» Negative Gearing

Buying your first home vs investment property

BMT team — Tue, 01 Mar 2022 02:57:38 +0000

You’ve saved enough for a home loan deposit, but not enough to buy a property in your dream suburb. You’re now faced with the choice between continuing to save so you can live where you want or buying an affordable property in a less desirable area to get a foot on the property ladder. So, what do you do? This is a common problem facing many Australians who have yet to enter the property market. With house prices having risen at astronomical rates, saving enough for a minimum home loan deposit in many capital cities has become out of reach for many. Fortunately, there is a strategy that can help first home buyers to get a leg up on the property ladder. Buying an investment property first Rentvesting is becoming an increasingly popular home-owning strategy. Rentvesting is when individuals purchase an investment property in an area they can afford, whilst renting a place where they want to live but can’t afford to buy. As a first home buyer you may not be in the financial position to purchase a home in the area you necessarily want to live in. For instance, you currently rent an apartment in Sydney CBD, work in the city and your social life consists of living in the city, but you cannot afford to purchase a home in that area. You could continue to save for a deposit, hoping one day you save enough. Although, this may take many years or even become impossible due to the constant surge of home prices. Alternatively, you could rentvest. This option gives you the opportunity to get into the property market whilst keeping your lifestyle. Let’s say you saved enough for a deposit in a developing regional area with expanding infrastructure and a growing population. Areas like this can be a great investment and bring valuable equity as the house value has potential to increase at a consistent growth rate. After equity has grown, this asset will assist by strengthening future home loan applications and provide security for banks. In turn, this means you could afford a home in your dream suburb a lot sooner than it would have taken to save for the deposit. Benefits of rentvesting include being able to enter the property market sooner, having the flexibility to live in a more enticing area, wealth and equity buildup, increase of cash flow, and possibly, cheaper rental payments than a mortgage. Other advantages include tax deductions like negative gearing and depreciation. By depreciating investment properties, owners can reduce their taxable income resulting less tax to pay. Similarly, negative gearing is when the cost of owning an investment property outweighs the annual income it generates, resulting in a lowered taxable income. Alongside the benefits, there are some possible downsides to this strategy. These include the instability of being a renter, ongoing rental payments, capital gains tax (CGT) incurred if you decide to sell, loss of government First Home Owner grants and higher interest rates that come with property investment home loans. It’s important to highlight that rentvesting may not be an option for individuals seeking First Home Owner Grants. Homeowners must live in their newly purchased home within twelve months for a minimum of six consecutive months before it can be used as an investment property. Best of both worlds It’s possible to have a bit of both worlds with the option of renting out a room or area of a home. Live-in landlords are becoming more common as the need for single room rentals are increasing. This is attractive for students or individuals and may be more practical in cities or areas with local universities. When renting out a room or area of the home you are entitled to claim a portion of living expenses including internet, water and electricity rates, council rates, interest on your mortgage, body corporate fees and property depreciation as tax deductions. It’s always best to speak to a trusted accountant so they can assess your financial position. It’s also important to get a tax depreciation schedule prepared. BMT’s specialised quantity surveyors will ensure all depreciation claims are maximised. And don’t forget, the cost of the schedule is fully tax deductible. For more information on how to claim depreciation on investment properties, contact BMT Tax Depreciation on 1300 728 726 or Request a Quote.

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Uncover the benefits of negative gearing property

