Negative gearing: How much investors are claiming in negative gearing tax
New analysis has revealed just how many Australian properties are owned by investors. And it highlights a huge housing issue.
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The negative gearing debate is back on the political agenda following calls from the crossbench to abolish the scheme that some are claiming unfairly benefits investors over first-home buyers.
The Albanese government support the scheme as it currently stands, but some opponents are protesting that negative gearing and capital tax concessions will worsen the housing crisis.
Labor’s proposal and the capital gains tax discount is under the spotlight along with the debate over who actually benefits from negative gearing tax.
WHERE PROPERTY INVESTORS ARE GETTING ‘ENORMOUS’ TAX BREAKS
Exclusive PropTrack research which compared rent and mortgage costs on all properties listed as rentals since 2019, showed there has been an alarming increase in the total economic cost of negative gearing.
Experts have indicated that negative gearing claims were soaring because of rising interest rates and skyrocketing prices. Rental returns for landlords have remained at historic lows, despite an explosive increase in rent prices.
See what proportion of investors that have purchased a house in the past five years are negatively geared and how much they’re claiming in losses below.
VICTORIA
Of the 332 suburbs assessed in Greater Melbourne, 192 were predicted to have more than 90 per cent of investors negatively geared.
The Manningham region in Melbourne’s outer east had the highest percentage of investors estimated to be eligible for the tax incentive (98 per cent) along with Keilor (97.4 per cent) and Knox (97.3 per cent) areas.
READ THE FULL LIST OF VICTORIAN SUBURBS VS PER CENT OF INVESTORS NEGATIVELY GEARED
NEW SOUTH WALES
Taxpayers are bankrolling more than 90 per cent of property investors who purchased rental homes in most parts of Sydney over the past five years thanks to negative gearing concessions.
The average individual investor in NSW who is negatively geared is claiming up to $88,000 a year in tax deductible losses in some city regions, PropTrack data shows.
READ THE FULL LIST OF NEW SOUTH WALES SUBURBS VS PER CENT OF INVESTORS NEGATIVELY GEARED
QUEENSLAND
Landlords in 187 suburbs across Queensland could be more than $5600 worse off, despite sky-high rent increases across the state. The most negatively geared properties in the Sunshine State, with an estimated 90 per cent of investors in one suburb alone, are believed to be making a big loss.
READ THE FULL LIST OF QUEENSLAND SUBURBS VS PER CENT OF INVESTORS NEGATIVELY GEARED
SOUTH AUSTRALIA
Adelaide’s southern suburbs recorded the greatest increase in the number of properties now negatively geared, with Aldinga recording the biggest jump – up 21.8 per cent to 63.1 per cent from the 41.3 per cent recorded in April 2022.
Morphett Vale, Christies Beach and Woodcroft have recorded jumps of 20.3 per cent, 17.1 per cent and 15.9 per cent respectively.
READ THE FULL LIST OF SOUTH AUSTRALIAN SUBURBS VS PER CENT OF INVESTORS NEGATIVELY GEARED
WHAT IS NEGATIVE GEARING AND HOW DOES IT WORK?
Negative gearing is when an investor loses money on an investment in the short term with the expectation of making money, or capital gains, in the future. The investor is entitled to deduct any losses associated with the investment from their salary or wage income.
In Australia that loss can be deducted from taxpayers taxable income when they do their tax returns. Treasury figures show 1.1 million Australians had negatively geared properties in the 2021-22 financial year.
WHAT IS THE CAPITAL GAINS TAX DISCOUNT?
A capital gain is when you sell an asset and make a profit. You then have to pay tax on this gain at your marginal tax rate. If you have owned the asset for at least one year and are an individual or a trust, you are entitled to a 50% tax discount.
WHAT IS THE HISTORY OF NEGATIVE GEARING IN AUSTRALIA?
Negative gearing was first introduced in Australia during 1930 as a response to housing shortages and the need to encourage investment in rental properties. Investors could debut property related expenses, including mortgage interest, property management and maintenance cost from their taxable income.
Overtime, investors started using incurring rental losses to reduce their overall taxable income. This created a situation where investors were willing to pay more for properties, resulting in increased property prices.
In the 1980s, the Australian government made changes to the rules surrounding negative gearing, imposing restrictions on deductions that could be claimed.
WHAT IS THE ALBANESE GOVERNMENT’S PROPOSED NEGATIVE GEARING CHANGES IN 2024?
In 2016, the opposition leader at the time, Bill Shorten, promised if Labour won the next election, they would reform negative gearing and the capital gains tax.
The Alabnese government have been pushing for immediate cost-of-living relief before the stage three tax cuts are introduced on July 1.
However, the Greens are warning that the policy settings are benefiting investors rather than first-home buyers and would like the tax setting to be amended to help younger generations get into the property market.
Although the Greens’ have expressed its willingness to discuss a compromise, Mr Albanese told a closed-door Labor caucus meeting on Tuesday the government wanted to help Australians shut-out of the housing market.
More than 65 per cent of all federal parliamentarians own two or more properties, drawing a stark contrast to millions of voters who rent.
Greens leader Adam Bandt said if the Prime Minister was serious about fixing the housing crisis, he would come to the table in limiting rent increases, building more public housing and phasing out negative gearing and capital gains tax.
“Unless Labor is prepared to work with the Greens to fix negative gearing and capital gains tax handouts, cap rents and build public housing, the Greens will vote against Labor’s ‘lottery’ bill,” he said.
Originally published as Negative gearing: How much investors are claiming in negative gearing tax
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