Labor would have us believe their negative gearing policy will save us $40 billion over the next four years. I think that is the figure, but correct me if im wrong.

The one thing I doubt they have factored in is the fact that many who NG on older homes now will simply buy in the form of a trust instead. A trust costs about $1500 to set up, give or take and is tax deductable.

The point is as NG effects PAGY earners only, they pay their taxes then claim back expenses, whereas a trust claim their expenses, distribute their income, then pay their taxes.

So there is no doubt a large chunk of that money will not see the light of day.

If this is the case, whats the point of taking an axe to what is providing much needed housing, many of which fall under the affordable housing scheme.

In short, is the potential gain going to be worth the possible pain.

I really don't think they have thought this over.

I agree, a quickly made up policy with no idea how it effects people.

Trusts are not clear cut. If you put property in a trust you effectively do not own the property any more it belongs to the trust. The trust is run by someone that is unknown to any of the trust members, and has full distribution rights of any profits after all liabilities have been paid. So you pay tax on any income you are allotted from the trust. Big timers make use of trusts and never get any payout. Everything is ploughed into the trust. Less costs for running the trust by someone you don’t know. Not for short time safe keeping. Family trusts are declared to the tax office every year along with recipients of moneys, underage recipients moneys are held until the recipient becomes of age.
A trust is giving up your ownership of money or property. You are a beneficiary to the trust, and inescapable of taxes to be paid sooner or later.

579, your key words are 'sooner or later', but we need revenue sooner rather than latter.

NG gives us revenue now, and refunds are delivered later.

Negative gearing is a rort.
If you cant making a profit on your rent seeking why should the taxpayer support your stupidity?

Budget forecasts have conflicting constraints:

1 The longer the forecast, the more effect external factors have (change of government or GFC) and lower the accuracy. (similarly weather predictions for next year or in 5 minutes are either unreliable or useless)

2 However, the shorter the forecasts the less influence new policies will have.

For this reason budget forecasts of 4 yrs are chosen. While treasury will do models for 10yrs (or longer) they are really for academic interest only.

Coming to the point, it is interesting that Labor has done all their costings over 10 yrs where the revenue is bugger all to start with and increases over time, yet their spending starts immediately.

Labor cannot submit a 4 yr forecast because its savings are pitiful and its spending is huge, and it has a budget black hole between $30bn and $67bn depending on which promises they keep.

Abbott started the ten year plan. As the case b/s baffles brains. And the people believed him, for a short while. What forward projection figures does the libs have. 2025-02030.

The NBN is in a mess, and a fraction of the speed we need. A mis mash of different design will make it plagued with problems. Another reason to keep us further behind, we are being run as a minor country

Mikk, where do you think the houses come from for millions of renters. Investors.

So if you want investors to continue investing, and you want houses to retain value (a must), then rents will skyrocket.

Now once this is achieved, what have we really achieved through the changes to NG and CGT?

Ask treasury butch they reckon it's a good idea. NG is a false economy if there was something better to invest in that is where the investment will go.

The market will find its own values, without NG. NG is a drain not an advantage. Times have moved on.

ok, there are some people who think Negative gearing is for the rich, no, anyone can do it. In fact the vast majority of NG properties are owned by mums and dads earning less than $80k a year.

So, why would you invest in residential property? Not for the rent (yield is a gross 4%, after tax and expenses is about 2.5%, same as inflation) You invest for capital growth and tax advantages.

So, take away tax advantages (neg gearing), to make investing into property attractive something else has to happen, that is rents rise to compensate loss of tax benefits.

If Labor believes house will drop in value (capital loss) why would anyone invest?

But Labor said it would keep NG for new homes? Well, when does a new home become an old home? 2, 5, years or when it is sold? Either way, no one in their right mind would buy an residential investment property knowing in a few years time its value has dropped. (They invest for capital growth, not capital loss)

So, Mums and dads will NOT buy investment properties if the only return is rent, or if they do they will increase rents to compensate on no growth or tax benefits. Demand will exceed supply and rents will skyrocket.

One in 6 people are employed directly or indirectly in the building industry (its our largest employer) If there is no tax incentives to hold residential property, there is going to be a lot of unemployed labourers.

The government loves neg gearing (Greens, Labor and Libs) as each house built employs 300 people (carpenter, brick layer, sparky etc) all paying income tax and GST.
The more money is circulated the more tax is collected and better the economy.

So, stop neg gearing and rents go up, unemployment goes up, less GST revenue and more homeless people and more people cant afford to buy a home.

Good Policy? NOT

Ask treasury you say 579.

Well, Wayne Swan asked treasury and treasury said he and his party would return to surplus. He mentioned this dozens if not hundreds of times yet we did not return to surplus.

So tell me 579, what has changed in treasury to give us new found confidence in what they say?

Do you know something I don't about changes in treasury, if so, perhaps you can share it with us.

Kirby, most of the rich are not your average PAYG earners in the first place, they are company directors, and like myself draw a wage and, more and more company directors are moving away from property ownership in their personal names.

