Why does australia have negative gearing

The Parliamentary Library has approximated the number of individuals within each Commonwealth Electorate Division CED who have reported a net rent loss that is, they are negatively gearing property in —16, using the following methodology:. The full list of electorates, and number and proportion of individuals negatively gearing, is outlined in the table below. Similar data can be produced on individuals who are positively geared. Net rent loss is narrower in scope than net rental property loss.

For example, the former only relates to property owned by individuals, and where property is located within Australia. However, the latter is not publically available by postcode. Some people might also find themselves unexpectedly in a loss position, if they incur higher expenses or lower returns than anticipated.

Only 50 per cent of the increase in the value of the asset when it is sold is subject to income tax, providing it has been owned for more than 12 months. This reduces the costs imposed on the economy from taxing business activities - without changing the incentives to invest.

Compared to a system that links income and deductions to their source, the Australian system reduces these potential distortions to the way. Assets like shares can also be negatively geared. A political debate dominated by a tax measure introduced in Credit: James Alcock. The ALP plans to overhaul the system by limiting the concession to new buildings while grandfathering existing properties. While today the focus is on how changes to negative gearing will affect the nation's property markets, the original purpose of the tax practice was much different.

In , a tax bill of the pro-business government of Stanley Melbourne Bruce contained a provision that enabled a person to deduct all losses and outgoings from their assessable income. The focus was on business operators who might incur early losses.

The property market didn't get a mention. From that point negative gearing - in the way it is understood today - became a part of the tax system. Property owners generally reported modest rental returns and landlords were largely higher income individuals with access to good tax advice.

Under treasurer Paul Keating, it immediately started looking at ways to modernise a tax system in line with the government's broader approach to the economy. Credit: Fairfax Media Archive. A tax white paper was promised ahead of the election and it was in its interim report that the seed of the idea to abolish negative gearing was planted. Keating, who described negative gearing as an "outrageous rort", sold the idea to cabinet as part of the government's wide-ranging overhaul of the tax system.

The claimed revenue had not materialised. Investors avoided the financial pinch caused by the end of negative gearing by using other tax devices. Rents climbed in Sydney and to a lesser extent in Perth although they were stable in other capitals.

Then Liberal leader John Howard had argued that axing negative gearing was "done in the name of levelling the tall poppies", hitting the "renting poor of the Australian cities". With the NSW Labor government facing the polls in , the Hawke government abandoned the change even though Keating maintained that the economy needed more investment in tradeable goods and services rather than property.

The debate around negative gearing quietened until the release of the Howard government's response to the Ralph review of business taxation in What are the proposed changes? Is it the end for negative gearing? What are the proposed changes to capital gains tax CGT? What might these changes mean?

Close Download guide Simply enter your details to download the eguide. Contact Number. Talk to an expert Negatively gearing an investment property is not a decision that should be made lightly.