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Myth About Negative Gearing Busted

negative gearingKate Cull writes an article for the website Property Update wherein she talks about negative gearing and a report prepared by Deloitte Access Economics. The report called “Mythbusting Tax Reform” suggests that negative gearing is not evil and there is no sound argument in favour of abolishing it.

Mythbusting Tax Reform report

The report specifically deals with discount on CGT, Super incentives and negative gearing. Investors use various methods to curb down their tax liability and negative gearing is just one of them. There is a lobby of critics who feel that it is a nice weapon in the hands of the rich and yet no one can doubt that negative gearing is just out of the investing rule book. Isn’t deducting expenses made in the process of earning revenue an old idea?

The main culprits lie elsewhere

The report also silences critics who complain that negative gearing is responsible for the hike in property prices. The report claims this to be very far from the truth. In actuality, it is the low interest rates and other taxation arrangements (capital gains taxes in particular) which have led to prices shooting through the ceiling.

50% CGT discount

The Deloitte report feels that the CGT discount of 50% is unexplainable. At a time it looked right given how we anticipated inflation, but with time we should have curtailed it because we were able to check inflation almost completely.

You can read the original article here.

Negative gearing choice method of the not-so-rich, too

Negative gearing, over the last financial year, helped 83,000 clerical job-keepers, 62,000 teachers and as many as 12,000 workers in the emergency service sector. Who among them are rich? Probably none of them are. So negative gearing clearly is not a tool exclusively for the rich.

Abolishing gearing

There is a line of reasoning which suggests that scrapping gearing could adversely affect the buying of properties thus putting pressure on rent. Those following this line of thinking suggest 1985-87 as an example of gearing being scrapped and rents being affected. These people must not forget that the rise in rent was a phenomenon only witnessed in Sydney and Perth. If gearing were the real culprit, the trend would have been observed across Australia.

CGT discount

The CGT discount certainly needs to be reviewed. Given the kind of rebate available, investors often show capital gains when the marginal rate of taxation is at its lowest and this often leads to holding sub-optimal property for longer than is necessary or profitable. Now that’s quite an argument against rebates on CGT!