I am thinking about buying an investment property (under 400,000) and thinking if I am going to do it I may need to do it soon with potential changes to negative gearing. I know little of real estate and hoping someone can help me out. I am a single women early 40's living in townhouse owned by myself and the bank. Given I am single it feels like quite a risk. What are peoples thoughts on the impact of changes to negative gearing? Are property prices likely to go down further? I live on the gold coast and so far value of my townhouse has not gone down. Thanks
Investment property/changes negative gearing
alwaysis on 04/05/2019 - 18:34
Comments
Are you buying as an investment or for a tax deduction?
Tax rates are going down so the benefits of negative gearing are being reduced
Best question, investing primarily for tax reasons rarely works out.
How will you cope if prices remain stagnant or the asset depreciates in value?
Also have you looked into other forms of tax avoidance, there maybe other options that are lower risk?Invest in shares or offset your own mortgage first
Maniacs r gonna go ape sh.t buying before June 30 and then prices will plummet
Investing is all about risk, quantifying said risk factors, and making sure you are financial enough to cover those risks. The days of blind real estate investment are well over, especially sub $400k.
I wouldn’t let political sentiment affect your decisions too much, would highlight you are investing for the wrong reasons (ie short term tax breaks).
never catch a falling knife
Do you understand that negative gearing gives you a tax deduction on your loss, but you still lose money?
The only reason you would do that if you were very confident that property prices were going to rise high and quickly so the losses didn't add up to much.
And you hope the capital gains you make will still be taxed at a concessional rate (note, also under review).Don't make investments that you know will be loss making from day one.
I keep hearing from people who are unhappy that they didn't make lots of money in the real estate bubble that ran up until 2017. Sorry, but you can't hope to repeat that flow of riches by doing the same thing - there is no scope to drop rates so much again, and property prices are still very high.
A lot of people are clueless when it comes to taxation and don't understand the difference between a deduction and a rebate, let alone understand that negative gearing only reduces your taxable income against a loss and is usually only of benefit if you're in the top tax brackets AND property prices keep rising (which they aren't).
People need to stop reading Murdoch biased media and start reading about how these things actually work.
You can still enjoy the benefit of negative gearing without actually losing money by the way of depreciation expense.
" I am going to do it I may need to do it soon with potential changes to negative gearing"
Why do you need to do this sooner? o remember to save $30 in taxes you need to lose $ 100 first. This only makes sense if you are able to gain capital gains of $ 70 with interest. How long are you willing to keep losing $ 70 waiting for capital gains?Remember that home prices needs to be affordable for Owner Occupiers for a sustainable market. Investors will only stick around if they see Positive returns. Not many investors would be willing to sustain 5-7 years of negative or very low returns. When these investors need to exit their investments guess who needs to buy these properties - a greater foolish investor or owner occupier.
Realistically speaking if you treat investment properties as a business then the price of a property should be priced such that you have some meaningful income after all costs. Net Rental Yield after all expenses should atleast be greater than Savings bank interest rate.
Negative gearing should never be the reason for investing in property. Investments should be driven by Income maximisation not tax minimisation. As your income increases, you would definitely receive more advice & discover creative ways to minimise your taxes.Best post yet. All the OP needs to know right here in this nutshell.
Thank you everyone for the helpful feedback. I can see now that real estate is not the way to go. I am about to move into another tax bracket, can anyone direct me to where I could look for ideas to reduce tax?
Easiest way to pay less tax is to earn less money in the first place.
It is only the extra earnings above the bracket that get taxed at the higher rate. So until you are well above the bracket the extra amounts you pay are trivial (e.g. if this pay rise sees you move from $87k to $89k your extra tax from moving up a bracket is only $90 a year).
If it is a concern, get an accountant to help with your tax return, they will check you are claiming what you can. Mine charges about $400 p.a. So you really need to be getting valuable advice for this approach to pay off.
This > "It is only the extra earnings above the bracket that get taxed at the higher rate". You would not believe the number of people I had to explain that a peak tax rate of 50 % does not mean that you lose 50 % of your total income. The effective tax rate would always be lower based on the brackets.
To the OP, Check if you are maxing out super contributions, else the most convenient option is to salary sacrifice the extra earnings above the bracket into Super. Your income is now back in the lower tax bracket and you paid a lower tax for your super contributions.