BMT team — Tue, 26 May 2020 22:52:11 +0000

There are many technical intricacies of investing in property, with negative gearing being a highly discussed topic in the industry. As investors choose to hold onto their negatively geared property due to their own long-term investment strategies, it’s important to understand the benefits. In this article we will explore: Key benefits of negative gearing property 1. Reduction in taxable income 2. Long-term gain Lucrative depreciation deductions are available for all properties Key benefits of negative gearing property When a property is negatively geared, it’s making a loss. Due to the current COVID-19 pandemic, many Australian property investors are facing negative returns from their investment properties due to loss of rental income. While everyone’s financial circumstances are different, the benefits of negative gearing help investors to reduce their taxable income. It’s important to note that deciding whether to keep a negatively geared property is a significant financial decision. Everyone’s decision-making process and investment strategy is different, but the two key benefits are the same for all. 1. Reduction in taxable income The loss made from a negatively geared property reduces an investor’s taxable income for each financial year. This tax offset can provide benefits for many types of investors, especially those with high marginal tax rates, or rentvestors that are wanting to capitalise on their investment while they build their portfolio. Let’s look at a practical example to understand how this works. Joe works as an engineer for a construction company. He purchased his first investment property in 2019. The property is leased to tenants who paid $25,000 in rent for the 2019-20 financial year. While the property produces rental income, it also has many associated expenses. For the 2019-20 financial year, there was a total of $35,000 in expenses, including depreciation, interest repayments, insurances, property management fees and maintenance costs. This resulted in a total loss of $10,000 for the 2019-20 financial year. Joe can use this loss to reduce his taxable income. With his tax rate of 32.5 per cent, this loss brings his tax bill down by $3,250. This effectively reduces his investment property’s loss to $6,750. Given his goal of long-term capital growth, Joe is comfortable making a $6,750 loss. 2. Long-term gain Property is a tangible and resilient asset. While the market is not constant and regularly fluctuates, property values generally increase over time and so do rental rates. An investor who is keeping their negatively geared property may be looking to capitalise by selling when it’s value increases or take advantage of higher rental returns in the future. This long-term capital gain often offsets the short-term loss. Lucrative depreciation deductions are available for all properties Property depreciation is the natural wear and tear of the building and its assets over time. Investors of income-producing properties can claim this depreciation as a tax deduction. Depreciation is a non-cash deduction, meaning that an investor doesn’t need to spend money in order to claim it. All investment properties hold depreciation deductions that can unlock hidden cash flow. The gearing of a property doesn’t impact whether an investor can claim depreciation. In some instances, depreciation can change a previously positively geared property to be negatively geared without experiencing a further loss. BMT Tax Depreciation has been the most trusted depreciation specialist in the industry for over 20 years. With offices Australia wide, they can provide comprehensive depreciation schedules to all investors and in turn, help them maximise their cash flow. To learn more about depreciation, or what is involved in a tax depreciation schedule, Request a Quote or contact the expert team at BMT on 1300 728 726. Related articles: How does negative gearing work with depreciation? Negative gearing: basics for beginners

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How does negative gearing work with depreciation?

BMT team — Sun, 23 Feb 2020 22:57:56 +0000

If you paid close attention to the 2019 Federal Election, you would be familiar with the term negative gearing. The election put negative gearing policy into question, with Labor including a proposal to limit negative gearing to brand-new residential housing. However, with The Coalition retaining their position, no changes to negative gearing were made. In this article we will explore: What is negative gearing and how does it work? If it means making a loss, why do investors keep their negatively geared properties? How does negative gearing work with tax depreciation What is negative gearing and how does it work? Negative gearing is when someone borrows money for an investment, and the rental income is less than the interest repayments and expenses. An investor’s rental property can be positively or negatively geared. When an investment property is negatively geared, the property’s expenses and deductions are more than the property’s rental return. This means that the investor is making a loss that is deducted from their taxable income for that financial year. Whereas, for a positively geared property, the rental income produced by the property exceeds expenses. An investor of a positively geared property makes a gain that is included in their taxable income. If it means making a loss, why do investors keep their negatively geared properties? You must consider the sustainability of a negatively geared property in all your investment decisions. For investors in Australia, there are some benefits of having a negatively geared property, including: Reduction of taxable income: You can use the loss of a negatively geared property to reduce your taxable income and boost your after-tax cash flow. This can be beneficial in the short term and for rentvestors that are in the early stages of entering the market. Long-term capital growth: National property values have increased significantly over the past decade, and the current outlook suggests that they will continue to rise. While a negatively geared property does mean making a short-term loss, the investor can offset the losses by benefiting from the long-term capital gain of selling the property once its value increases. How does negative gearing work with tax depreciation Investment property deductions include expenses such as interest payments, maintenance costs, insurance and property depreciation. Both capital works and plant and equipment deductions are included in property depreciation. Find out more information on available plant and equipment deductions. Tax depreciation deductions can change a previously positively geared property to be negatively geared without incurring a further loss as depreciation is a non-cash deduction. Below is a simplified example to show how this works: Example: Property gearing with and without depreciation An investor earns $80,000 a year and pays approximately $17,500 in tax. The investor receives $25,000 in rental income from their investment property. The taxdeductible expenses include interest expenses of $10,000, maintenance expenses of $10,000 and landlord insurance of $2,000. The property is positively geared with a $3,000 return. By including depreciation, the investor was able to claim capital works and plant and equipment deductions in their tax return, which came to $6,000 for that financial year. This changes the previously positively geared property to be negatively geared with a $3,000 loss. The investor’s tax liability decreases to approximately $16,500 rather than increasing to approximately $18,500 when positively geared. A reliable pre-tax cash flow is key for a sustainable investment, and we recommend speaking with a financial adviser to determine your investment strategy. If your goal is to hold onto a negatively geared property to benefit from the long-term capital gain, you must also be aware of the Capital Gain Tax (CGT) liabilities of making this profit. To find out more about CGT and how it works, we have included further information in the articles below. For more information on tax depreciation and how it can maximise your tax return, request a quote or contact our specialist team on 1300 728 726. Related articles Negative gearing: basics for beginners What should you know about negative gearing before the 2019 Federal Election When do you pay capital gains tax on investment property? Does depreciation affect capital gains tax?

