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The Forum > General Discussion > Negative Gearing and the myth about the poor subsidizing the rich.

Negative Gearing and the myth about the poor subsidizing the rich.

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I find it rather amusing how the opponents to negative gearing often use the statement 'why should the poor subsidize the rich', well guess what, they don't, it's all a myth and here's why.

You see the top 10% of individual PAYG earners, 'the rich' as they are known, are the only ones who actually pay more in taxes than they draw in support (welfare) as the remaining 90% draw more out than they put in.

So if anything the only ones who are subsidizing the rich are those from the top 10% who don't negative gear. So it's all a big myth.
Posted by rehctub, Monday, 27 June 2016 6:03:36 AM
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Quite right. But there is still no justification for negative gearing. Nobody buying up property for profit should be receiving taxpayer help to do so. If the so-called 'mums and dads' (ridiculous term) feel that thay can buy property other than their own dwelling, good luck to them. But they do not need our help to enrich themselves.
Posted by ttbn, Monday, 27 June 2016 11:56:15 AM
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I am confused about what "negative gearing" means:

One version has it that it's about being able to deduct losses from rental business against profits from work. That doesn't seem wrong: one should indeed pay their honest tax on their net earnings, not on their turnover.

But there's another side to the story: when a rental asset is sold, one is not required to pay tax over the full amount they gained, unlike those who earn their money from work, who are. This is wrong.

What is also wrong is that people are allowed tax deductions for the interest they pay to the banks as they invest moneys that are not theirs, money they never earned. It is unwholesome, like gambling, to use money that is not yours and while the practice should not be forbidden, it should also not be encouraged.

In summary:
1. Interest on loans should not be recognised as a tax deduction.
2. CGT should be paid over the full amount one gained, after deducting non-real nominal gains due to inflation.
3. Losses from a rental business that are not due to interest-repayment, should be allowed to balance one's earning from work in one's tax-return.
Posted by Yuyutsu, Monday, 27 June 2016 12:48:46 PM
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Negative gearing is a scam.

Why should anybody subsidise your loss making investments?
If you are too stupid to run a profitable business then you deserve to lose it.
If the rent doesnt cover the costs of your investment property then you are a fool and should lose money.
The top 10% are rich enough already without being given tax breaks for idiotic business decisions
Posted by mikk, Monday, 27 June 2016 3:30:51 PM
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So, if rents are not enough, just increase them, so thousands cant afford a place to live. What a bad idea.

The bottom line , negative gearing allows rents to be reasonable, tenants benefit by rents being approx. 30% of their income, landlords benefit as the tax deductions allow them to at least make a reasonable return on the risk they make, the government loves it by getting, council rates, land tax, GST, income tax etc.

Stop neg gearing and rents go up to compensate the landlord, or simply not invest at all in residential property.

Read what happened in 1985 to 1987 when Paul Keating stopped neg gearing. The waiting list for public housing rose by 40% (ABS stats) and rents went through the roof (29% increase from 1985 to 1987)

One in 6 people are employed in the building industry, stop neg gearing and thousands of plumbers, sparkies, brick layers etc will be out of work.
Posted by kirby483, Monday, 27 June 2016 4:18:49 PM
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Yuyutsu every business can deduct the interest on borrowings used to fiancÚ that business from profits.

Interest is a very large part of the cost of many businesses. Without borrowings few retailers would be in business. Many of them have mortgaged the family home to fund the business.

Virtually no mining would have been possible, without borrowings, & they are a legitimate cost. Huge investments over years are required to develop a modern mine, which can include rail & port infrastructure, long before a single cent is earned.

Why should rental housing be different to every other business. The thing you & Mikk are probably really wanting is to quarantine those losses to the rental business. Again this is purely driven by envy of those who won't take the chance of losing the family home to buy a rental property.

As for capital gains, this is a tax office driven thing. Profits from gains when the property was sold used to be corrected for inflation, & gains taxed after correction. This was onerous for all, as inflation varied over years or location. It was to minimise public servant labour involved that the change to taxing the full inflated profit at a percentage less than 100% was made the system.

This advantages some investors & disadvantages others, but advantages the taxpayer as the most cost effective system. Changing it to suit the envious would be like cutting off the taxpayers nose to spite his face. A typical dog in the manger attitude. Surely this is not your chosen attitude.

PS. I would never own a domestic rental property, lousy investment. Industrial can be OK, but is still too risky for me.
Posted by Hasbeen, Monday, 27 June 2016 5:21:24 PM
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