For a large number of Australians, property investment has become a way to build wealth and set themselves up for retirement. This is something that requires a fair amount of strategising, which many investors have taken in their stride. Negative gearing has been seen as something of a ‘golden goose’. As a way to claim a tax deduction on the loss made from renting out a property, investors across the country have grasped the scheme with both hands.
Figures from the Australian Taxation Office (ATO) revealed that 79 per cent of the 1.26 million Australians who claimed a rental loss on their property in 2014, negatively gear – but this has come with a few strings attached. There has been a large amount of debate surrounding the popular tax break, with both sides of the argument equally vocal. So what’s the controversy about – and how could this affect you?
Against negative gearing
Prime Minister Tony Abbott ruled out restrictions on negative gearing, but a new spanner has been thrown in the works. Shadow Treasurer Chris Bowen has suggested that the tax benefits may be tightened under a Labor government.
In comments to the ABC, Mr Bowen said every effort would be put into making the tax system fairer for all, as well as ensuring a steady supply of affordable houses – meaning that a Labor government would not close the book on changes to negative gearing.
His words seem to echo those of the Australian Council of Social Services (ACOSS), who claimed in a new report that negative gearing is fuelling house price growth in boom areas like Sydney. ACOSS CEO Dr Cassandra Goldie said the government shouldn’t rule out reform to this area of the taxation system.
“There are better ways to support investment in affordable housing than encouraging people to borrow to speculate on home prices,” she said in an April 16 statement.
This could have some implications for those with an investment property. Currently, if the net rental income you earn is less than the amount you pay on your home loan and other expenses, you can claim a tax deduction – but Mr Bowen’s comments have cast some doubt on this in the long term.
For the strategy
The response has been vocal, particularly from the housing sector. In an April 28 release, Property Council of Australia Chief Executive Ken Morrison said the majority of investors who negatively gear are everyday workers.
Recent Property Council analysis of ATO figures shows that clerical workers, teachers, child carers and emergency service workers are among the people that benefit from negative gearing – and they’re not property moguls as previous arguments suggest, with 91 per cent only owning one or two properties.
“The data clearly shows that negative gearing is something middle Australia uses to help build their household wealth, build for their future and provide security for their families,” said Mr Morrison in an April 23 statement.
Whether you’re on the look out for your first rental property or you are a seasoned investor, this discussion is a sound reminder to consider all developments that might evolve in the future – and to make sure you get sound advice from the team of home loan professionals at Police Bank before making the commitment.