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What should you know about negative gearing before the 2019 Federal Election?

BMT team — Tue, 14 May 2019 02:54:42 +0000

With the 2019 Federal Election fast approaching, negative gearing has become a key campaign issue as each of the major parties offer significantly different policies should they win the election. Here we’ve outlined each major party’s election policies regarding negative gearing and the associated tax concessions. We’ve also taken a deeper look at what’s driving the debate, some key data to be aware of, what’s happening currently in the property market and the potential impact the changes could have on investors. In this article we will explore: What changes do the major parties propose? The impact of proposed ALP negative gearing and CGT changes Key facts to be aware of behind the negative gearing policy debate What changes do the major parties propose? The Australian Labor Party (ALP) have announced they plan to restrict negative gearing and Capital Gains Tax (CGT) arrangements from the 1st of January 2020. The ALP reforms will: Limit negative gearing to brand-new residential housing only from 1 January 2020. All residential property investments made prior to this date will not be affected by the changes and will be grandfathered. Halve the CGT discount for assets purchased after 1 January 2020, reducing the CGT discount from assets held longer than twelve months from 50 per cent to 25 per cent. All residential property investments made prior to the 1 January 2020 will be grandfathered. The Coalition will make no changes to negative gearing or CGT concessions. The impact of proposed ALP negative gearing and CGT changes The clear outcome will be that second-hand residential properties will be more expensive for investors to hold. Under this policy, losses can only be used to offset income from the property itself. Most properties run at a loss, any additional deductible losses over and above the rental income will be of no financial benefit while the property is owned. When the property is sold, if the CGT discount is reduced, property investors will have an increased CGT liability payable on any capital gain achieved. Additional economic flow on effects to the property market could include: a further decline in housing prices across the board less second-hand housing stock available on the market as investors hold on to grandfathered properties a possible reduction in the supply of new homes. Although owners of new properties will still be able to negatively gear, these properties when sold to investors will not be eligible down the track and this will affect their capital growth an expected decrease in available rental stock for tenants as investors withdraw from the market increasing rents as investors seek a higher rental yield to make up for the lack of tax concessions and demand outweighs available rental stock many property owners will fall into a negative equity scenario, where the size of their loan outweighs their property value putting them at additional risk of mortgage default. Key facts to be aware of behind the negative gearing policy debate The ALP argues property investors and the tax concessions they receive are helping to push up property prices. They believe first home buyers are being locked out of the market as a result. When considering negative gearing policy changes, it’s important to be aware of fluctuating trends in markets across Australia. Property prices in different cities are known to move at different times and external factors such as employment, infrastructure, population growth, migration, housing stock shortages and changing demographics play a role in property prices and affordability. Other factors, such as lending restrictions for investors by banks and depreciation legislation changes for owners of second-hand residential properties, are already having an impact on property markets. While national dwelling values have been high in recent years, CoreLogic has reported the peak occurred back in October 2017. Since this time, there has been a 7.4 per cent fall in national dwelling values to the period to the end of March 2019. This fall translates to a $40,590 decline in national average dwelling values. The peak (and subsequent fall) in property prices was led by Sydney and Melbourne. In Sydney, values are 13.9 per cent lower than their peak (a decrease of $124,739) and in Melbourne values are 10.3 per cent lower (a decrease of $71,404). Hobart is the only major capital city where values are yet to fall from their peak. With property values already falling across most of the country, the Coalition argues changes to negative gearing tax concessions would be a sledgehammer to an already struggling property market. Two other ALP arguments behind the party’s reason for changing negative gearing concessions are also critically flawed. They argue that negative gearing concessions: predominantly benefit high income-earners are allowing investors to expand their portfolios to buy their fifth, sixth and seventh properties. The latest Australian Taxation Office (ATO) data shows 71 per cent of landlords had only one rental property for the 2016/2017 financial year. This same data also showed 64.1 per cent of investors had a taxable income less than $80,000 and accounted for 60.5 per cent of negatively geared properties. High income earners with a salary more than $180,000 accounted for just 7.3 per cent of those with negatively geared properties in 2016/2017. BMT Tax Depreciation data for residential property depreciation schedule requests in the 2017/2018 financial year also shows that 93 per cent of investors ordered a schedule for just one property. We encourage you to review each of the major party’s policies in more detail and make an educated decision on polling day. To learn more about negative, positive and neutral gearing, read our negative gearing: basics for beginners article. Should you have questions, we’d be happy to help as best we can.

