tax wall

Negative gearing tax arrangements under pressure

Australian Council of Social Services Chief Executive Cassandra Goldie has called out negative gearing tax arrangements as "inconsistent" in an April 3 statement.

The comment comes on the back of speculation that the federal government may rethink negative gearing arrangements, according to an April 3 report from the Australian Associated Press (AAP).

The Australian government may take a "fresh look" at the rules surrounding negative gearing as the May budget creeps up, noted AAP.

Ms Goldie has said that a closer look at tax arrangements across various investment types is necessary.

With regards to negative gearing, possible changes to the system could have big implications for investors requiring mortgages.


Advantages for investors

Some investors have properties where rental income fails to service the home mortgage and other expenses, resulting in a loss.

However, the current taxation systems allows investors to deduct their losses from their income, notes the Australian Securities and Investments Commission (ASIC).

The ASIC notes that this is a risky strategy that's not worth pursuing solely for the tax benefits. Instead, the yearly loss must be converted into a future profit, or the asset sold for a capital gain that makes good the prior losses.

Negative gearing is a strategy that requires financial prudence and is not without its risks. However, some investors do choose to adopt it. Potential changes to the system may limit what they can claim back on tax, making it an option that's not as viable in future years.

Where to from here?

"The tax base cannot be repaired simply by avoiding tax cuts for a decade and leaving income tax 'bracket creep' to do all of the work," explained Ms Goldie.

Tax is certainly a complicated issue, with a range of opinions competing with each other for attention. Ms Goldie suggests that the issue needs more attention than simply discussing GST. Should negative gearing come under the spotlight in budget discussions, property investors will certainly want to pay attention.

Image credit: ym



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