Call to amend negative gearing

Call to amend negative gearing

Posted on Tuesday, October 22 2013 at 9:00 AM

A report into housing policy in Australia has recommended changing negative gearing rules and capital gains tax exemptions to reduce the tax advantages given to investors.

The Gratton report Renovating Housing Policy suggests changing
negative gearing rules so that “investment interest expenses can be deducted
only against investment income earned in that year”.

Under this proposal by economist Saul Eslake, property investors would
be unable to use losses on rental properties to reduce their annual income tax

Any annual losses may be carried forward and used to offset a capital
gains tax liability, but only when the property is eventually sold, the report

The recommendations follow revelations that tax expenditures for
homeowners adds up to $36 billion a year, while support for residential
property investors costs $6.8 billion a year, adding up to more than 90 per
cent of total benefits.

In addition, the report stated that due to investors competing directly
with potential homebuyers, particularly for established houses, it was harder
for first homebuyers to secure a property.

However, Property Council chief executive officer Peter Verwer says the
report unfairly targets investors and fails to offer alternative solutions to
the issue of housing affordability.

Verwer says the report only looks at one side of the taxation ledger.

“The report focuses on the theoretical tax revenue foregone by
government, it doesn’t net it off against the $34 billion of property taxes
paid each year,” he says.

“The findings in the report, such as the recommendation to tinker with
negative gearing arrangements, fail to look at the benefits of current

“On the basis of the Grattan Institute’s own numbers, negative gearing
provides a source of rental accommodation at a minimal cost to government,
where small investors take all the risk in return for a modest investment
yield,” Verwer says.

“Instead of offering
alternatives that would encourage adequate private rental supply, affordability
and choice, the report takes a lopsided view that undermines many of its own

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