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Labor’s negative gearing policy changes are critically flawed

BMT team — Thu, 11 Apr 2019 00:24:10 +0000

With the federal election to occur on the 18th of May 2019, property investors should consider the two major parties’ negative gearing policies before casting their vote. Both political parties have outlined their stance on negative gearing in the recent 2019 Federal Budget and Budget Reply, with the Coalition confirming they won’t be making changes. However, The Australian Labor Party (Labor) will limit negative gearing to newly built housing from January 1, 2020 and halve the Capital Gains Tax Discount (CGT) for assets held longer than twelve months from 50 per cent to 25 per cent from the same date. Labor argues current negative gearing policy favours high-income earners and investors over aspiring home buyers. Labor has also quoted recent Australian Bureau of Statistics (ABS) data, stating 93 per cent of new investment loans go to people purchasing existing housing stock, as a reason for limiting negative gearing only to newly built housing. Despite Labor’s claims, there’s been substantial research from industry experts indicating the data behind their decision to change negative gearing is critically flawed. To help inform investors, we’ve looked at some key research to consider. How many properties are negatively geared? According to the latest ATO taxation statistics data, the proportion of Australia’s 2.2 million landlords who are negatively geared fell to 60.3 per cent in 2016/2017, the lowest level since 2003. The ATO data shows these 1.3 million landlords made rental losses, while 855,975 (39.7 per cent) were in a neutral position or made a gain. Who is the average property investor according to the data? So, is Labor right in thinking those who invest in property are wealthy and own several properties? Data from the Australian Taxation Office (ATO) and BMT Tax Depreciation doesn’t support this. The ATO data for the 2016/2017 income year shows that 71 per cent of landlords had just one rental property. In a recent study of BMT Tax Depreciation data for the 2017/2018 financial year, the number of investors who requested a depreciation schedule for just one property was even higher, at 93 per cent. This was up from 84 per cent in 2015/2016. In fact, BMT data showed just 6 per cent of enquirers owned two properties and 1 per cent owned three properties during 2017/2018. From the 2016/2017 ATO data, 64.1 per cent of property investors had a taxable income of less than $80,000 and they accounted for 60.5 per cent of negatively geared properties. Just 7.3 per cent of negatively geared properties are for investors earning more than $180,000. This data indicates most investors who negatively gear aren’t those on high incomes, but everyday Mum and Dad investors or professionals like Teachers, Nurses and Midwives or Police Officers. These are the people most likely to be adversely affected by Labor’s proposed negative gearing policy change. What do industry experts say about new investment loans data? In a recent article in The Australian Financial Review (AFR), Housing Industry Association (HIA) Chief Economist Tim Reardon said the figures quoted by Shadow Treasurer Chris Bowen are “substantially incorrect”. “The ABS simply do not collect the data necessary to make a conclusion that 93 per cent of investors loans go to people purchasing existing housing stock,” “We know from other sources the magnitude of investor activity in the new housing market is significantly higher than 7 per cent and perhaps, approaching 50 per cent on occasion,” Reardon said. The figures imply Labor’s estimation that more than 90 per cent of new investment loans are to people purchasing existing stock are impossible. From BMT Tax Depreciation’s own figures for the 2017/2018 financial year, 30.9 per cent of enquirers who requested a depreciation schedule did so for brand-new properties. This was an increase of 4.5 per cent when compared to the 26.4 per cent of investors who requested schedules for brand-new properties in 2015/2016. How would Labor’s negative gearing policy changes impact the property market? Industry experts, including our very own Chief Executive Officer Bradley Beer, are warning Labor’s negative gearing policy changes could be catastrophic for investors, developers and those in the real estate industry. One consequence of Labor’s policy could be a reduction in the supply of new homes. In a property market already under pressure, the changes are also expected to accelerate a decline in house prices. Another factor to consider is a decrease in available rental stock for tenants as investors withdraw from the market. Ultimately, the changes could impact on household confidence. The latest ANZ-Roy Morgan Australian Consumer Confidence index slid by 1.3 per cent following the 2019 Budget when compared with the previous week (where confidence rose 2.6 per cent – the biggest increase in more than seven months). According to Martin North, Principal of Digital Finance Analytics, their latest analysis shows households have fears about job security, the cost of living and their financial capacity to cope. This was reflected in comments in the AFR from HIA Economist Tim Reardon, who said “you do not free up a market by increasing taxes and restrictions.” To read an article which explains negative gearing versus positive gearing, click here. To read the article from the AFR, click here*. *Please note this article is subscription content

