Society/Culture Australian Property Prices to Crash?

[Deliverance]

[QUOTE="Suspense, post: 69939927, member: 23864"


Odd argument - people would no longer invest if negative gearing was abolished?

Obviously a NO.

You just need to look outside Australia's borders to realise that.


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[/QUOTE]
Yet somehow, negative gearing was a major factor in the last federal election and people worried about losing it actively campaigned against the ALP.

 

[FRUMPY]

I'm fully aware of the reasons and as both sets of owners share the costs for use of the common ground then they should be treated the same.

So you'll happily pay CGT when you dispose of your property?

This is fun....

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[Marcel Proust]

Corona recession will be epic

 

[Bombermania]

So you'll happily pay CGT when you dispose of your property?

This is fun....

Sent from my CPH2005 using Tapatalk

That has nothing to do with body or owner corporation fees and charges.

 

[Royal Flush]

Obviously a NO.

You just need to look outside Australia's borders to realise that.


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Yet somehow, negative gearing was a major factor in the last federal election and people worried about losing it actively campaigned against the ALP.[/QUOTE]It was more about Dodgy Shorten and his fanciful promises.

Again, diverting from the question.

How is property investment outside Australia's borders.

NG is just meme politics.



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[Frank Grimes]

That has nothing to do with body or owner corporation fees and charges.

I'm not sure, but I think he was suggesting that if you apply the same tax deductions from owner occupiers then it should be applied to investors.

 

[FRUMPY]

That has nothing to do with body or owner corporation fees and charges.

So you want to claim deductions even though you have no rental income to declare and you don't want to pay any CGT?

Good luck with that....

#taxfordummies #imwithstupid

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[yodellinhank]

That has nothing to do with body or owner corporation fees and charges.

And tax deductions have nothing to do with somebody's PPR.

 

[Deliverance]

Yet somehow, negative gearing was a major factor in the last federal election and people worried about losing it actively campaigned against the ALP.

It was more about Dodgy Shorten and his fanciful promises.

Again, diverting from the question.

How is property investment outside Australia's borders.

NG is just meme politics.



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[/QUOTE]
The pre election hysteria and the vote itself showed us a true reflection of Australians' moral compasses.

How are OS markets relevant to a discussion about Australian property prices? People invest in property for different reasons in other countries. Eg the US market is dependent on rental return mostly. Aussies love cap gains SQM already told us the effect removing negative gearing would have on Australian property prices.

 

[Bombermania]

And tax deductions have nothing to do with somebody's PPR.

Which is exactly why i am only talking about a property's common ground.

 

[Power Raid]

Yet somehow, negative gearing was a major factor in the last federal election and people worried about losing it actively campaigned against the ALP.It was more about Dodgy Shorten and his fanciful promises.

Again, diverting from the question.

How is property investment outside Australia's borders.

NG is just meme politics.



On Pixel 4 using BigFooty.com mobile app

property prices increased around the world at around the same time. Many of these jurisdictions don't have negative gearing, so that wasn't a factor. Nor do they have the 50% CGT discount, so it wasn't a factor.

what the jurisdictions shared was a massive increase in foreign investment, low interest rates, rising incomes, higher density and population growth.

 

[Power Raid]

That has nothing to do with body or owner corporation fees and charges.

what we should have on all property is a property tax, like a lease from the government rather than ownership. By being a meaningful tax AND an equitable tax AND offest against an income generation assessment. We would see a small tax on apartments especially where there is high utilisation. We would see vacant properties paying a 30% non-income tax collection and we'd see large homes pay handsomely.

London would be an example

 

[Power Raid]

The fact that HNW families can use trust distributions to minimise their net tax payable across their family group has no relation to the justifiability of negative gearing.

Actually it does, as it is just one example of how removing negative gearing enshrines a class system where the wealthy can negative gear and the poor and ordinary can not.

There are many ways the wealthy can achieve this such as:
- what would have been wages turned into dividends
- trusts to distribute to families

Both are distortions to the concept of a progressive tax system - which benefit only those with access to capital/wealth. That's a fact.

This is a w***er statement as it means nothing, ignores reality and is factually incorrect. Why:

1) The concept of trusts is important, so important if you remove them you'd change the fabric of our legal framework. Insurance, CGT and property law would all be distorted without it.
2) Negative gearing preserves the progressive tax system

Odd argument - people would no longer invest if negative gearing was abolished?

Negative gearing promotes investment rather than consumption. Further it shifts investment weighting from low risk cash flow and day trading speculation to important investment classes that transforms society such as R&D, technology, medicine, renewable energy, infrastructure.

