By Ian Rodrigues – Director Bishop Collins
Never let the facts get in the way of a good story or so the saying goes. In 2017 Australian politicians have an interesting relationship with the facts when it comes to taxation and especially negative gearing. So, let’s try and get some facts and then use some logic to see what the situation really looks like.
Let’s face it, no tax is popular, but tax policies should always meet the tests of efficiency, simplicity, equity, consistency and transparency. Arguably the current negative gearing of property meets these. It is not a special policy or an allowance – it’s just what happens when you make a loss in the early years, with the aim of making profits over the investments timeframe. There is no special rule or magic here, this is what happens when you buy any investment or run a business. In almost all cases property that starts out with a tax loss will, over time, make a profit and be taxed. If not, then why would you bother? In the early years your loss is offset against your other income. The latest policy suggestion is to allow these losses only to be applied when the investment makes a profit. So, this allows you the same deductions but just in later years – so why? In theory, the proponents suggest this will raise more tax from those that can afford to pay it (income redistribution). But, how can this be when the same deductions are allowed over time (timing difference)? What happens if this discourages modest and first- time investors from seeking to build their own financial future, reducing future reliance on government support?
Simply, the confusion and misunderstanding is often enough to deter investors. Maybe an honest debate, based on fact may assist – maybe not, but watch this space as it will hot up again.