Friday, April 04, 2008

Landlord's tax bonanza

Regardless of interest rate rises and changes in the market place, property continues to be a popular form of investment for a number of reasons. Secure investment in land, capital growth and one of the most important points for investorsÉnegative gearing.

For all of you who are investors, or thinking of becoming investors have a read of this recent article from Tim Colebatch of The Age. At Toop&Toop we aren't financial advisers and always recommend you seek advice from your accountant, however we think you'll agree that this is certainly an interesting read.

The popularity of negatively geared rental housing, and its cost to taxpayers, continues
to balloon.

More than a million Australians claimed they lost money on renting out homes in 2005-06, resulting in a collective tax break to them of $3.5 billion, the Australian Taxation Office has revealed. In the same year, only half a million people reported having made money on renting out property.

In most businesses, losing money is frowned on.

In this one, however, it has become the spirit of the game, with landlords writing off their claimed losses against tax, and effectively using the savings to subsidise their property investment.

On preliminary figures, the Tax Office says landlords reported $8.7 billion of rental losses in the year to June 2006. The final figures, on past practice, are likely to be higher than that Ñ
about $9.3 billion.

Seven years earlier, 650,000 landlords reported just $2.5 billion in losses. Since then, the losses have more than trebled, mounting by roughly 20% a year, while the number of landlords claiming them has risen 70%, as negative gearing has become an increasingly fashionable way to cut your
tax bill.

Assuming landlords were facing, on average, a marginal tax rate of 37.5 cents in the dollar, the tax they saved has escalated from about $1 billion seven years ago to $3.5 billion in 2005-06, and probably more like $5 billion a year now given interest rate
rises since.

The Productivity Commission, with tacit support from the Reserve Bank, urged the former Howard government to review the tax breaks for housing, arguing that they favoured investors over first-home buyers.

Former Reserve Bank governor Ian Macfarlane told MPs in 2002 that most investment in housing was "tax-driven", citing negative gearing and the low tax rate on capital gains.

But with a million investors now using the tax break, neither major party is prepared to take it from them. Treasurer Wayne Swan has repeatedly refused to reopen the issue, after the Hawke government dropped negative gearing in 1985 only to reinstate it in 1987, saying the move had driven up rents.

Tim Colebatch, The Age, 19th March 2008

If you are in the market for an investment property, give your local Toop&Toop office
a call.

Anthony Toop, Managing Director

© Toop Real Estate Group

No comments: