2015 Federal Budget: Negative Gearing to Stay, for now, for-ever
There is no economic sense or equity in the myopic and jealous low to medium income earners of the media who lead the vanguard against the ‘excesses’ of negative gearing, many of whom are the sons and daughters of the baby boomers and even Generation X’s who showed the way of negative gearing, especially for investment properties.
If you derive rental income and have to report that as assessable income, then of course the legitimate expenses used to fund that income are tax deductible. What deductions are you going to deny – property management fees, interest paid, or repairs? If the renting journalist wants the landlord to repair the leaking tap, the landlord might just be a bit more reluctant if the repair is not going to be tax deductible!
And to the extent costs are not tax deductible, such costs usually get added to the cost base. So the journalists are just seeking to have a more complex tax system, that will reduce investor capital gains.
How so? If the costs are not deductible, then those costs need to be tracked and documented, adding to the ‘cost’ of the investment, or property. So a property acquired for $500,000, over 10 years of non-deductible repairs/maintenance/interest/property management fees etc, might have an accumulated cost base of $600,000. Imagine the time and compliance costs of this processing, maintenance of records, risk of audit by the ATO, etc. And once the property is sold, there is a higher accumulated cost base which means the capital gain will be less.
And if you aren’t going to allow some, or all, or a limit, or what-ever, of the interest, property management fees, insurance premiums, or body corporate fees, then why would other tax deductions be available, such as a mobile phone used for work, or stationery for business purposes, or other?
Sorry, there is no sense to the call to end or limit negative gearing, and the Government has seen this for what it is.