Newspaper article The Northern Star (Lismore, Australia)

Proposed Changes to Negative Gearing

Newspaper article The Northern Star (Lismore, Australia)

Proposed Changes to Negative Gearing

Article excerpt

Byline: McGrath Estate Agents chief executive John McGrath

THE debate over potential changes to negative gearing and the capital gains tax discount has got plenty of Australians concerned -- and not just investors, either. The flow-on effects would impact every Australian whether they live in their own home or rent.

The notion that negative gearing is some slick tax reduction strategy employed by the mega-wealthy is far from reality. The latest available ATO stats (FY2013) show the largest group of people reporting a net rental income loss for the year were in the $100,000 to $150,000 taxable income bracket.

In many cases, negative gearing is the only way mum and dad investors can afford to invest in property beyond their own home. The Australian Financial Review recently published a story stating around 1.2 million people had negatively geared investment properties and around 330,000 investors had used the 50% capital gains tax discount in the 2013 financial year. That's a lot of people relying on those two tax subsidies to help them build wealth for the future.

I think any changes that make it harder to invest in residential property are going to be a wealth killer for average Australians.

While Labor has already outlined its proposed changes, which include limiting negative gearing to new properties only and halving the capital gains tax discount from 50% to 25%; the Coalition is taking its time in firming up its policy and speculation on potential changes is rife. This is very unsettling for people already relying or intending to rely on bricks and mortar for future financial security over the more volatile share market.

Right now, investors can negatively gear investment properties purchased with borrowed money. Any net rental losses incurred can be deducted from their salary or wages income, thereby reducing their overall annual tax bill.

When selling, investors who have held their assets for more than a year are entitled to a 50% discount on their capital gain, which lowers their overall capital gains tax bill.

Both policies have been successful in encouraging Australians to invest.

The idea of tinkering with these laws is ludicrous because it will adversely impact every single Australian whether they own property or not! …

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