Figures show 1.8 million property investors
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.