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A lesson in negative gearing changes proposed by Labor

BMT team — Thu, 25 Oct 2018 05:13:13 +0000

Amidst Labor’s plans to abolish negative gearing on existing properties and reduce the Capital Gains Tax (CGT) discount if they win the next federal election, let’s recap what gearing is and what the proposed changes would mean for property investors. A property is referred to as negatively geared if the rental income is less than the outgoing expenses including deductible losses. The investor will be making a cash loss on their investment property and can offset these losses against other income earned, including their salary. In turn, this reduces investors’ taxable income, meaning they pay less tax to the Australian Taxation Office. Investment properties can also be neutrally or positively geared. Positively geared properties have a positive cash flow as the investor receives a higher rental return than the outgoing expenses. In this situation, an investor must pay tax on this income earned at their top marginal tax rate. Properties are neutrally geared when the outgoing expenses and generated income are the same. Negative gearing is a popular investment strategy for Australian investors, with the greatest benefit being the reduction to their taxable income. This provides them with both a short-term financial boost and the opportunity to achieve long-term capital growth from the property. What impact would the proposed negative gearing changes have on property investors? Investors could no longer purchase existing properties and offset their salary and wage income with the net losses. However, investors would still be able to negatively gear new properties, as these would be unaffected by the proposed changes. Investors who currently negatively gear their properties also wouldn’t be affected by the changes as legislation would be grandfathered. This means that the proposed changes would directly affect investors who purchase existing properties. If Labor wins the next federal election and their plans become legislation, there is no doubt that this would change the property investment landscape in Australia. There is a widespread fear that investors would be turned off property investing and there would be a fall in new housing construction. A report from Master Builders Australia predicted that changes to negative gearing and the CGT discount would result in 32,000 fewer jobs and a $12bn downturn in construction activity within the first five years. It’s important for investors to be prepared for major changes to property investing in Australia. The extent of the effect of Labor’s proposed changes remains yet to be seen.

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Negative gearing: basics for beginners