So negative gearing is still going to occur, its just that the likes of trusts will be holding and servicing the debt, and claiming the losses and this is not considered negative gearing.

As for the CGT tax hike, this will simply mean less investors will sell their properties which in turn will tighten the market and as you rightly say, who is going to buy a new house, knowing fewer buyers will want it once its lived in.

A trust cannot claim the losses as a trust does not have an identity or a TFN.

579,

You clearly have no idea how trusts work. Getting rid of negative gearing reduces the demand for new houses, costing jobs and tax revenue there, and pushing up rents.

I have a trust with a large loss that I am claiming as we speak, brought about by a business that did not go the way as intended, so that loss can and is being taken up. Basically the same principle as negative gearing.

Now while you may say that is not fair, the fact is for three years while I was unemployed as such, I had a small business that underperformed and this is like a safety net for those willing to take risks, and rightly so because without such assurances, fewer will take such risks. Then what!

Now had that loss been through over lending on property and a downturn in rents, then same deal applies.

The trust takes up the loss, then distributes the profits, if any, and the beneficiary pays its appropriate tax. HOWEVER, the trust CAN NOT distribute the loss, so unless there is activity directly with that trust, the loss stays there. It has of cause been paid by the directors/trustees in the first place.

Now that's settled, answer my question about your faith in treasury as my understanding is treasury is made up of over paid seat warmers.

Negative Gearing was initially introduced to generate additional new housing stock when it was needed and did so - for a while.

It no longer does so and has turned into little more than a tax-dodge for investors.

Anybody is free to purchase an investment property but I can't see why I have to pay additional tax to cover their interest payments, especially when I don't get a share in the profit it may generate.

I see $bn Bill is trying to fill in the $67bn black hole in his spending policies by backflipping on promises.

Butch what you say comes straight from the ATO site. Of course your loss stays in the trust, you can't withdraw what is not there. How many trusts are there do you think. It's a matter of what the trust was set up for.

But many are nervous about threats from the Australian Taxation Office, which is cracking down on payments from trusts to companies where the money is not actually paid but remains in the trust. This could affect thousands of small businesses and farming operations that rely on the funds staying in the family trust as working capital. The ATO wants these "unpaid present entitlements" deemed as dividends paid by the company and therefore taxable by the trust at the highest marginal tax rate.

The general public know there is something “not right” with the tax treatment of family trusts (discretionary trusts). Accountants and tax lawyers working with discretionary trusts know first hand that the income tax treatment has trouble passing the “smell test”. Even the most aggressive tax minimisers would concede that.

Pay your tax Butch a quit trying to rort the system.

rache, negative gearing also subsidizes rents. Would you like to see those subsidies go as well, because that's whats at stake here.

579, I will pay my taxes once my loss has been taken up. Im guessing you are one of those who think losses should not be tax deductible as well. If that is the case, where is the investment going to come from. Who in their right mind is going to take the risks that provide the majority of jobs?

While on the subject of risk, who is going to risk buying a new property as an investment when the unknown factor is the value once it has been lived in.

On a side issue, I see the banks are already starting to tighten lending, no surprises there I might add. This is only the beginning.

So if either of you rent, my advice is brace yourself because you are in for one hell of a shock once the investors are chased away, unless of course you wish to rent the new home.

I say that because all of a sudden the new home buyer and investors will be competing for the same item and guess who can pay more? This in its self will push prices up.

butch, you're wrong with, "... negative gearing also subsidizes rents" and "...the new home buyer and investors will be competing for the same item......This in its self will push prices up".

Firstly, you use the term "subsidize", meaning someone is sharing the payment of rent with the tenant, putting money into the landlord's pocket. Who is it? NG is but one way losses can be written down. It helps to maintain sufficient supply to meet demand and keep rents down. Take it away and limit loss write-downs to company/trust structures only, and the balance tips.

The term you should perhaps use is that NG "sustains" rental levels. Don't fall in behind Labor's class-war rhetoric of subsidies, concessions and rorts.

Secondly, what investor wants a new house enough to outbid an owner occupier, with no idea of its value as a used asset? You've said this yourself but contradict it with the quote above.

Luc, once again you are splitting hairs.

Either way NG helps to make investing more attractive, which in turn means returns on investments can be lower simply because they are made up of income, capital growth (another area they intend to take an axe to) and tax advantages. All these factors form the mix that make rents affordable.

As for the new home war, yes, you may well be right, however, are you aware banks have started insisting on 30% deposits in certain areas that were traditionally 20%. This is due to uncertainty in values.

So, given this policy will most certainly fill the sector with uncertainty in values, where would your wannabe first home buyer be if they had to save 30% instead of 20%?

As an example, call todays value $400,000. 20% means an $80K dep.

Turn that $400,000 into say $350,000, @ 30% and the deposit becomes in excess of $100,000. How is this more affordable.

Now that's assuming a drop in val of around 10%, what if vals drop 3-4%, which some experts predict. Having to save 30% would be even harder.