 

[Suspense]

Actually it does, as it is just one example of how removing negative gearing enshrines a class system where the wealthy can negative gear and the poor and ordinary can not.

There are many ways the wealthy can achieve this such as:
- what would have been wages turned into dividends
- trusts to distribute to families

Paying dividends instead of wages is not negative gearing.
Trust distributions to adult family members to 'use up' any available marginal tax brackets is a tax distortion, but it is not negative gearing.

This is a w***er statement as it means nothing, ignores reality and is factually incorrect. Why:

1) The concept of trusts is important, so important if you remove them you'd change the fabric of our legal framework. Insurance, CGT and property law would all be distorted without it.
2) Negative gearing preserves the progressive tax system

1) Where did I say remove trusts?

2) Factually, negative gearing distorts the progressive tax system. It permits the deduction of rental losses from taxable income on salary/wages - and the resulting capital gain is taxed concessionally at 50%. It distorts the concept of a progressive tax system whereby a taxpayer is levied with higher taxes if they earn more income and lower taxes if they earn less.

You should do some basic research on this topic before discussing further.

Negative gearing promotes investment rather than consumption. Further it shifts investment weighting from low risk cash flow and day trading speculation to important investment classes that transforms society such as R&D, technology, medicine, renewable energy, infrastructure.

How does negative gearing promote investment rather than consumption? What is the measurable effect size of negative gearing on the spending/saving habits of a society? Do you have any data to support this statement - or just glib one liners?

 

[yodellinhank]

Which is exactly why i am only talking about a property's common ground.

Which doesn't generate a taxable revenue for an owner occupier who shares that common ground.

 

[Power Raid]

Paying dividends instead of wages is not negative gearing.

you're right but paying dividends instead of wages means one can negative gear against that investment income under labor's proposed changes

so it is completely relevant to highlight the class system enshrined

Trust distributions to adult family members to 'use up' any available marginal tax brackets is a tax distortion, but it is not negative gearing.

or you can look at it as simplifying the tax system in recognition that income for individuals is recognised upon receipt. rather than a complex income and expense shift and cash vs accruals shift, we have a clean system.

have a think about a simple case of a company being used as a vehicle to own a family farm. The family members work at different levels from year to year and wages paid to the individuals equal to a profit share of 100%. what is the difference?

1) Where did I say remove trusts?

you represented that negative gearing and trusts were a distortion of a progressive tax system

My response was to highlight you can't remove trusts or negative gearing without major consequences as highlighted above

2) Factually, negative gearing distorts the progressive tax system. It permits the deduction of rental losses from taxable income on salary/wages - and the resulting capital gain is taxed concessionally at 50%. It distorts the concept of a progressive tax system whereby a taxpayer is levied with higher taxes if they earn more income and lower taxes if they earn less.

you have highlighted in your own answer that negative gearing does not distort the progressive tax system. Rather the 50% discount does.

Negative gearing preserves a progressive tax system but to avoid distortion the discount after 12 months should be more like 25% and 50% after 24 months or some other calculation. The reason for a discount is to 1) encourage long term investment than day trading 2) considers the impact of inflation without complex calculations AND 3) acknowledges the capital gain over three years is crystalised in one tax period and likely to push the income into higher tax brackets

You should do some basic research on this topic before discussing further.

Seems like your the one with a lot to learn about the basics as highlighted

How does negative gearing promote investment rather than consumption? What is the measurable effect size of negative gearing on the spending/saving habits of a society? Do you have any data to support this statement - or just glib one liners?

Any mechanism that makes investing more attractive, means funds are allocated to investment and thus not used for consumption. but no I have not completed a thesis on the topic or measured the elasticity of the mechanism on the Australian investment market. However I can confidently say that the laws of economics and price elasticity apply.

 

[Suspense]

you're right but paying dividends instead of wages means one can negative gear against that investment income under labor's proposed changes

so it is completely relevant to highlight the class system enshrined

What does labor's proposed changes have to do with the current negative gearing system - the topic of discussion?

You can negatively gear against salary/wage/dividend income equally.

Dividend income and wages are both taxed at marginal tax rates. Business owners reclassifying wages as dividends is mainly done to avoid additional imposition of Payroll Tax, SG, and to a lesser extent, PAYG. It has nothing to do with negative gearing.

Jeez, they'll hand out a CA to anyone these days...

or you can look at it as simplifying the tax system in recognition that income for individuals is recognised upon receipt. rather than a complex income and expense shift and cash vs accruals shift, we have a clean system.

