Debate vital on tax changes
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.