Rich people whingeing

[Scotland]

That spike at the beginning plus the numbers up to the tax free threshold equals ~250,000 people who can afford an investment property, but who pay no tax at all via their income — thanks to negative gearing.

So you're telling me that I can earn $20k a year and own an investment property? Cool!

 

[Sinjin Smith]

Fantastic!

What's even better is that he is accepting that you have power over him, and that he is desperate to stay under you.

At the end of the day, meds, Lester Burnham, Lebbo73 and other posters just like them, have been complaining for years that this site is terrible, and the moderation is too left wing, and that there are too many problems and overall it curtails their freedom of speech.

Now they are upset that you've fittingly changed a user name...

If you don't like it, no one is forcing you to stay...

In fact, if bigfooty really is as bad as you make it out to be, why the **** are you even still here???

This must be the final straw, right? So ... go...
Are you admitting that Chief really has this much power and control over your life?

This is worrying.

 

[CM86]

This is worrying.

Been on your mind all day, clearly.

 

[Ratts of Tobruk]

So you're telling me that I can earn $20k a year and own an investment property? Cool!

Even better - you can earn way more than that, but use the costs and interest payments on your investment property to minimise your tax down to $20K!

And of course given you're against people who pay no net tax then you would be looking at the people with an even bigger taxable income than that, because they aren't paying for the benefits they've also received, so there might be 1,000,000+ non net taxpayers using negative gearing to avoid paying their way. Time to put a stop to this easy tax deduction scheme, right?

 

[Scotland]

Even better - you can earn way more than that, but use the costs and interest payments on your investment property to minimise your tax down to $20K!

And of course given you're against people who pay no net tax then you would be looking at the people with an even bigger taxable income than that, because they aren't paying for the benefits they've also received, so there might be 1,000,000+ non net taxpayers using negative gearing to avoid paying their way. Time to put a stop to this easy tax deduction scheme, right?

Cool, if I earn say $100,000 then that means I need to bring my income down by $80,000 to avoid paying any tax.

I might buy a $500,000 house, put down 10% and borrow 90% at 4%. There's $18,000 a year. Council rates maybe $2,000. I rent it out for $400 a week. There's $20,800 coming in. But the agent takes 7%. So there's another $1456 going out. Other expenses maybe $2000 for the year. By my calculations that's $20,800 coming in and $23,456 going out so I've reduced my taxable income from $100,000 to $97,344.

So I'd need to do it 30 times, meaning I'd need to have $6m in the bank and find a bank willing to give me 30 x $450,000 mortgages on a $100k salary.

Seems unlikely.

 

[Patrick Bullet]

Cool, if I earn say $100,000 then that means I need to bring my income down by $80,000 to avoid paying any tax.

I might buy a $500,000 house, put down 10% and borrow 90% at 4%. There's $18,000 a year. Council rates maybe $2,000. I rent it out for $400 a week. There's $20,800 coming in. But the agent takes 7%. So there's another $1456 going out. Other expenses maybe $2000 for the year. By my calculations that's $20,800 coming in and $23,456 going out so I've reduced my taxable income from $100,000 to $97,344.

So I'd need to do it 30 times, meaning I'd need to have $6m in the bank and find a bank willing to give me 30 x $450,000 mortgages on a $100k salary.

Seems unlikely.

You don't actually have to rent it out though, do you? Leaving it vacant but 'available to rent' would make a huge difference.

 

[Ratts of Tobruk]

You don't actually have to rent it out though, do you? Leaving it vacant but 'available to rent' would make a huge difference.

And he's given himself a relatively cheap house compared to the $1M plus options available in most cities these days, and a real estate agent, and a small interest rate, and he adds "other expenses" of $2000, all to make the figures look better.

His big error? Those expenses are tax deductable too thanks to negative gearing. Oops!

And, more annoyingly, there are people with over 30 houses. Some have over 200.

So, yes, if Scotland was to be consistent with his disgust over a lack of net tax payers he would be voting Labor to remove the neg gearing tax minimisation.

 

[Patrick Bullet]

To be fair, I think 2k for other expenses is pretty reasonable. I probably have to spend that on my own house each year on random things (this year it was on a replacement hot water system).

