De­bate vi­tal on tax changes

Pilbara News - - Property - Hay­den Groves Hay­den Groves is the pres­i­dent of the Real Estate In­sti­tute of West­ern Aus­tralia.

Pro­posed changes to neg­a­tive gear­ing and cap­i­tal gains tax are hot top­ics be­ing de­bated in the lead-up to the Fed­eral elec­tion on July 2. While a Fed­eral is­sue, poli­cies like these play an im­por­tant role in our lives on a lo­cal level.

Un­less you’re a prop­erty in­vestor, the term “neg­a­tive gear­ing” might not mean much to you. How­ever, it’s im­por­tant to have an un­der­stand­ing of what it is be­cause it may help you when mak­ing prop­erty or in­vest­ment de­ci­sions in the fu­ture.

In a nut­shell, neg­a­tive gear­ing is a com­mon tax de­duc­tion avail­able to all prop­erty in­vestors when their in­ter­est re­pay­ments and ex­penses to main­tain the prop­erty are more than their rental in­come.

Con­trary to com­mon be­lief, the tax sys­tem gives in­vestors an equal op­por­tu­nity to make de­duc­tions on in­vest­ments in as­sets un­til they gen­er­ate a pos­i­tive in­come stream, re­gard­less of the in­vest­ment type in­clud­ing prop­erty, shares and other busi­ness in­vest­ments.

It’s also not widely known that the ma­jor­ity — about 80 per cent — of in­vestors are mid­dle in­come earn­ers who in­vest in only one prop­erty to help se­cure their fu­ture and sup­port their young fam­i­lies.

The cur­rent de­bate on neg­a­tive gear­ing doesn’t fo­cus on the need for broader tax re­form. It would be prefer­able for the whole tax sys­tem to un­dergo a thor­ough re­view. Ad­just­ing one part of what is an ex­tremely com­plex tax sys­tem will only lead to in­ef­fi­cien­cies and dis­tor­tions.

Tax ar­range­ments like neg­a­tive gear­ing have an im­pact on all of us, whether we’re ten­ants, land­lords, buy­ers or sell­ers. It also heav­ily in­flu­ences the sup­ply, af­ford­abil­ity and di­ver­sity of hous­ing.

Pro­posed changes, in­clud­ing re­strict­ing neg­a­tive gear­ing to newly built prop­er­ties only, is very much based on how other mar­kets across the coun­try are per­form­ing, es­pe­cially Syd­ney, and to a lesser ex­tent Mel­bourne.

The Perth mar­ket be­haves in­de­pen­dently and quite dif­fer­ently to other mar­kets on the east coast so it’s im­por­tant to be mind­ful of what the con­se­quences are on our mar­ket. REIWA en­cour­ages public dis­cus­sion on the is­sue and is run­ning a se­ries of weekly sur­veys on reiwa.com be­tween now and the elec­tion. We need to talk sen­si­bly about neg­a­tive gear­ing pro­vi­sions and to do that we need the whole com­mu­nity to be in­volved.

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