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'Lunacy' negative gearing distorting Sydney housing market: Report

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Your Investment Property | 31 Mar 2016, 05:19 AM Agree 0
A new report claims nearly 100,000 residential properties are being allowed to sit vacant as property investors look to cash in on tax breaks
  • Jason | 31 Mar 2016, 06:44 AM Agree 0
    What a crock. The lowest interest rates on record are what allows investors to keep their houses tenant free. The tiny amont gained in negative gearing is nothing. I guarantee when rates go back up those properties will be 90% full.
  • Mmm | 31 Mar 2016, 03:39 PM Agree 0
    What a load of crock thinking about only self interest and not the cohesion of Australian society.
  • 1 | 31 Mar 2016, 04:14 PM Agree 0
    You can't claim negative gearing if the property is not on the market for rental. Ask the ATO!!! The mere fact that it is vacant doesn't mean that the owner is claiming any deduction at all. These professors don't know tax law and just quote off the cuff, to drive a story
  • Oliver | 31 Mar 2016, 04:57 PM Agree 0
    I don't buy it! Since when getting only capital return is better that getting the same capital return as well as income return???
    Do the math...
    Negative gearing only means that you can deduct up to 47% of your rental loss from you income. But that's still a loss.

    In practice, A has an income of $200,000 from other sources and it also owns a property worth $400,000, which is vacant and produces a loss of $20,000/year due to negative gearing. The property also produces a 10% capital return per year and is worth $440,000 at the end of that year. At year-end the result is $200,000-$20,000=$180,000, which attracts tax of about $55,000 versus $64,400 without the negative gearing, yes that is a saving but... the bigger picture is effectively:
    - $20,000 in rental loss (cash the investor had to fork out)
    - $64,400 tax for the year (this on the basis of $200,000 taxable income but the line below accounts for the tax savings)
    $9,400 gain resulting from tax savings ($64,400-$55,000)
    $40,000 in unrealised capital gain (i.e. non-taxable)
    = Net return of -$35,000.

    B is in the exact same position, except, his property produces a net rent income before interest of 4%, which is completely offset by the interest it pays on the mortgage. In other words B breaks even on his property. The result is as follows:
    $0 rental gain/loss
    $64,400 tax for the year
    $0 tax savings
    40,000 in unrealised capital gain (i.e. non-taxable)
    = $-24,400

    B is better off than A by $10,600.

    The example above demonstrates that vacancy is not better than renting. What your article should have said is that in some cases it is still profitable to leave the property vacant, but it is never more profitable than renting it out. The costs are the same either way so if you have income you are better off.
    That's like saying rich people give to charities because it reduces their tax bill... rubbish! The truth is only that when rich people give $100, only $53 comes out of their pocket... but that's still $53 that goes out! If they had not donated they would be paying $47 more tax but they would still have $100 in their pocket.
  • Neville | 04 Apr 2016, 06:22 PM Agree 0
    Based on the article there is insufficient evidence to support the causal link between house price, vacancy during census and tax rules. Not to mention that the data is from 2011 but the unstated inference is that it applies to todays market. rubbish just rubbish. I hope this is not representative of the research and critical thinking at UNSW.
  • Graham | 06 Apr 2016, 12:16 AM Agree 0
    Rubbish - No negative gearing here. No Rent = can't claim expences. Should maybe check facts before writing this. Clearly shows that most people against neg gearing can't even explain it. Quick call to ATO will enlighten you.
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