 

[Ratts of Tobruk]

To be fair, I think 2k for other expenses is pretty reasonable. I probably have to spend that on my own house each year on random things (this year it was on a replacement hot water system).

Yeah, the point was that Scotland tried to put that down as giving him less money from his imagined negative gearing, whereas all those charges are part of the tax deduction you get through negative gearing. But of course you can't deduct it off your primary residence, only people with an investment property can do it. And that is one of the ways they use negative gearing to pull their "taxable income" down and pay far less tax.

 

[Scotland]

And he's given himself a relatively cheap house compared to the $1M plus options available in most cities these days, and a real estate agent, and a small interest rate, and he adds "other expenses" of $2000, all to make the figures look better.

His big error? Those expenses are tax deductable too thanks to negative gearing. Oops!

And, more annoyingly, there are people with over 30 houses. Some have over 200.

So, yes, if Scotland was to be consistent with his disgust over a lack of net tax payers he would be voting Labor to remove the neg gearing tax minimisation.

OK, so how many $1m loans do you think a bank is going to give someone on $100k?

Do you know what negative gearing is and how it works?

Same example (with a higher interest rate because I can't use the interest rates actually available apparently):

Salary $100k
Loan $450k @ 7% = $31,500 p.a.
Rent $400 a week = $20,800
Agent fees 7% = $1,456
Other expenses = $2,000

Net loss $14,156

So throughout the course of the year it costs ~$35k and earns ~$20k. You get that it means taxable income is reduced from $100k to $85k, right? You don't get to claim expenses and ignore revenues, and you don't get $35k back in your tax return because you spent $35k during the year. You get that, right?

A person earning $100k ends up with $73k after tax. The same person doing the above ends up with $64.4k. So you're effectively $8.5k in the hand worse off than if you didn't do the investment.

You really need to let go of the idea that I think negative gearing is great, I don't. Tax minimisation is a problem but if you think people trying to minimise their tax is the same as people not being required to contribute in the first place is the same then it probably explains a fair bit.

 

[Ratts of Tobruk]

OK, so how many $1m loans do you think a bank is going to give someone on $100k?

Do you know what negative gearing is and how it works?

Same example (with a higher interest rate because I can't use the interest rates actually available apparently):

Salary $100k
Loan $450k @ 7% = $31,500 p.a.
Rent $400 a week = $20,800
Agent fees 7% = $1,456
Other expenses = $2,000

Net loss $14,156

So throughout the course of the year it costs ~$35k and earns ~$20k. You get that it means taxable income is reduced from $100k to $85k, right? You don't get to claim expenses and ignore revenues, and you don't get $35k back in your tax return because you spent $35k during the year. You get that, right?

A person earning $100k ends up with $73k after tax. The same person doing the above ends up with $64.4k. So you're effectively $8.5k in the hand worse off than if you didn't do the investment.

You really need to let go of the idea that I think negative gearing is great, I don't. Tax minimisation is a problem but if you think people trying to minimise their tax is the same as people not being required to contribute in the first place is the same then it probably explains a fair bit.

Yes, I understand all that. There's no need to pretend that I am uninformed just because I caught you out making a basic error.

And you have ignored both my comments and Patrick's and the fact there are plenty of people with mortgages of over $450,000.

And the fact it's hard for poor people to get large mortgages is another reason why negative gearing goes mostly to rich people. And as the graph shows:

There are FLIPPING HEAPS of people negative gearing their wage down to very low levels. Sorry, mate, you can't deny the facts. There's ~250,000 people there who pay no tax on their income despite owning investment properties.

 

[Belnakor]

Yes, I understand all that. There's no need to pretend that I am uninformed just because I caught you out making a basic error.

And you have ignored both my comments and Patrick's and the fact there are plenty of people with mortgages of over $450,000.

