Is the idea of giving a tax deduction for the purchase of goods or services used to create income (eg negative gearing) a good idea and for whom?

phooey,
Let's stop this tax nonsense by introducing flat tax. Straight forward, simple & most of all fairest. No more dodging, everyone pays the same rate. Imagine all the straight-forwared planning, no more guessing, just straight to the point up front.
Yes, the bludgers et al wouldn't like it but it would be good for the whole country.
Only the dishonest would jump up & down about it.

Fair point, but my thread was really about whether tax deductions like negative gearing or car lease etc are a good idea, not how income tax is calculated. What is your opinion on this?

Phooey,
You have the incorrect term. They are not tax deductions, they are costs involved in running a business and are deducted to arrive at a net taxable income. Big difference.

Or are you advocating that busness's pay tax on gross income?

Or are you advocating that busness's pay tax on gross income?
Banjo,
Consumers have been doing that forever. If businesses were to pay tax on gross income then would that not create a more stable economy ?
Income or gross income, it's still income. If businesses think they're paying too much tax then pass it on to the consumer. Most businesses claim way more than business expenses & that's no secret.
A businessmen can claim nice dinners, boat, car, apartment, travel etc etc. with friends whereas the ordinary crap kicker has to pay his way through all of these..At the end the businessman can then rid himself of equipment which has been written off & still get something for it. Or, if convenient he can just declare bankruptcy whilst all his money is accumulating interest in some bank account in his spouse's name. Many just continue the good life whilst their creditors go broke.
Yes businesses need our support by way of patronage but definitely not by way of deceit at the expense of the crap kicker.

Yes, and the if you've studied economics prices are set in balance of supply and demand. Placing extra demand increases the cost to people who are purchasing the product for personal use.

House prices are inflated because a proportion of all homes are purchased in this way. Same goes for cars, clothes and even food.

Sorry, I was not advocating business pay tax on gross income, I was responding to individuals post. I was just pointing out a flaw in the system which makes housing less affordable to those entering the market for owner/occupiers.

Phooey,
You have not answered my question about using the incorrect term. These business costs do not directly reduce ones tax they reduce the taxable income. As long as we have income tax these costs are legitimite income deductions. Same as employees can claim protective clothing, etc. against taxable income.

I am not saying income tax is flawless, but maybe you should be argueing for doing away with income tax and increasing, say, GST. Everyone is a consumer.

Individual,
You are saying that a busness person should not be able to deduct cost of rent on business premises or the leasing/servicing of expensive equipment he uses to generate income? Are wages paid legitimate busness expenses or should he pay tax on that, as well as the employee?

As I said before I'm not advocating anything, just pointing out a flaw that some may not be aware of. OK tax deduction may be not the correct term, but when the business is an investment property, negative gearing is.

A rose by any other name.

Phooey,
I couldn't make the unpleasant end of the digestive system as a businessman & yes you're right, business is demand & supply. That in itself is perfectly normal. I want something you make & I buy it off you.
Where the trouble is that as more & more people buy that off you, you start getting things at a cheaper rate because of our increased demand yet your price remains the same. You make more profit. Still perfectly ok with me. But then you realise you can get your supplies even cheaper from another country which then leaves your local supplier in the lurch. You however, profit even more because you can exploit the poor bloke who works for next to nothing which doesn't bother you because you're making a quid. Your local supplier then has to increase his prices because you left a gap in his income. He's paying autralian rate of tax as you do but your expenses are now negligible.
You now have created an imbalance in Australia.
I don't however blame the australian businessman because he in turn has to let himself get exploited so the 50% of Public servants can earn almost as much as he does but without the effort of producing. In all fairness at least 10% of them are employed in essential services but that still leaves a helluva lot of people not producing any revenue other than giving back some tax which they then receive back threefold in value when they retire.
So, who is wrecking our economy ?

I think it is not so much who is wrecking the economy as what - complexity. The tax system involves too many components. Taxpayers can barely understand their own position, let alone if they are getting a fair deal in the wider picture.

The supply of houses is quite fixed, moreso than any other expense we have with the possible exception of food. It is also our largest expense. Therefore any increase in this will be felt most by working people saving for first home and rentpayers (sometimes one in the same). With income tax %ages for high earners reducing more than low earners in recent years due to the introduction of GST (which is also deductable in some circumstances) this system is penalising them more than others. Carbon tax will exagerate this even more.