Oh wow I didn't realise this! Not really and issue then :)
Easiest way to pay less tax is to salary sacrifice into superannuation to the maximum concessional amount. Your money will be locked in for another 20+ years though. As of July 2018, if your balance is less than $500k you can play catch-up for the previous 5(?) years.
Shares that pay fully franked dividends will help in some cases but to what extent is hard to say without knowing the details of your income, investments, liabilities, etc. You could take out a margin loan to buy the shares and negative gear the interest on the loan but that's never been successful enough for me to make it worthwhile.
Make sure you are claiming the maximum amount of deductions your industry allows.
Start a small business with an ABN and claim operating expenses that may exceed the income.
The lefty side of me has always said that if you are paying tax then you are earning the money…
Lord help us all 😳
Merged from Labor & Negative Gearing - Grandfathered for existing property
Hi guys,
I am sure most of you must have heard that the changes labor is making to negative gearing is grandfathered for existing properties. I myself saw this and wasnt too concerned as my property was purchased prior to their changes.
But the devil is in the detail and I am wondering if existing IP owners are aware of their proposed change. At the moment loss from IP can be offset against wage income and labor wont allow this if they come into power.
They will only allow you to offset this against other investment income (that's if you have any) or carry forward the loss and offset against asset CGT.
This is a fundamental change and makes a significant difference to cashflow. I for one dont have any other investment assets to offset the loss agaisnt and I had no intention of selling my property hence it will be decades until I can offset agaisnt the sale.
Therefore, its a blatant lie when they say no change to existing property owners and I cant believe the libs dont have an add campaign about this.
Were you guys aware?
For info not looking for input regarding how negative gearing shouldn't be allowed etc. Point here is they said no change to existing IP owners when in fact there is a significant change.
https://www.rsm.global/australia/insights/tax-insights/labor…
I think what you mentioned above is for new IPs. Grandfathered existing IPs and new housing would continue to be eligible to be offset against wages. At least this is what I understood from the link you provided.
Your link is inconsistent with the ALP's official policy, which makes no mention of changes to the deductibility of existing properties: https://www.alp.org.au/negativegearing
I put more weight in the ALP's policy than second hand analysis.
@ThePistonHead: I wouldn’t, I remember looking up changes in CGT to other assets such as shares or collectibles to see if their changes capture anything else other than property, which is what they always talk about, but found little information from all their process releases until reading about it else where from other reliable sources (law/accounting firms).
Labour has enacted their policy, so is always subject to change, but I feel they are deliberately opaque about it so not to anger many until elected/enacted.
@ThePistonHead: "I put more weight in the ALP's policy than second hand analysis."
Lols, srsly?
You'd believe a pre-election statement from a political party? Remember Julia's (Labour's) "we will never have a carbon dioxide tax bla bla bla" and what was the first thing she did after getting elected?
Therefore, its a blatant lie when they say no change to existing property owners
From your link, directly under the 'Negative gearing' heading:
For now, there is no impact on investments acquired before the proposed change in legislation.
And again under the 'Commencement date' heading:
The policy is proposed to take effect from a yet-to-be-determined date after the next election (assuming the ALP is elected to government). The ALP has stated that investments made before this date will be unaffected by the change and will be covered under grandfather clauses.
"other than new housing" does not mean existing investment properties, it means other than "new build/off-the-plan" investments, ie a "used"/"second-hand" house - purchased after Labor's proposed 1 Jan 2020 effective date.
vote for liberals, problem solved!
And welcome to a whole new world of other problems.
Thanks Scott Morrison.
I myself have no empathy or sympathy.
Besides, the change to CGT will have a bigger impact than changes to negative gearing but no one seems to be mentioning this
Yes. CGT changes will be a much bigger pain.
I think it will make our CGT 2nd most expensive in the world behind Denmark.
Can you forward losses for decades? I thought it was only a few years. I plan to do this for shares.
Negative gearing is one of the main reasons Australian housing situation is in this mess.
Can't wait to vote LNP out.
I think it is essentially the offshore money which was let to have run on the properties.
There's no single reason, both NG & influx of offshore money played major roles.
if Labor really wanted to make a serious change they'd make it so existing properties couldn't negative gear. And also from the time that they announced it.