And the fact it's hard for poor people to get large mortgages is another reason why negative gearing goes mostly to rich people. And as the graph shows:

There are FLIPPING HEAPS of people negative gearing their wage down to very low levels. Sorry, mate, you can't deny the facts. There's ~250,000 people there who pay no tax on their income despite owning investment properties.

getting the mortgage is irrelevant. The reason why rich people can negative gear is because they are able to pay out the losses during the year on the basis that those losses will be canceled out by the tax offset they get + value of the house rising. People who earn a low wage don't negative gear because they can't pay the losses during the year plus their tax rate is too low so their return on that is too low.

 

[Belnakor]

There are FLIPPING HEAPS of people negative gearing their wage down to very low levels. Sorry, mate, you can't deny the facts. There's ~250,000 people there who pay no tax on their income despite owning investment properties.

if there are people getting down to 10k taxable income on negative gearing alone i'd like to know how they are doing it - clearly they are using other tax avoidance schemes.

This isn't a magic pudding. If you are claiming deductions you must have paid that money out at some point. If you paid out 100k on properties when your salary is 100k then my question is how did you buy food.

 

[Ratts of Tobruk]

if there are people getting down to 10k taxable income on negative gearing alone i'd like to know how they are doing it - clearly they are using other tax avoidance schemes.

This isn't a magic pudding. If you are claiming deductions you must have paid that money out at some point. If you paid out 100k on properties when your salary is 100k then my question is how did you buy food.

They could well do, but you are missing the point. If you have a huge amount of debt, you have a huge amount of interest payments and you reduce your income by large amounts. Meanwhile you have property worth an awful lot of money which is going up in value (thanks in part to a whole bunch of other people doing the same trick which is making regular buyers without the tax miniminsation subsidy stretch themselves further and further as they attempt to just have one home). When you sell that property you have made a profit and you have gotten a tax minimisation subsidy while doing it. That's why the CGT discount of 50% is a key component of it (before Howard introduced it, CGT was indexed against inflation).

As has been shown in a few of the examples shown in the media, the thing is that once you have one investment property it is much easier to get many more, because the bank can see you're baying your debts, you have a large property portfolio backing it all and as prices go up the value, so does the banks collateral if something goes wrong. There are people with over 200 houses.

And as for how they buy food - there would be someone else in the relationship earning money and of course if you are wealthy you don't have to earn money. Your money is all sitting there from when you inherited it or earnt it in the past or from when you sold your last house and got the sweet 50% capital gains tax. And - I repeat - it is overwhelmingly wealthy people using negative gearing to minimise their tax.

 

[Long Live HFC]

And he's given himself a relatively cheap house compared to the $1M plus options available in most cities these days, and a real estate agent, and a small interest rate, and he adds "other expenses" of $2000, all to make the figures look better.

they're pretty reasonable figures, though. especially the small interest rate- normally the biggest yearly expense to holding property (likewise, NG costs to federal cofferes are far, far higher during periods of high interest rates). we're in a prolonged period of low rates, so a reasonable figure i would have thought in the current climate.

His big error? Those expenses are tax deductable too thanks to negative gearing. Oops!

those expenses will always be tax deductibles, regardless of whether you can claim them against non-investment (wage) income. in basic terms, it will mean you'll never ever have to pay tax on rental income while your costs exceed rental return.

 

[Long Live HFC]

i posted a point here somewhere but i forget where, so will note again.

when my investments are positively geared (pretty soon in today's rates environment, woohoo!), that income is added to my salary when calculating my taxable income. how is it OK to tax this additional income when calculated on top of my salary, when doing the exact same calculation in reverse is apparently the worst thing in the universe?

 

[Ratts of Tobruk]

i posted a point here somewhere but i forget where, so will note again.

when my investments are positively geared (pretty soon in today's rates environment, woohoo!), that income is added to my salary when calculating my taxable income. how is it OK to tax this additional income when calculated on top of my salary, when doing the exact same calculation in reverse is apparently the worst thing in the universe?

