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The Forum > Article Comments > Why does negative gearing get a bad rap? > Comments

Why does negative gearing get a bad rap? : Comments

By Geoff Carmody, published 25/9/2014

Negative gearing is blamed for pricing first home buyers out of the housing market, for asset price bubbles (notably, again, housing), lost Budget revenue, and benefiting the rich.

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Sorry individual I meant to respond.

I did say net. By the time owners have paid all the costs involved, there is not all that much left of the rent on domestic dwellings.

One advantage of commercial property, the renter pays council charges.

On that, I was looking at some old council rate notices, as I cleaned the rubbish out of the filing cabinet the other day. 27 years ago my rates were $123.00 PA. Now they are 3250.00 PA.

Yes I know there has been a bit of inflation in the last half a century, but two thousand five hundred & forty percent is ridiculous.

Is it surprising we have to wonder just what all these bureaucrats do today, that did not have to be done a few years back.
Posted by Hasbeen, Saturday, 27 September 2014 12:57:25 PM
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As with a lot of policy that is driven by ideology and idealism, the removal of negative gearing will produce unexpected negative consequences.

The removal of negative gearing would see a quickening in the slide towards the lion's share of rental property falling into the hands of large institutional investors, not the small entrepreneurial mums and dads investors as has been the tradition in Australia.

Just thinking about those small investors, the mums and dads who are sacrificing their best years to provide for children's education and possible old age one day The disincentive, make that the incapacity to invest in rental property if they cannot claim losses like any other investment, could cause them to question sending their children to private schools (eg Catholic). That would put more pressure on public schools and cost government more.

Likewise they might wake up to the folly of sacrificing their own and their family's lifestyle to provide for 'superannuation' in later life that will only reduce the age pension available to them anyhow. That is if they survive to old age after all of the work and worry of rental property.

When Labor gets back in and particularly if Labor ever partnerships with the toxic Greens again, the pressure will be on to extend capital gains tax to the private residence. The usual wedge politics of intergenerational jealousy and the old favourite, class politics will apply.
Posted by onthebeach, Saturday, 27 September 2014 1:34:41 PM
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Another risk of removing NG is that the banks may see their risk elevated resulting in them lending less, leading to increased deposits. So in essense the while the first home buyer may have cheaper houses to choose from, they may require a much larger deposit making affordability no better. And of cause if they do get themselves into trouble, there will be fewer buyers out there willing to bail them out.

It's my tip that should NG be removed, it will decimate our building industry, our real estate industry and many others that feed off, or supply to these vital industries, because let's face it, while many younger ones can train to become a tradesman, many would fail if they needed to train in an industry that requires much higher levels of education. No offense intended because I'm not the sharpest tool in the shed myself, although I do have pretty good life skills now that I'm on the wrong side of 50. Another set of skills that's being killed off through over compliance.
Posted by rehctub, Saturday, 27 September 2014 2:10:43 PM
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Dear Rehctub,

<<Yuyutsu, are you aware that a business owner is not allowed to claim his/her travel from home to work either? Unless they have an office at home, or, they use their home as a portion of their business as well, which then has CGT implications. It's a rule that is only really challenged when audited.>>

Well, most self-employed people would do their administrative work (orders, accounting) at home, so that wouldn't be an issue. I am not aware of the CGT implications, but I suppose it won't matter if you sell your home over a year after you retire or become an employee.

In any case, travel to/from work is the most obvious example of a work expense, so it's absurd not to be able to claim it as a deduction. Also, because employers would incur a "fringe benefit tax" if they cared to bring their employees to/from work as they do in other countries, they don't.
Posted by Yuyutsu, Sunday, 28 September 2014 12:58:10 AM
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Yuyutsu, I fully agree with you that any work related expense should be deductible, because after all, getting yourself to and from work is the only way you can earn an income and pay tax. So any public transport, strictly on direct rout, parking costs, at a set level and travel costs per km should be a tax deduction. In fact, having to pay all these expenses, along with the likes of child care are one reason why some choose not to work, because at the end of the day it is often deemed as not worth it.

As for business travel, to and from home, I used to argue that I had to take the keys in to open the shop as it was not safe (for obvious resins) to leave the shop unlocked.

I never got the chance to test my theory as in my 23 odd years of owning butcher shops, i was never audited, although I always made certain my margins were within the perimeters as set by the ATO.

I did have a GST audit, which was a crack up.

When questioned as to why my GST payable was always the same amount, my answer was that the only thing I sold that attracted GST was hot chooks. So, as I said to the auditor, if I sold them uncooked, there was no GST, if I sold them cooked (hot) there was GST, but, if I sold them cooked, cold, there was no GST. So it's a guess. She accepted that the tax was messy.

The other funny one was when I claimed half the GST on a Harley I bought. The auditor said surely you can't deliver meat on a Harley. I said no, you're right. But, I can buy meat using a taxi and claim all fares, so what's the difference. She said, as she turned the page, boys and their toys.

But, as for negative gearing, imperiously hope governments don't go there.
Posted by rehctub, Sunday, 28 September 2014 8:56:36 AM
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Dear Rehctub,

It feels nice to be agreed with, but no, I don't think that any work-related expense should be deductible, only such expenses that are reasonably necessary for the production of goods and services.

Otherwise, I could say that buying my wife a diamond necklace is a work-expense because keeping my wife at peace is necessary for me being able to spend long hours at work. This way, practically any expense that contributes to my well-being could be claimed on the grounds that it improves my work-quality.

I also do not think that advertising expenses should be deductible as they do not contribute to the actual products/services, while in fact they cause harm to the public.

Also, borrowing expenses should not be deductible because it is wrong to borrow and live off debt. If you and your family do not have the capital, then you should do it straight and first work to gather that capital, even if it takes a few generations, then invest your own money as you like. While government has no right to preach morality and order you to refrain from doing things that are wrong, it should not give you a prize for that either, in the form of a tax deduction. Negative gearing would be thus resolved as a private case of not encouraging borrowing and speculation.

I still did not understand how your Harley was contributing to your production, if you care to explain.
Posted by Yuyutsu, Sunday, 28 September 2014 9:55:31 PM
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