittings
to be claimed as a loss for negative-gearing purposes.

Courtesy of Noel Whittakers Newsletter- a great source of Information

“Money is a currency, like electricity and it requires momentum to make it Effective”
Count The Currency With This Online Positive Cashflow Calculator