Because it was being abused due to the capital increases. Remember the primary aim is to stop the housing bubble growing at such a rate. If Howard didn't introduce the 50% rate who knows where we would be at, but as it stands it is smart to focus the benefit into new housing. People buying a home for themselves don't get these benefits so it doesn't make sense to

And some people for whatever reason do choose to not rent out properties, because they don't want to deal with the hassle or maintenance costs apparently. The fact you will continue to be able to deduct costs against rental income is fine. The whole point is people will now have to generate incomes before they can tax deduct from them. Just think of all the negative gearers with holiday homes who might want to keep negative gearing and so decide they'll rent out those otherwise barely used properties so they have investment income to deduct against. As it stands now heaps of people are speculating, knowing that their tax minimisation subsidy will keep them ahead of the people who just want a house to live in. That's why it's good the policy is grandfathered. Otherwise we would risk the bubble bursting and a whole bunch of people being underwater on their debts and a potential repeat of the subprime crisis that happened in the US.

Remember Australia has record levels of private debt in the OECD. We are the worst:

 

[Long Live HFC]

Because it was being abused due to the capital increases. Remember the primary aim is to stop the housing bubble growing at such a rate. If Howard didn't introduce the 50% rate who knows where we would be at, but as it stands it is smart to focus the benefit into new housing. People buying a home for themselves don't get these benefits so it doesn't make sense to

could you elaborate? this paragraph seems to be about capital gains?

And some people for whatever reason do choose to not rent out properties, because they don't want to deal with the hassle or maintenance costs apparently. The fact you will continue to be able to deduct costs against rental income is fine. The whole point is people will now have to generate incomes before they can tax deduct from them.

people that do this are idiots, and shouldn't be used as a generalisation to us normal people! also, an investment must be an income-bearing asset in order to NG. if it's not really a rental property, pretending that it is is an offence. i accept that the ATO aren't omnipotent nor have unlimited resources, though.

Just think of all the negative gearers with holiday homes who might want to keep negative gearing and so decide they'll rent out those otherwise barely used properties so they have investment income to deduct against.

they would have to be doing this already in order to negatively gear. but i accept that not everyone is Trustworthy Tony. the relative difference between then and (possibly) soon would be marginal though i would think.

As it stands now heaps of people are speculating, knowing that their tax minimisation subsidy will keep them ahead of the people who just want a house to live in. That's why it's good the policy is grandfathered. Otherwise we would risk the bubble bursting and a whole bunch of people being underwater on their debts and a potential repeat of the subprime crisis that happened in the US.

the interesting point that nobody (not just here, anywhere) seems to be discussing is that US households are able to "negatively gear" with their own homes. imagine how nuts aussies would go with that!!

 

[Ratts of Tobruk]

could you elaborate? this paragraph seems to be about capital gains?



people that do this are idiots, and shouldn't be used as a generalisation to us normal people! also, an investment must be an income-bearing asset in order to NG. if it's not really a rental property, pretending that it is is an offence. i accept that the ATO aren't omnipotent nor have unlimited resources, though.



they would have to be doing this already in order to negatively gear. but i accept that not everyone is Trustworthy Tony. the relative difference between then and (possibly) soon would be marginal though i would think.



the interesting point that nobody (not just here, anywhere) seems to be discussing is that US households are able to "negatively gear" with their own homes. imagine how nuts aussies would go with that!!

There's no generalising going on. As the graph shows there are lots of people achieving this. It does not matter how you personally do things. It matters how the whole system is working and it is working to:

• raise property prices (and consequently pushing lots of people's hard earned money into brick and mortar)
  
• reduce taxation revenue through the tax minimisation effects
• encourage people to invest in existing houses (including some getting over 200 houses) instead of more productive areas

 

[Long Live HFC]

There's no generalising going on. As the graph shows there are lots of people achieving this. It does not matter how you personally do things. It matters how the whole system is working and it is working to:

? your graph says nothing about people buying properties, pretending to rent them out and then claiming losses. such a "strategy" is ******* moronic and could never be described as the norm.

 

[Ratts of Tobruk]

? your graph says nothing about people buying properties, pretending to rent them out and then claiming losses. such a "strategy" is ******* moronic and could never be described as the norm.

No, but it shows lots of people earning no money or very little money while owning investment properties. It also shows that people negatively gearing gets higher and higher as you go through up the tax brackets. That isn't surprising of course, but the graph shows how negative gearing IS being used. No matter how you would like to think it should be used. Patrick pointed out some people don't rent them out and you can stay hung up on that if you want. But then you should keep in mind that there are an awful lot of empty apartments sitting in Melbourne's Docklands that aren't being rented out. Anecdotally I know there are plenty of people in Sydney who don't want backpacker houses and hold out for professionals/young families. You're free to call them morons.