Cash v Accruals is not the issue - its getting the income out of the corporate tax environment. Business income generated needs to get squirted to an individual in order for it to be used for personal purposes - that is the point at which marginal tax rates apply. If you are squirting income to adult children to use up their lower marginal tax rates, you are distorting the progressive tax system.

For example, if client draws $1,000,000 in profits from the company business - you need to declare a dividend for that amount to the family trust (to avoid Div 7A issues), and then prepare a trust nominations to distribute that $1m dividend to the family trust beneficiaries. If you give it all to the owner, they pay tax on $1,000,000. However, if you distribute it to wifey, six adult children, and nan and pop then you can use the available marginal cap space of 10 people - thus reducing over tax payable for the family group.

Marginal tax payable on $1,000,000 = $440,667
vs
Marginal tax payable on $100,000 x 10 = $241,870 (net difference of $198,797)

have a think about a simple case of a company being used as a vehicle to own a family farm. The family members work at different levels from year to year and wages paid to the individuals equal to a profit share of 100%. what is the difference?

In these arrangements there is often no correlation to the work done and the amount distributed. You can distribute $200k to a 19 year old family member going through Uni or an 89 year old grandma who hasn't worked in 20 years - in order to use up their marginal cap space.

you represented that negative gearing and trusts were a distortion of a progressive tax system

My response was to highlight you can't remove trusts or negative gearing without major consequences as highlighted above

No I didn't - I said the use of trust structures to distribute income to family group members is a distortion of the progressive tax system.

There are many examples of ways in which these distortions can be reduced/alleviated without removing trusts entirely. Take for example the Division 6AA special rates of tax applied to unearned distributions to minors above $416 per year.

you have highlighted in your own answer that negative gearing does not distort the progressive tax system. Rather the 50% discount does.

That's part of the 'Negative Gearing' strategy.

Negative gearing preserves a progressive tax system but to avoid distortion the discount after 12 months should be more like 25% and 50% after 24 months or some other calculation. The reason for a discount is to 1) encourage long term investment than day trading 2) considers the impact of inflation without complex calculations AND 3) acknowledges the capital gain over three years is crystalised in one tax period and likely to push the income into higher tax brackets

1) Applicable to shares - not property
2) Yes - that was one such 'guise' under which the 50% discount was introduced - but its no longer applicable as everything is automated and done by computers now. An accountant will already maintain cost-base details on record - and and the computer can do the complex calculations based on inflation increases over time.
3) No - there is no such relationship - you can sell the property after retirement for example - and still receive the 50% discount. Prior to the introduction to the 50% discount, we actually did have a form of “averaging” that did address the 'bunching' problem of taxpayers hitting higher marginal tax rates than would have otherwise been case if the gain had been spread over the years in which it had accrued.

Seems like your the one with a lot to learn about the basics as highlighted

Your CA course has left you with many glaring knowledge gaps. You should be grateful that you are getting an education about the Australian Tax System from me for free.

Any mechanism that makes investing more attractive, means funds are allocated to investment and thus not used for consumption. but no I have not completed a thesis on the topic or measured the elasticity of the mechanism on the Australian investment market. However I can confidently say that the laws of economics and price elasticity apply.

Negative Gearing makes a single form of investing more attractive - not investing as a whole. You admittedly have no data, no figures, nothing at all - to support your notion that it increases net investing vs consumption.

 

[Power Raid]

What does labor's proposed changes have to do with the current negative gearing system - the topic of discussion?

it is relevant as the greens and labor had a policy to remove negative gearing. Labor's initial policy would have meant each individual investment required its own tax return. On realising their mistake that moved to a policy that only allowed negative gearing against investment income.

Thus enshrining a class system in Australia due to tax laws placing a glass ceiling on the poor and ordinary.

This highlights how important negative gearing is to preserve the marginal tax rates and preserve fairness in the system

You can negatively gear against salary/wage/dividend income equally.

yes thanks to the electorate rejecting labor's policy as outlined above

Dividend income and wages are both taxed at marginal tax rates. Business owners reclassifying wages as dividends is mainly done to avoid additional imposition of Payroll Tax, SG, and to a lesser extent, PAYG. It has nothing to do with negative gearing.

Jeez, they'll hand out a CA to anyone these days...

it would have had everything to do with negative gearing as outlined above

Cash v Accruals is not the issue

incorrect

This was how tax was avoided pre lowering the corporate tax rate and thus evidence it would be used if not for trusts

- its getting the income out of the corporate tax environment.

incorrect

They are used for investments and business as well as corporate ownership

Business income generated needs to get squirted to an individual in order for it to be used for personal purposes - that is the point at which marginal tax rates apply. If you are squirting income to adult children to use up their lower marginal tax rates, you are distorting the progressive tax system.