Mining is screwed. Car industry gone as well. The housing market is not only one of our strongest performers, but its also a HUGE employer. Do you really want to effect this sector?

Now is not the time Luc.

Personally, I don't negative gear, I run trusts. I still get the claims, in fact with a trust you can claim much more than as a PAYG who does negatively gear. Perhaps Bill is targeting the wrong one here, hey!

Butch you keep changing the position of the goal posts. The market will find its own level without interference from investors or any other white ant.

Rents are already far to high for the level of income the tenants earn. Time has come for a different approach.
Around the world condo's are the proffered low cost housing.

A new house to me means a house built from the ground up, not an already lived in house. Investment in used houses is creating a false economy. Houses are market based and should not have other interference.

The only investment needed in housing is the supply of new dwellings , not creating competition for existing housing.

OK butch, have it your way. I expect that the abolition of NG would therefore put money back into the public purse to buy more goodies? That's what Shorten runs around saying.

It must also be that a company's ability to write down a loss against a profit is a taxpayer subsidy? Should that be next to go?

Terminology is very important in class-warfare, butch.

No Luc its not the same because very few go into business to loose money, whereas many do with property.

An investment must return well or its not worth having. It has a mix of income, capital gain and write offs

Take away CGT discounts and investors simply wont sell. But take away NG and people will stop investing.

A scenario.
You earn say $80K per year. If you had a NG property that gave you say $7000 back, and you can no longer do that, then you are more likely to pay down your own mortgage and while that may sound great, how does that stimulate the economy.

The other important issue no one will talk about is bank profits.

Banks charge interest and as such make profits and as such pay tax. So while NG may give some back, take it away and banks will not make profits on that loan, so therefore wont pay the tax either.

This is a dumb policy but it sounds like some will have to learn the hard way. Well good luck with that.

Just remember, if this policy did decimate the building industry, how will any government think they can reinstate trust again.

This is simply a grab by labor in an attempt to plug the hole the started.

Butch you are going on as if the only ones that want to buy older houses are investors. People that want to buy in are being pushed out by investors. People that want to buy in want to live there. Investors that buy in want to minimize tax.

Its all good and well to say what about the renters, without investors there would not be so many renters, they will be home owners.

It's all about looking after your own ass.

Go and invest in greenfield houses.

579, a very popular way for FHB to buy in is through the home buyers scheme, which by the way is now only available for newly built homes. In fact, I think you have to actually have a home built, so speckies as they are known are not even eligible.

So, if you take that $15K away, how much harder will that make buying a used home.

Besides, this thread is about the black hole in labors policy, whereby they predict they will save the tax payer $40 billion over 10 years. What they have not accounted for is the number of investors who will now buy in trusts, rather than negative gear the asset, but the deductions will still remain, only worse. because trusts are treated differently to PAYG earners.

In fact, if used houses do fall in value, investment through trusts will mean more competition, not less. So if values fall, and rents increase, investors may well have a field day.

What's the point!

Not all FHB can afford a new house with the 15,000 . Where as they can bye an older house with an affordable mortgage.
You are still trying to find ways of roarting the system. The idea is not to have investors in old housing stock, so no matter what you come up with will have been covered. The ATO has been looking into trusts since the Gina debacle.
You have old news the new black hole is 20 b not 40 or 60. So I would not take any notice of stuff you read in the Australian. They have very elastic numbers.
The point is houses are over inflated by great amounts. The difference between building price and resale price is crazy. They need pulling down to earth. 60,000 vacant high rise apartments in Melb. No one can pay the gigantic price tags.
Investors are not competing for a house they are competing for a tax dodge.

I think the point of the thread is that given the grandfathering clause, labor's housing tax will raise precisely nothing in the first few years, and at best only $2bn over the 4yrs of the forward estimates.

This gives labor absolutely bugger all to spend or reduce the budget deficit.

That's not quite the point of the thread SM, the point is that if NG is removed from used housing, one simply needs to form a trust to buy a used investment home and, unlike PAYG earners, the trust has far greater tax advantages.

You see labor thinks they will make housing more affordable, well they wont, they will just see investors changing the way they invest and, if they tax CG by 50% more, then why would one hold a negatively geared home, as they might as well buy in a trust. Far more flexibility, far more tax advantages, and much the same CGT implications.

See I, like many self employed draw a wage, and I make that wage pretty much what I wish to. At the moment I draw $86K and I will be watching to see if I receive a tax break, and if I don't, then I may reduce my wage and use the extra to invest, perhaps in property at a reduced price with additional rent.

So when its all said and done, I cant really loose, but the economy can, big time.

All the forecasters have done is taken the amount of subsidized taxes in NG, and assumed they will get all that back, whereas trusts will ensure they don't, and there in lies the black hole I refer to.

successful people in business usually predict the future, whereas annalists usually work on data from the past and this is why they get it so wrong. A point in case being the failure of the mining tax where big business outsmarted the government.