The tax system contains many flaws, its just a shame these flaws most negatively effect those who don't fully understand it (working people,those paying rent), which makes me wonder if they are "flaws" at all.

In my book our tax system is one big flaw because of it's imbalance due to the many tax brackets. Bracketing is a most unfair way of getting money out of people. A common rate is what's needed. You'd be surprised how many of those "successful" enterpreneurs wouldn't be able to hold a chook raffle without being allowed to exploit the flawed system.
Tax deductible consumption in my book would only exacerbate the bad system now. It would make more sense not to need a deduction in the first place i.e. keep the taxes down so you need to use more money to claim it back again later.
If people still insist to import goods which are already available here then a levy should be paid to help fund essential services such as a National Service, Policing, Health & Pension etc.
It won't be too long now & our Governments will realise that the present system is severely flawed.

Indi, we have beaten your flat tax theory to death.

It is simp,y not fair, as low income earners require 100% of their income to provide necessities, while high income earners require less.

As for neg gearing, be careful what you wish for, for if this tax is removed, good luck finding a rental property.

As for tax, a real 'transaction tax' is what is needed in my view.

Unlike the GST, which is a tax on goods, this is a tax that taxes 'money' each and every time it is used.

It has been suggested that a very small TT of less than 2% would generate more tax than all others combined.

The consumer will only ever pay the 2% 'flat tax' as you can only spend money once.

Now if you earn $60,000 per year, your total tax for the year would be $1200. That's it!

However, your $1200 dollars is used time and time again and that is where the tax is generated.

Why else do you think the banks are opposed.

So indi, a TT is a real flat tax that you ask for, difference being, it taxes money, not people.

BTW, there would be no such thing as personal tax deductions and it would also result in a decline of accountants.

As for business deductions, they must be allowed as they business expenses.

Many people think that if your BE are say $100,000 per year, you get that back.

What actually happens is that the $100,000 is deducted from your gross sales (not income) then you pay tax on your gross income, just like any PAYG earner, only without the threshold.

Confusion is often caused a many accountancy packages refer to gross sale as 'income', whereas it should be referee to as revenue.

It is simp,y not fair, as low income earners require 100% of their income to provide necessities, while high income earners require less.
rehctub,
Hang on a second, low income earners require 100% ? But they don't get 100%. They pay income tax, then Gst, then fuel tax, in fact tax on anything. So, they're getting to keep a hell of a lot less than what they earn. Income tax is the killer here. Let's get rid of it & just have your transaction tax or a across the board GST. The seller pays & the buyer pays, no-one slips through the screen.
Tax deduction is what ruins our economy. It makes a lot of money only for some . A TT come GST makes money for the country to be used for infrastructure & essential services. Our top bureaucrats can very easily do with less.

Indi, all PAYG earners, low earners included, don't pay tax on about the first $12,000 or so, then, their tax is a portion of the remainder and the rate increases as income increases.

A lot of people have the miss conception that they pay 48c in the dollar tax.

But they only pay this on the lVast portion of their income, not across the board.

TT V GST
GST is a consumption tax and can only be collected once. So it is little different to income tax, however, it is a tax, on top of a tax (income tax) and it hurts low income earners the most, as they are the ones with less, if any, disposable income.

Whereas a TT is a tax on money.

Now while nobody can spend money more than once, it's impossible, the money it's self can be spent time and time again.

An example.
I spend $100 and pay $10 in GST. Remember, I have already paid income tax on that $100 as well. So my total tax on that $100 is approx $35.

My $100 with a TT cost me say $2, thats it, nothing more as income tax is gone.

So if I earn $1200 per week, about the average, I will only ever pay a total of $24 tax, that's it, so I would be better of to the tune of about $400 per week, or, $20,000 per year.

However, my $66,000 annual income may change hands Thousands of times throughout the financial year, collecting 2% every time it does. Some suggest 0.2% is enough.

Back to the $100
It would be different if my $100 were re printed each time it was paid to me, but it's not, as it is actually a portion of the over all dollars that are continuously reused, throughout our financial system, day in day out and it collects $2 every time it gets used.

The big losers with a TT would be the banks.

But, when you think about it, they make their money from our money anyway.