 

[Long Live HFC]

No, but it shows lots of people earning no money or very little money while owning investment properties. It also shows that people negatively gearing gets higher and higher as you go through up the tax brackets. That isn't surprising of course, but the graph shows how negative gearing IS being used.

im not disagreeing with your data. i thought i was pretty clear and specific? it doesn't support anyone's assertion re "fake" investment properties in and of itself.

No matter how you would like to think it should be used. Patrick pointed out some people don't rent them out and you can stay hung up on that if you want.

? i can only attempt to comment on what is posted. i don't see how that's being 'hung up' on anything, especially given you followed up with the same assertion:

And some people for whatever reason do choose to not rent out properties

claiming losses on a property that isn't genuinely available for rent is illegal. i am not saying it doesn't happen. i am saying it's illegal, thoroughly insignificant as far as the overall debate goes, and is disingenuous by anyone claiming it is the norm or representative of australian property investment generally.

But then you should keep in mind that there are an awful lot of empty apartments sitting in Melbourne's Docklands that aren't being rented out. Anecdotally I know there are plenty of people in Sydney who don't want backpacker houses and hold out for professionals/young families. You're free to call them morons.

people that buy rental properties and deliberately don't let them out, are morons financially and legally (assuming they're claiming a tax off-set).

either i have been poor in explaining myself (im pretty drunk!) or perhaps i have misunderstood, but i don't feel your responses have really addressed my posts. but anyway- time to watch bombers ruin weekday footy! :/

 

[Scotland]

Yes, I understand all that. There's no need to pretend that I am uninformed just because I caught you out making a basic error

And what "error" is that?

And you have ignored both my comments and Patrick's and the fact there are plenty of people with mortgages of over $450,000

I'm aware people take out home loans over $450,000.

And the fact it's hard for poor people to get large mortgages is another reason why negative gearing goes mostly to rich people. And as the graph shows:

There are FLIPPING HEAPS of people negative gearing their wage down to very low levels. Sorry, mate, you can't deny the facts. There's ~250,000 people there who pay no tax on their income despite owning investment properties.

You do love this graph. Where does it come from?

You should read Belnakor's recent posts.

If you are somehow negatively gearing your income down from $100k to $20k then you must be living verrry cheaply.

 

[Belnakor]

They could well do, but you are missing the point. If you have a huge amount of debt, you have a huge amount of interest payments and you reduce your income by large amounts.

They are reducing their income by large amounts because they are paying money out on their property. The tax office doesn't give you off sets on the entire amount - just the money you lost on your investment.

It is like any other investment (yes we need investment). When you lose money you can claim that money as a deduction. Buying a house is no different to owning a share in a business that isn't going well.

As has been shown in a few of the examples shown in the media, the thing is that once you have one investment property it is much easier to get many more, because the bank can see you're baying your debts, you have a large property portfolio backing it all and as prices go up the value, so does the banks collateral if something goes wrong. There are people with over 200 houses.

Once you get to get 2-3 the only advantage is you can "balance" your portfolio so the ones which are making money are offset by the ones that aren't. Having 200 houses is simply gambling.

And as for how they buy food - there would be someone else in the relationship earning money and of course if you are wealthy you don't have to earn money. Your money is all sitting there from when you inherited it or earnt it in the past or from when you sold your last house and got the sweet 50% capital gains tax. And - I repeat - it is overwhelmingly wealthy people using negative gearing to minimise their tax.

They could invest in anything and make money - housing is just the surest bet because generally, housing prices go up. I would describe it as the lazy man's investment strategy.

Pretty obvious you have a problem with wealth but the reality is investment is absolutely required for the economy. If they change the negative gearing specifically for houses then you will see investment go elsewhere in the economy - very simple. and it doesn't take a genius to work out what that will mean for house prices + rental prices

 

[Scotland]

BRB just reducing my taxable income to zero by buying houses.