Negative gearing benefits cut

Simon Hampel · 25th Jun, 2007

From news.com.au:

Negative gearing benefits cut | NEWS.com.au Business

INVESTORS negatively gearing investment properties are going to suffer with tax cuts in 2007-08 as the taxman wears less of their losses.

Negative gearing involves investors running property at a loss, which is then used to offset a person's taxable income.

But the days of big tax benefits are going as tax rates fall.

Australian Tax Office data reveals that in 2004-05, taxpayers declared a total of $17.65 billion in rental income but claimed $21.75 billion in rental deductions. Interest deductions alone accounted for $12.13 billion.

But recent cuts in marginal tax rates and lifting of thresholds at which higher tax rates kick in 2006-07 will make negative gearing less attractive, says Paul Drum, director of policy and research at CPA Australia.

"We've had several tax cuts since 2000 and as a result, deductions for many taxpayers will be worth less than in previous years," says Mr Drum.

"Equally, there will be more tax cuts next year and these will whittle away the value of deductions.''

Tax cuts in two stages

There are two parts to tax cut in 2006-07: the low income tax rebate will be increased and the threshold at which the 30 per cent tax bracket kicks in will be moved to $30,000 up from $25,000. All taxpayers will receive some or all of this tax cut.

The next tax cut, which absorbs the remaining 30 per cent of the total proposed cuts, is only available to upper income earners from July 2008 and also comes in two parts.

The 40 per cent tax bracket's upper threshold will be raised to $80,000, and the 45 per cent tax bracket will not apply until a person's taxable income reaches $180,000.

So, the key point that property investors need to be aware of is that the value of deductions will decline with cuts in tax and the diminishing of negative gearing tax benefits.

The real benefit that comes with property is buying something that will gain in value, say property experts, rather than negative gearing, which means investors are actually losing money on their investment properties.
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Rob G · 25th Jun, 2007

I think you should clarify that getting a tax rate reduction does not make you worse off.

However, the reduced 'tax shield' may make other more revenue positive investments more effective.

As mentioned in the article, provided your property is a quality item then the increase in capital value more than compensates for the 'holding costs'. Also factor in the reduced CGT on disposal with the lower tax rates.

Cheers,

Rob

FrankGrimes · 25th Jun, 2007

I'm middle income, 77k, therefore my tax is 30%.. While this isn't as good as it was (But I have more money in my pocket regardless?) I still get substantial tax relief for a good long term investment, none of us are in it purely for tax relief, it only makes a good investment - better!

I'm finding news.com.au full of rubbish these days, especially in the business section.. I cringe reading some of the dribble they come out with.

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Negative gearing benefits cut

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