November 5, 2015

Negative Gearing a Positive

With the Federal budget retaining the current arrangements for negative gearing, this is good news for property investors and tenants, according to RE/MAX Sales Consultant, Miss Tiffany Krause.

The Real Estate Institute of Queensland (REIQ) has been proactive in lobbying the government for this tax relief to continue.

“About one-third of our population live in a rental property. Unlike many nations, our Federal and State Governments provide only limited housing which is predominately for the most disadvantaged,” Miss Krause explained.

The majority of rental homes are provided by individual private investors who are attracted to rental accommodation through the potential of capital growth in the mid to long term as well as the tax break incentives. To do this investors generally commit to a substantial bank loan. The holding and running costs of an investment property include council rates, insurance, general maintenance and interest on the bank loan.

Most times in the initial years, these costs and expenses are greater than the net rental income hence the investor is required to top up the operating loss from their disposable income. In the early years of investment this can bring about financial pain.

Miss Krause said negative gearing is simply the government allowing an investor to reduce their tax bill by compensating them for the higher costs compared to the lower income they will receive.

Over time the investor pays down the debt whilst rents usually rise. Once the income from the rental property exceeds the holding costs, the investor makes a profit and pays tax on it.

There are some disincentives on property investment like extra stamp duty on the purchase price and land tax once the property portfolio reaches a certain value. These taxes are collected by the state government

Miss Krause highlighted that tax deductions and investment rules can be confusing. It is obvious we need to continue attracting investors to property otherwise rents will rise steeply based on supply and demand.

“If negative gearing was axed, governments would be required to fund extra housing which in turn will mean we will all have to pay higher taxes,” Miss Krause concluded.

Article by RE/MAX Success

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