Long story short…
Does that mean interest charged by banks on loans are no longer considered as a cost if this new rule is passed? So if someone’s rental income is 2000 per month and that person needs to be 2500 interest to the bank, then that person is considered to be making a 2000 profit per month (and gets taxed on that 2000) rather than a loss of 500?
Also, “proposes to limit negative gearing to new housing only” just sounds weird. I mean if how many years after a new house is bought is the house considered to be “not new any more”? If I buy a brand new townhouse and then I continuously rent it out for 10 years, then is it still considered as a “new” just because I didn’t sell it? If not, then when does that townhouse become “not new”?
No, interest would still be deductible. But they are proposing to limit negative gearing, or using a loss from property investing to reduce your other income.
Without any draft legislation it is impossible to know what they are proposing.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
using a loss from property investing to reduce your other income.
I would say this sounds like it would have a more negative impact against individual speculators rather than investors.
Unless they propose negative gearing cannot be used to offset the investor’s own investment portfolio, in which case that will probably kill off the invest altogether and cause some very serious consequences to the economy…
Hi Steven,
What an interesting muse !!Unless they propose negative gearing cannot be used to offset the investor’s own investment portfolio, in which case that will probably kill off the invest altogether and cause some very serious consequences to the economy…
To me, this question really comes down to “Where does ‘negative gearing’ begin and end?”
I know many who do a kind of “cordial mix” – having some positive geared properties offsetting other slightly negative geared properties. If losses can be absorbed “across the portfolio”, then that’s not so bad. Some though might depend on having it offset their other Income – THAT is where such a change may lead to a change in the rental market (thinking there of “those starting out” who aren’t yet into the consolidation phase). Think mid-1980’s and the introduction of CGT. and removal of negative gearing, and the upset that caused!! (see below for more on that)
Knowing just where this proposal begins and ends is mandatory to understanding the change. One to watch in a couple of months, eh?
Looking around, I found a summary of those 1980’s changes. Initially, it looks like John Symonds is dead against it, but DO read the text and you’ll see that his video offering is not the FULL story. The words also say “the removal of negative gearing was not the only cause of rents going up…” so there does seem to be some balance in this report (from May 2016 by the way…).
Check it out:-
https://www.news.com.au/finance/real-estate/what-happened-last-time-we-messed-with-housing/news-story/ad060b7d2557bd382f4bba5d1fa9ca98Benny
I know many who do a kind of “cordial mix” – having some positive geared properties offsetting other slightly negative geared properties. If losses can be absorbed “across the portfolio”, then that’s not so bad. Some though might depend on having it offset their other Income – THAT is where such a change may lead to a change in the rental market
This is precisely the reason I believe treating property investment “not as a business” is a very bad idea.
Speak of which, they are trying to introduce something similar in NZ too. They call it “ring fencing” over there.
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