BMT team — Thu, 03 May 2018 02:13:43 +0000

In this article we will explore: What is negative gearing? Benefits of negative gearing Things to look out for What is negative gearing? While many people go into property investing thinking their investment will be an instant source of cash flow, this isn’t always the case. Depending on the net income earned from a property, an investment property can be positively, neutral or negatively geared. Neutral gearing is when the income earned from an investment property is the same as the total expenses, which may include mortgage repayments, maintenance costs, property management fees and other ongoing or one-off costs associated with owning an investment property. In a situation where an investor is receiving a higher rental return than the outgoing expenses, the property will have positive cash flow and the owner will pay tax on this income earned. By contrast, a negatively geared property has a rental income which is less than the outgoing expenses including deductible losses. Therefore, the property investor is making a cash loss on their investment. This cash loss can be used to offset any income received, such as a salary, meaning that overall an investor with a negatively geared property will be required to pay less tax to the Australian Taxation Office. For many, this is a short-term solution until an investment property can start making a positive cash flow. However, this is a popular strategy for many Australian investors and some choose to remain negatively geared as part of a longer-term strategy. As with any choice relating to an investment property, it’s important for investors to weigh up the pros and cons of this approach, in line with their individual investing goals. Benefits of negative gearing The benefits of negative gearing are hard to deny – it essentially turns a negative into a positive. Here are some of the main benefits of negative gearing: One of the biggest benefits is that it reduces taxable income, so you use these losses to offset your income and pay less tax as a result It can provide a financial boost in the short-term, which is particularly beneficial in the early years of owning an investment property when costs often outweigh income. As such, it makes it more viable to own an investment property It can offer long-term success as negative gearing allows investors to invest for longer terms and take advantage of long-term capital growth as the value of their investment increases over time. Often properties owned in areas with lower yields (as a result negative geared) usually have very good capital growth Investor are able to use a range of tax deductions more efficiently; including deductions for borrowing costs, advertising, insurance, capital works, depreciation of plant and equipment assets, council rates, water rates, repairs, maintenance, interest on loans, and many other expenses associated with owning an investment. Things to look out for Despite these undeniable benefits, there’s a few things investors should consider: Although it reduces taxable income, a negatively geared investment property is still running at a loss. Investors should consider if they have the financial means to cover these losses each week, month and year, as well as for the entire period of time they plan to negatively gear Investors should consider the risk of their property not growing in value, which could mean they’re unable to achieve the longer-term capital gain often associated with this strategy Investors who negatively gear should regularly evaluate the performance of their investment property to ensure that it will eventually make them money through the form of capital growth Investors who use this approach need to be disciplined with their finances and can use the spare funds to offset their loan There are some political considerations to take into account. On both sides of the political fence, there are ongoing arguments for and against negative gearing, as well as calls for changes to negative gearing legislation. Investors should consider how any future changes may affect their investment and financial position. Minor changes were made to negative gearing legislation in the 2017 federal budget, which you can read more about in BMT Tax Depreciation’s 2017 Budget Whitepaper.

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Negative gearing: the facts for property investors

Bradley Beer — Tue, 14 Jun 2016 23:22:19 +0000

Over the past few months most of you would have read or heard about negative gearing in the media. There has been heated discussion both in favour and against current negative gearing policy, as well as examination of the potential risks and benefits for investors. Although we would prefer to remain apolitical, we at BMT are concerned about the current proposals to make changes to property tax concessions and the potential impact on our clients. We are therefore including some information to help you to understand the impact of the different policies. What is negative gearing? Policy matters The risks What is negative gearing? As you know, when you invest in a property, the cash flow position will depend on the income earned and outgoing expenses such as interest repayments, council rates, insurance, property management fees, repairs and maintenance or other miscellaneous costs. In a situation where an investor is receiving a higher rental return than the outgoing expenses, the property will have positive cash flow and the owner will pay tax on this income earned at their top marginal tax rate. By contrast, a negatively geared property has a rental income which is less than the outgoing expenses including deductible losses. Therefore the property investor is making a cash loss on their investment. Currently, income producing property owners are entitled to offset these losses against other income earned, including their wage or salary. By offsetting these losses, investors reduce their taxable income and will reduce the amount of tax they need to pay as partial compensation for making these losses. The ability to claim the losses that are over and above the income generated against wage or salary income is only allowable because of negative gearing legislation. Any proposed restrictions on negative gearing will be reducing a property investor’s ability to claim a tax deduction for these losses. Recent data from the Australian Taxation Office (ATO) released for the 2013-2014 financial year shows that of the 2,842,139 Australians who receive a rental income for their properties, 1,691,355 do so at a loss. This means that 59 per cent of Australians who own investment properties are negatively geared. Policy matters Each of the parties have outlined their position in regards to negative gearing in the lead up to the 2nd of July 2016 federal election. Below is a summary: Labor plan to restrict negative gearing tax concessions from July 2017, next year. Negative gearing will no longer be available on any second hand properties purchased. At this stage, no changes are planned for investors who purchase brand new properties.Capital Gains Tax (CGT) exemptions will also be changed under Labor. Currently, individuals or small business owners who hold an income producing property or other asset for more than twelve months receive a 50 per cent discount from CGT. The change proposed by Labor will mean that investors will only be able to claim a 25 per cent CGT discount from July 2017. An incoming Labor Government will be in a position to enact their policy as they are very likely to have the support of the Greens in the Senate. Labor’s policy would not be retrospective The Greens plan to get rid of negative gearing tax concessions altogether. They also plan to reduce CGT discounts by 10 per cent each year from the 1st of July 2016. From the 1st of July 2020 there will be no CGT discount at all. The Greens are likely to seek support for their more restrictive policy from an incoming Labor Government as part of negotiations in the Senate The Coalition has advised they will not be making any changes to current negative gearing concessions or to CGT exemptions. Negative gearing and CGT exemptions will remain in its current form under a returned Liberal/National Government. The risks Should the current Labor or Greens proposal be enacted, commentators predict that property prices will fall as a natural consequence of property investors largely deserting the marketplace. This is a real concern for all property owners. Predictions vary from between 2 per cent price fall (Grattan Institute) to up to 30 per cent fall (Bill Moss). Obviously price declines will vary by geographical area and will be largely determined by the balance between supply and demand. Education and proper understanding is key. We encourage you to review the policies in more detail and make an educated decision on polling day. Should you have other questions, we’d be happy to help as best we can. Authorised by Bradley Beer, BMT Tax Depreciation Level 33, 264 George Street, Sydney, NSW 2000.

