TAK­ING NEG­A­TIVES OUT OF GEAR­ING

Southern Gazette (Belmont) - - RESIDENTIAL -

RE­FORMS to neg­a­tive gear­ing poli­cies could save the Fed­eral Gov­ern­ment more than $1.7 bil­lion with­out harm­ing mum and dad in­vestors, ac­cord­ing to a re­port pub­lished by the Aus­tralian Hous­ing Ur­ban Re­search In­sti­tute (AHURI).

The in­come tax treat­ment of hous­ing as­sets: an as­sess­ment of pro­posed re­form ar­range­ments rec­om­mended a pro­gres­sive rental de­duc­tion to cush­ion less wealthy in­vestors from sig­nif­i­cant drops in tax sav­ings.

The pro­posed re­form would see in­vestors in the bot­tom 50 per cent of the in­come dis­tri­bu­tion con­tinue to re­ceive a 100 per cent rental de­duc­tion, those in the 51st-75th per­centiles re­ceive a lower 50 per cent rental de­duc­tion, and those in the 76th-100th per­centiles (rep­re­sent­ing ‘so­phis­ti­cated’ in­vestors) re­ceive zero rental de­duc­tions.

Re­port au­thor Alan Dun­can said cur­rent neg­a­tive gear­ing poli­cies were heav­ily skewed to­wards high-in­come earn­ers and such re­form would save the gov­ern­ment more than $1.7 bil­lion from the an­nual $3.04 bil­lion cost of neg­a­tive gear­ing de­duc­tions each year – a 57.3 per cent sav­ing.

The re­port found cap­i­tal gains tax discounts were also weighted to­wards more af­flu­ent in­vestors, who owned on av­er­age a prop­erty port­fo­lio worth more than $730,000 with a tax­able in­come of $82,000.

In­vestors are able to claim a de­duc­tion for the full amount of rental ex­penses un­der cur­rent leg­is­la­tion and a 50 per cent dis­count on a cap­i­tal gain.

Fed­eral La­bor has pro­posed changes if elected.

Its pol­icy in­volves lim­it­ing neg­a­tive gear­ing to new hous­ing from July 1, 2017. All in­vest­ments made be­fore this date would not be af­fected.

It also pro­posed halv­ing the cap­i­tal gains dis­count for all as­sets pur­chased af­ter July 1, 2017.

This would re­duce the dis­count for as­sets held longer than 12 months from the cur­rent 50 per cent to 25 per cent.

All in­vest­ments made be­fore this date would not be af­fected and would be fully grand­fa­thered.

REIWA is not in favour of any changes to neg­a­tive gear­ing or cap­i­tal gains tax.

“Re­mov­ing neg­a­tive gear­ing or only ap­ply­ing it to cer­tain cri­te­ria, such as weight­ing it based on in­vestor in­come lev­els, is very risky,” pres­i­dent Hay­den Groves said.

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