Fig­ures show 1.8 mil­lion prop­erty in­vestors

Port Douglas & Mossman Gazette - - FRONT PAGE - Cameron Kusher

FIG­URES re­leased last week by the Aus­tralian Tax Of­fice (ATO) for the 2010/11 fi­nan­cial year showed more than 1.8 mil­lion Aus­tralians owned a rental prop­erty.

This was out of 9,416,002 peo­ple with a tax­able in­come and 12,637,623 in­di­vid­u­ally lodged tax re­turns. The data in­di­cates that 14.3 per cent of in­di­vid­u­als who lodged a tax re­turn owned in­vest­ment properties while 19.2 per cent of in­di­vid­u­als who re­ported a tax­able in­come owned in­vest­ment properties.

Of the 1,811,174 in­di­vid­u­als that re­ported to the ATO as hav­ing an in­vest­ment prop­erty, 1,213,595 of th­ese in­di­vid­u­als, or two out of ev­ery three in­vestors, were record­ing a loss on their rental in­come. The to­tal value of th­ese losses over the year was $13.285 bil­lion. Ob­vi­ously neg­a­tive gear­ing of in­vest­ment properties al­lows own­ers to claim a tax de­duc­tion on th­ese costs. The aver­age an­nual loss for th­ese prop­erty in­vestors with neg­a­tively geared properties was $10,947 or $210.50/week. There were 597,577 in­di­vid­u­als who made a profit from their in­vest­ment prop­erty in 2010/11. The to­tal value of this in­come was $5.423 bil­lion. Th­ese in­vestors have no losses to claim a tax de­duc­tion on and would have to pay tax on their in­vest­ment prop­erty - of course they would have more money in their hand each week as a re­sult of the pos­i­tive gear­ing. The aver­age an­nual profit earned from th­ese pos­i­tively geared in­vest­ment properties was $9,075 or $174.50/week.

The data shows that on aver­age, the losses made on in­vest­ment properties that are neg­a­tively geared are larger than the profit on the pos­i­tively geared prop­er­tied.

What neg­a­tively geared in­vestors some­times lose sight of is the fact that a loss is a loss.

What I mean is that al­though the loss is tax de­ductible at the end of the fi­nan­cial year they have to carry the cost of that loss through­out the year at a some­times sig­nif­i­cant cost.

The $13.285 bil­lion in rental losses over the 2010/11 fi­nan­cial year was 24.7 per cent higher than the 2009/10 fi­nan­cial year how­ever, it re­mains -0.2 per cent lower than the his­toric high value of losses recorded over the 2007/08 fi­nan­cial year.

The num­ber of neg­a­tively geared prop­erty in­vestors rose by 4.8 per cent over the year how­ever, the num­ber of in­vestors was also be­low the his­toric high of 2007/08 by -1.8 per cent.

Ac­cord­ing to the ATO data, 72.8 per cent of in­di­vid­u­als that owned an in­vest­ment prop­erty owned just one.

Mean­while, 18.9 per cent of in­di­vid­u­als owned two properties while just 0.9 per cent of in­di­vid­u­als owned six or more.

Where neg­a­tive gear­ing works is when it re­duces an in­di­vid­ual’s tax­able in­come to such an ex­tent that there is a greater fi­nan­cial wind­fall from claim­ing that loss than there would be if that prop­erty made a profit. Of course in­vestors us­ing a neg­a­tive gear­ing strat­egy also ex­pect the value of their as­set to rise, off­set­ting the short­fall.

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