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The truth about negative gearing

Chan Naylor Team — Tue, 16 Jun 2015 04:30:55 +0000

Last week the Australian Tax Office (ATO) released taxation statistics for the 2012-13 Financial Year. It’s interesting because we have been told that negative gearing was used predominantly by the rich however the statistics tell a different story. 15.4% of all taxpayer or 1.9 million taxpayers declared a net rental income on their tax returns Of all taxpayers who declared rental income; Around 36% were positively geared or recorded a net profit. Around 64% were negatively geared or declared a net loss. The ATO reported that rental deductions fell by – 3.9% over the year. The number of Taxpayers claiming a profit was up 8.3%. Around 1.2 million taxpayers claimed a net rental loss amounting to $12 Billion with the number claiming a loss down -4.2% over the year while the value of these losses declined by 16.3%. The average losses were at their lowest level since 2009-10 and reported losses was $6,123 per taxpayer, down from $7,316 the previous year. Taxpayers claimed a total of $5 million in losses and were -34.6% lower over the year Across the tax brackets, the respective income levels claim the following, less than $18,200 (12.7%) $18,200 to $30,000 (1.3%) $30,000 to $80,000 (37.6%) $80,000 to $180,000 (35.6%) More than $180,000 (12.8%), As you can see from the above the greatest income levels that claimed the most are in the $30,000 to $80,000 (37.6%) followed by $80,000 to $180,000 (35.6%) and this is contrary to many commentators who have claimed otherwise, but often simply based on ideology and ignorance and not based on facts. As only 12.8% of people earning more than $180,000 used negative gearing than we can assume that the closer we are to the $180,000 in the $80,000 to $180,000 range, the smaller percentage use negative gearing versus those closer to the $80,000 mark. If negative gearing was removed it would hurt a significant number of average Mum and Dad investors trying to save for their retirement and in so doing saving the government billions of dollars in paying a government pension. For further information about how Chan & Naylor can help assist you visit www.chan-naylor.com.au or phone 1300 250 122. Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.

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Negative gearing: one approach to property investing

Bradley Beer — Sat, 27 Oct 2012 14:11:12 +0000

Most investment strategies aim to make a net profit, however tax laws allow investors to look to negatively geared properties as a means to earning capital growth on the property in the long term. When the income generated from a property is less than the expenses, the owner will lose money due to the investment and the property is described as negatively geared. In a positively geared situation, the money earned on the property is assessable income for tax purposes. While it may seem more beneficial to pay tax on a profit, the hope of gaining capital growth on a property is enough for some investors to own a negatively geared property and benefit from a bit of a tax break. A number of investors see negatively geared properties as beneficial because the loss can be offset against taxable income, which will change the amount of tax paid by the investor. Another benefit is that interest paid on loans for income producing properties are fully deductible along with ongoing repair and maintenance costs. These non-cash deductions aid in lowering the taxable income for the investor. It is not recommended to invest simply for the benefit of tax deduction. As always it is important to research the property and surrounding area as well as the possible outcomes of owning a property prior to purchase. Related Links To read more about the opinions of negative gearing as an investment strategy click here.

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