For example, if client draws $1,000,000 in profits from the company business - you need to declare a dividend for that amount to the family trust (to avoid Div 7A issues), and then prepare a trust nominations to distribute that $1m dividend to the family trust beneficiaries. If you give it all to the owner, they pay tax on $1,000,000. However, if you distribute it to wifey, six adult children, and nan and pop then you can use the available marginal cap space of 10 people - thus reducing over tax payable for the family group.

Marginal tax payable on $1,000,000 = $440,667
vs
Marginal tax payable on $100,000 x 10 = $241,870 (net difference of $198,797)


In these arrangements there is often no correlation to the work done and the amount distributed. You can distribute $200k to a 19 year old family member going through Uni or an 89 year old grandma who hasn't worked in 20 years - in order to use up their marginal cap space.

No I didn't - I said the use of trust structures to distribute income to family group members is a distortion of the progressive tax system.

There are many examples of ways in which these distortions can be reduced/alleviated without removing trusts entirely. Take for example the Division 6AA special rates of tax applied to unearned distributions to minors above $416 per year.

sorry mate you missed the point

The point was trusts make this allocation clean where if trusts were removed mechanisms such as wage distribution or financial costs distributions would be used.

That's part of the 'Negative Gearing' strategy.

1) Applicable to shares - not property
2) Yes - that was one such 'guise' under which the 50% discount was introduced - but its no longer applicable as everything is automated and done by computers now. An accountant will already maintain cost-base details on record - and and the computer can do the complex calculations based on inflation increases over time.
3) No - there is no such relationship - you can sell the property after retirement for example - and still receive the 50% discount. Prior to the introduction to the 50% discount, we actually did have a form of “averaging” that did address the 'bunching' problem of taxpayers hitting higher marginal tax rates than would have otherwise been case if the gain had been spread over the years in which it had accrued.

1) applicable to all assets
2) it is still cleaner to divide by 2 than have quarterly tables
3) the 50% discount is just as relevant in retirement as it is whilst working


Your CA course has left you with many glaring knowledge gaps. You should be grateful that you are getting an education about the Australian Tax System from me for free.

Negative Gearing makes a single form of investing more attractive - not investing as a whole. You admittedly have no data, no figures, nothing at all - to support your notion that it increases net investing vs consumption.

it is not limited to a single form but even if it was, banks lend off property thus assisting investors leverage their investment portfolios without the risk of margin calls and leverage to start their own businesses. So it assists directly and indirectly on all asset classes.

 

[Suspense]

it is relevant as the greens and labor had a policy to remove negative gearing. Labor's initial policy would have meant each individual investment required its own tax return. On realising their mistake that moved to a policy that only allowed negative gearing against investment income.

Thus enshrining a class system in Australia due to tax laws placing a glass ceiling on the poor and ordinary.

This highlights how important negative gearing is to preserve the marginal tax rates and preserve fairness in the system

yes thanks to the electorate rejecting labor's policy as outlined above

Labor's policy is only one option for addressing the issue of negative gearing - not the only option. There are many possible options - from rental loss carry-forward rules to continuing to allow rental loss to be deducted against salary and wages but tweaking the rules on CGT on disposal.

incorrect

This was how tax was avoided pre lowering the corporate tax rate and thus evidence it would be used if not for trusts

incorrect

They are used for investments and business as well as corporate ownership

Whether it is corporate taxed or untaxed investment/business income, you still need to get the profits out of the company/trust and into the hands of individuals - that is the point I was making.

sorry mate you missed the point

The point was trusts make this allocation clean where if trusts were removed mechanisms such as wage distribution or financial costs distributions would be used.

'Missed the point?' I was the one who made the point re: HNW families using trust distributions to minimise their net tax payable across their family group.

I called it a 'distortion to the concept of a progressive tax system' - a statement you characterised as a 'w***er statement'. You then miscategorised my statement as 'calling for the removal of trusts' - which I clearly did not state.

HNW families use trust distributions to minimise their net tax payable across their family group. This distorts the concept of a progressive tax system - that's a fact and that is 'the point' I was making, mate.

