>I really think Australia desperately needs this system but negative gearing is so ingrained in Australian culture now that it's political suicide to try and change it. I believe Labor made noises about this in a recent Federal election and suffered the consequences.
The senior ministers of the ALP came to a similar conclusion.
Mid this year they announced no changes to negative gearing or capital gains tax offsets.
For the non-Australians following along, this means both major parties support rampant speculation on the residential property market.
negative gearing allows the average person investing to have the same tax advantages as a company investing (in anything), because for a company, only profits (revenue minus expenses) are taxed.
If there were no "negative gearing" for investment properties, then either there would be fewer such properties, or people would have to form businesses to perform such investments (which adds an extra bit of friction with accounting and tax).
Making it possible to deduct "expenses" from "revenue" of a person doing the investment makes sense.
> negative gearing allows the average person investing to have the same tax advantages as a company investing (in anything), because for a company, only profits (revenue minus expenses) are taxed.
From a quick Google, it looks like companies are not entitled to CGT discounts. This means that forming a business would increase the tax you pay for almost everyone.
>If there were no "negative gearing" for investment properties, then either there would be fewer such properties, or people would have to form businesses to perform such investments (which adds an extra bit of friction with accounting and tax).
This doesn't sound like a bad thing. It would discourage people from speculating on the property market and outbidding owner/occupiers (which is a net negative for society) and encourage them to invest their money in productive businesses (which is a net positive).
The problem with negative gearing is the 'average person' can't participate in negative gearing.
Negative gearing only works for those who have a high level of income with the corresponding high level of taxation.
Why it works so well for these individuals is they can greatly reduce their tax liability by using the property deductions negatively gearing has to offer.
As a secondary benefit, those same investors also win on the capital gain side of the equation as these negative gearing tax incentives create massive demand for property.
Your 'average person' living on the average wage can't benefit from negative gearing as their wage bracket does not attract a high enough level of taxation.
In fact it hurts this group of people only because those higher property prices also means they are priced out of the housing market.
The senior ministers of the ALP came to a similar conclusion. Mid this year they announced no changes to negative gearing or capital gains tax offsets.
For the non-Australians following along, this means both major parties support rampant speculation on the residential property market.