GST is a consumption tax and can only be collected once.
rehctub,
I'm exposing my ignorance here but there goes. If I buy a $100,- worth I add 10% =$110.-
Then, after I've used it for awhile I sell it again for $90.-. The buyer then pays Gst $9.-. The next buyer pays Gst again & so on. I might have been under the wrong impression that the Gst is actually a TT. Well, if it isn't it should be one. That's why I'm an advocate for flat Tax. You make a Dollar & you pay tax. No-one gets away & we all win. All this negative gearing bizo is what drains the coffers. Rich or poor we pay the same rate, I can't think of anything fairer than that. If we did then we won't have any poor. The reason we poor is because of the greed by the middle class which happens to be the Public Service. They contribute the least of all towards their Superannuation & other benefits.

With the GST it is now in the governments best interest we have inflation, and additional taxes on top of that. The carbon tax will inflate prices and we will then be required to pay GST on that as well (continual inflation).

Our leaders talk of growth and this is mistaken by voters as progress, but progress in production (with more efficient practices) should mean we actually have deflation, true it would reduce revenue
but if our government was truely progressive their costs would come down also. They are absorbing any gains we create, and then some.

The same thing applies to income tax. For example 50 years ago a person earning $20,000 a year was very well off, and was taxed accordingly. A person earning that now lives in poverty and should not be taxed at all. Over time the poor will pay more income tax due to inflation. This is known as bracket or fiscal creep.

The GST and carbon tax are a flat tax everyone has to pay equally regardless of their means (unless they live or invest offshore). This is not fair on the poor. Its amazing they sold it to us by saying it will force the rich to pay their share, when really the opposite is the case.

I floated this suggestion back in the 60's - how bout we tax everyone on NOT what they make, but how FAST they make it. This opened years of debate and every arguement against it was counteracted but it went for a hundred pages so I hope I havent opened a pandora box here.

Indi, that's completely different, as goods are changing hands and in most cases the tax is depleting each time.

Taxing the money is far more profitable for the tax collectors. Governments.

We could look at a flat tax of say 2% on every dollar spent and another 0.5% on the financial transaction.

phooey, you say Its amazing they sold it to us by saying it will force the rich to pay their share, when really the opposite is the case.

So how do you work that out.

If a low income earner buys say a fridge, for say $600, they pay $60 GST.

Many well off will pay up to $7000 for a fridge a d pay $700 GST, and so on.

Someone summed it up pretty well when they said that business claims their tools/items for work as a tax deduction, which is exactly what PAYG tax payers do with their tools/items. That's why they receive a tax refund, which by the way, businesses don't, although it is finally on the table.

There truly is no difference, other than the fact that companies are simply claiming their work related expenses prior to paying tax, rather than claiming it back.

If, by chance this was to change, we simply couldn't afford to live.

Now here's a question for all this who oppose negative gearing.

Many renters will always be renters and have no intentions of buying.

So, where will they live if investors stop investing in houses, which they will if the loose the tax incentives.

The only way they will continue to invest here is if they have posetively geared properties.

Given that most rentals return a net of around 3%, that would mean either rents would have to near double, or, house prices would need to completely crash, which can't really happen.

So you tell me whether we should get rid of NG?

"Many renters will always be renters and have no intentions of buying." may be true under current conditions not true renters would have no place to live, if rent were decreased (due to reduction in house price) would give tenants more buying power, many could now afford to buy their own home (sooner) thus decreasing the total number of people requiring rental properties in turn.

As for fridges example, this is a fair point. If that fridge is purchased for a rental property or intending it for personal use after claiming a deduction on income tax and GST, a well known and widely used scam. Or sold to trade up to a more expensive fridge, GST is "refunded" to some degree as the cost of new fridges is inflated and thus the sale price of their fridge. The poor have no such luxury, they will use the fridge until it dies and take it to the dump (which incidentally they now have to pay significantly for where well off people can offload desirable luxury goods offered for "free" by the side of the road). Conisder cars instead of fridges and it is a little clearer.

GST in principal is reasonable, but only on true luxury items and not items people in the lower half are likely to need as necessities.

Indi, if NG was abolished, I would suggest rents would actually increase, as there would be fewer rental properties available, as investors woud invest their money elsewhere.

Now while house prices may fall, they would still not be affordable to many, as the banks would tighten up lending, as they would know that if they had to on sell the houses, the buyers, many of whom are investors, would simply not be there any more.

Of cause, this wouldn't happen over night, as there would be a transition period, followed by a huge rental shortage and the building industry, along with industries it feeds, would all but collapse.

There is much more at stake if you remove NG than just a tax break.