Swerv-o

As I understand it, the idea is that any capital gain made by the property should offset any losses made during the negative gearing regime. So negative gearing allows a person to support many loss making investment properties in the hope that eventually the capital gain in property value will exceed the losses incurred. Essentially it's alomst like a margin loan for property. It becomes even more attractive when a negatively geared property is placed within a super fund. There's a brief discussion on Wikipedia:

Negative Gearing in Australia

It pretty much is simply the tax payer supporting people's property speculation, however when Pauk Keating (I think) tried to kill it off, it just saw a massive increase in rent costs. The [alleged] benefit to society is that it means that governments don't have to invest heavily in social housing infrastructure.

I guess that when property is rising in value, this probably works well for those that can afford it. If properties start to fall in value, however, then speculators run the risk of the sale value not exceeding the negative gearing losses. The issue of negative gearing is one of the reasons that are often cited by spruikers for the Australian housing market being 'different' to those of the US, UK et al.

Know that you are in finance anyway, this is all probably rather like explaining how to suck eggs, but you did ask

It will be interesting to see what happens if the property market starts to fall.


S

desperately

Negative gearing is probably why a hell of a lot of rentals are absolute sheds; the owners are on such a tight budget they cant actually afford to do anything with the place.....

So all in all who is diddling the government out of the most? Those that get LAFHA or those that negatively gear?

I suspect that those who werent aware of this legal "loophole" will now be looking for an accountant that does

Swerv-o

If you mean Negative Gearing, I don't believe it's a loophole - Just a perfectly valid part of the tax system here. As I mentioned above, they tried to kill it off, but found that it did have some societal benefit through governments not having to support social housing.

As far as I am aware most people know of its existence - Indeed many people I work with have a couple of investment properties that they 'negatively gear'. It's not a secret or some other sneaky loophole.


S

desperately

The point i was making is that neither is LAFHA and there are millions of tax dollars lost due to negative gearing which is acceptable, but those who get LAFHA are responsible for every ill in australia.

Bermudashorts

Well I won't for one. I am afraid I still see so no sense in making a loss by renting out an investment property at some artificially low rent just because I might have a capital gain in the future. A loss is a loss.

Bermudashorts

Being a bit of a drama queen aren't we? Who on earth said that LAFHA holders were responsible for every ill in Australia. You are just being silly now.

desperately

I dont think so. You can almost feel the disgust from some on here towards those that get LAFHA.

Its pathetic.

Swerv-o

Yes, but the political fallout of killing Negative Gearing would be immense - Many hundreds of thousands of people have lots of money tied up in that system, and they all vote.

Overseas workers claiming LAFHA don't vote and hence have no representation. Yes, it is one rule for one set of residents, and another for another, but that's life under an Australian government. As I said before - this reminds me an awful lot of the cancellation of the bond for skilled migration. Another move that struck at the unrepresented, without any real thought for how the individuals concerned would be effected.


S

Swerv-o

Well, they won't have to feel like that for much longer will they


S

desperately

Nope only a few more months to go

Beoz

If you are referring to the likes of me then you are way off the mark and taking the whole thread as a personal attack. As far as I'm concern, if there is a tax law then use it. I just don't like to see someone gaining financially from my tax where others can't. A classic case is a friend of mine, aussie citizen, moved from Sydney to Perth with company, rents out Sydney house, enough equity in house so rent covers mortgage and more, and claims LAHFA to cover Perth rent. The guy effectively has his cost of housing covered by the taxpayer. Not exactly fair is it?

Tramps_mate

No, but I would do the same. A few years time and he has massive equity in a property for free!

desperately

It appears you seem to have a personal vendetta against anyone that gets LAFHA. If he was losing money would you be happy?
He isnt breaking any laws so why the beef?

Bermudashorts

He didn't say he was breaking the law, he was pointing out why the law is an ass.

desperately

In their opinion it is. The rules on LAFHA have been changed so that only those who own/rent/maintain a property in australia and work elsewhere can benefit.

Regardless of the rental income there is still property maintenance to consider.

I really dont see the issue.