1) applicable to all assets
2) it is still cleaner to divide by 2 than have quarterly tables
3) the 50% discount is just as relevant in retirement as it is whilst working

1) Any data on the proportion property investors operating as day traders of RE?
2) Computer can work out indexed cost base faster than you can divide by 2
3) Again there are solutions to this - be it the old averaging rules or Chris Evans' 'AEA' proposal. Laziness is not a justification for maintaining a mechanism that clearly and factually violates both horizontal and vertical equity in a progressive tax system.

it is not limited to a single form but even if it was, banks lend off property thus assisting investors leverage their investment portfolios without the risk of margin calls and leverage to start their own businesses. So it assists directly and indirectly on all asset classes.

Cool. Got the data that shows people would not invest in property - if not for negative gearing?

 

[Power Raid]

Labor's policy is only one option for addressing the issue of negative gearing - not the only option. There are many possible options - from rental loss carry-forward rules to continuing to allow rental loss to be deducted against salary and wages but tweaking the rules on CGT on disposal.



Whether it is corporate taxed or untaxed investment/business income, you still need to get the profits out of the company/trust and into the hands of individuals - that is the point I was making.


'Missed the point?' I was the one who made the point re: HNW families using trust distributions to minimise their net tax payable across their family group.

I called it a 'distortion to the concept of a progressive tax system' - a statement you characterised as a 'w***er statement'. You then miscategorised my statement as 'calling for the removal of trusts' - which I clearly did not state.

HNW families use trust distributions to minimise their net tax payable across their family group. This distorts the concept of a progressive tax system - that's a fact and that is 'the point' I was making, mate.


1) Any data on the proportion property investors operating as day traders of RE?
2) Computer can work out indexed cost base faster than you can divide by 2
3) Again there are solutions to this - be it the old averaging rules or Chris Evans' 'AEA' proposal. Laziness is not a justification for maintaining a mechanism that clearly and factually violates both horizontal and vertical equity in a progressive tax system.


Cool. Got the data that shows people would not invest in property - if not for negative gearing?

I will leave your nonsense to highlight negative gearing relates to all asset classes and not just property

Removing negative gearing means every single asset one own requires its own effective tax return
Removing negative gearing other than all investment income means a class system is enshrined, where the wealthy and the beneficiaries of daddy's trust are treated more favourably than the poor and ordinary.

In my opinion a system that preserves the marginal tax rates and retains equal treatment of tax payers despite wealth levels is one that does not distort that tax system.

I'm happy for you to outline a policy that works and does not distort, as to date the policies of the greens and labor delivered either or both of these terrible outcomes.

 

[Power Raid]

Which is exactly why i am only talking about a property's common ground.

One way you can start to turn otherwise personal use expenses into deductions is to start working from home, do your tax return from home and start investing from home. You're probably better off doing this in a rental property rather than one you own as they may be CGT consequences down the track.

 

[Simon_Nesbit]

what we should have on all property is a property tax, like a lease from the government rather than ownership. By being a meaningful tax AND an equitable tax AND offest against an income generation assessment. We would see a small tax on apartments especially where there is high utilisation. We would see vacant properties paying a 30% non-income tax collection and we'd see large homes pay handsomely.

London would be an example

I very much like this idea, so long as it could actually be enforced against foreign held property. Replace Stamp Duty (essentially a tax on consumption) with this Property Tax (a wealth tax) and you increase the liquidity of the property market, and (infinitesimally) reduce the inequalities of opportunity by birth.

Allow a deferral for your Principal Place of Residence (accrued and paid on sale/transfer) and you avoid concerns about the 'old lady getting kicked out of the house her husband built' who's 1960s 2br unit is now worth >2 million because it's in Sydney.

 

[Deliverance]

Labour made policy changes on the fly because they read the room. The electorate was mightily selfish and many people actively rallied against Labours attempt to end middle class welfare.

 

[hamohawk1]

The government is pulling all levers to try and keep the property afloat now with the LMI assistance.

 

[Bombermania]

I very much like this idea, so long as it could actually be enforced against foreign held property. Replace Stamp Duty (essentially a tax on consumption) with this Property Tax (a wealth tax) and you increase the liquidity of the property market, and (infinitesimally) reduce the inequalities of opportunity by birth.

Allow a deferral for your Principal Place of Residence (accrued and paid on sale/transfer) and you avoid concerns about the 'old lady getting kicked out of the house her husband built' who's 1960s 2br unit is now worth >2 million because it's in Sydney.

If you are going to do that then simply apply the CGT at the point of sale.

People already pay yearly rates based on what the local council thinks the property's valued at so what is the point of a land tax on the PPR and at what rate would it be set at because when Jeff introduced a $100 levy on every household to help fix the state's finances, it was met with howls.

The other problem with Land tax is that the bank will take it into account when considering a first home buyer's ability to service their loan.