In This Video:00:28 What is negative gearing? 02:38 What are the changes that they are proposing with negative gearing at the moment? 04:15 What policy though they are proposing? 07:16 The New Market Good day everybody Daimien Patterson here from Integrity Property Education. If you are looking for property investment advice or property investment strategies and basic property investment knowledge then you come to the right place. Today’s blog video is all about negative gearing and the proposed changes to negative gearing.
What is negative gearing?What is negative gearing first and foremost, it all depends on what context you are talking about now if you are talking about government policy we say “negative gearing” but really what they should be saying is just “gearing”. Now there are positively geared properties and there are negatively geared properties what is that actually mean? Well what it means is that the government allows us to claim any losses associated with an investment property on our tax and then reduce our taxable income and get a tax return. So how does it work? Well quite simple, your rent that you receive from your investment property is added to your income and then all the expenses associated with that property then get deducted so the interest on the loan, the insurances, the maintenance cost, rental management and all those other things depreciation then reduce your income down and then more often than not especially when you add depreciation you’ll end up on paper looking like you made a lost and therefore you will be able to claim that loss on tax and get whatever tax bracket you are in 32 and a half,37 and a half back on tax. So that’s what negative gearing is in concept. Now why do we have negative gearing? Well, have you ever stopped to think about who owns all the rental properties? Now the banks will only lend money to people who have enough money to save the deposit and so therefore not everyone can afford to buy their own home. SO we must have rental properties available for the population who can’t afford to buy their own home. Now there is two ways to do that.
- Is we can have a government housing which is proven to be a very negative way of providing housing.
- To encourage investors to buy houses and make them available as rentals.
What are the changes that they are proposing with negative gearing at the moment?Well depending on which way you look at it, some people see negative gearing as a massive impulse on Australian budget with billions and billions of dollars being refunded to property investors every year to say “thanks for having investment properties.” Some people say that is a bad thing, but the wiser people actually see it as a good thing because without those investors, the government will have to provide that housing anyway and they will be spending money on government housing rather than on tax returns. So why not do it? My personal view, this is not bragging so not trying to fix it however, it continues to come up as a political hot topic. There are two statistics you need to know about the chances of any legislation getting changed and they are:
- 88% of Australian tax payers now own investment property. So making any changes to negative gearing policy could potential be a literal suicide and I will be very hesitant to do so.
- 55% of members of parliament own investment properties.