Best “pro” discussion on negative gearing I have heard for some time (and I note the irony that there is very little commentary on investors being slugged again over the last week (pre RBA meeting) with out of cycle interest rate increases, which amount to higher costs in running their “property business”):
The first thing to note is that negative gearing is not a special concession for property. It is a legitimate deduction of expenses in the course of earning income from investments in all asset classes (including shares, other investments and business ventures) until the investment generates a positive income stream in the future.
Similarly, the 50 per cent discount on capital gains replaces the previous indexation of capital gains which was put in place to ensure that only real capital gains are taxed – the change being made for administrative ease – and is also applicable to all asset classes.
Dispelling the myths that have gained currency, the ACIL report shows that:
- negative gearing and the capital gains arrangements are helping to boost the supply of new homes, put downward pressure on prices, keep rents lower and give ordinary Australians a better chance of entering the property market which in many cases supplements savings for retirement purposes
- the provision of negative gearing in conjunction with the CGT arrangements promotes investment in rental properties and increases the supply of new housing
- an increase in rental supply means higher rental vacancies and lower rents than would otherwise be the case.
- negative gearing provides all individuals with an opportunity to invest in property, not just those in higher income brackets. Seven out of ten property investors who benefit from negative gearing earn a taxable income of less than $80,001 a year.
- property is not the investment class that benefits the most from the CGT arrangements. The majority (around 60 per cent) of the capital gains are sourced from shares.
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