That would send shock-waves to the economy. This is the best which can be done to undo the damage LNP has done.
Educate yourself!
The OP seems to be a typical Liberal voter ….. full of negativity, but then again that's the only campaign the Scott Morrison has - negativity.
Yep… The Liberals favourite play from their playbook "FEAR FEAR FEAR"!
Fear Labors policies!
Fear change!
Fear Bill Shorten!Liberal's think doing nothing is 'good management' of this country.
They can't even decide among their own party on what to do. The far right wants one thing, the more moderate side wants another.
The result?
Nothing gets done. Seriously… what have they accomplished in 6 years other than infighting and a couple of different PM's?
Half the party voted for Dutton! They aren't united at all!Their most experienced Ministers have already jumped the sinking ship, the word "woman" is both offensive and taboo to them, and they are so desperate trying to keep their jobs they are making deals with Crazy Clive Palmer.
Economic management is easy when you rip money out of public services year after year.
Labor aren't buying hookers or going to the casino with public money. But Liberals bleat at the top of their lungs how they can't manage money. No… they manage money fine, they spend it on NEEDED SERVICES FOR US!I can't wait for this election to be over so this country FINALLY has a roadmap to the future. Liberals have had SIX YEARS and have failed to do anything with their time other than be concerned with keeping their jobs but not doing their jobs.
A slick fear campaign isn't going to rewrite that history.
OP, I'm sorry your asset is making a loss. How about getting more qualifications and getting a better paying job, or getting a second job or live more frugal.
The crap Australia has found itself in with Property could take 100 years to get out of.
Agree
Australia is one of the most uneducated nations amongst the first world countries, if not THE most uneducated.
All we know is extract iron ore and coal, sell and live on!
Time for change.
Lol. I have no problems it’s making a loss and from day one I was aware of it. But let’s see how the asset performs in ten years of twenty years time.
People who have limited understanding on how tax structures work make some very silly assumptions and take a very simplistic view.
The 8th wonder of the world is compound interest. I ll leave it at that.
Here are some of the 'achievements' of the current Liberal Government, in case you forgot:
1) Took away Sunday penalty rates to some of lowest income earners in the country.
2) Added GST (increased your taxes) on every little purchase you made online that originated overseas.
3) Gave $444mil (almost half a billion tax payer dollars!) to a private company that never asked for a cent. No public tender process, no application, no consideration to the fact the company had 6 employees who are predominately board members from fossil fuel companies. Didn't give a cent to the CSIRO or any other organisation that actually applied for funds and could enact change to help the Great Barrier Reef. Nope, gave it to a company called the Great Barrier Reef Foundation… who have never done anything to help the Great Barrier Reef! Why wasn't this criminal?!?
4) Barnaby Joyce signed over $70mil to a private company based in the Cayman Islands, for water rights that were 'negotiated' in private and overvalued… and now no one knows where that money has gone. The Labor Government purchased water rights in an open tender process, and bought the cheapest bids only as they outbid each other to a lower amount.
5) Remember Marriage Equality? $120mil spent on a plebiscite that everyone but Tony Abbot and friends knew the right answer to. And still resisted thanks to the far right side of the party.
6) No action on Climate Change. Liberal's Direct Action plan has INCREASED carbon output. Half the Liberal's want coal, the other half like Renewables. The result? A party that hasn't been able to make a decision in 6 years… and big business itself is begging them to do so.
7) The Liberal Government wants to give $50bil in tax breaks to corporations based on failed 'Trickle Down Economics' theory, and to those earning $200k pa… the Labor Party disagrees on those points, and also wants to limit (not remove) negative gearing on properties- so it can fund more tax cuts to lower income people and spend more on services (like healthcare and education). It doesn't just burn the money in the backyard, they spend it on OUR services. The Liberal Party takes money away from services that benefit the nation over the long term.
8) Got crappy internet? Thank the Liberals. Instead of PROPER NBN fibre to the premises, they insisted on using old copper and wire infrastructure that is already causing reliability and speed issues that now require reinstallation… at much great cost.
9) Kicking and screaming they were finally dragged into agreeing into a Royal Commission into the banks- and look what was uncovered! It was almost too late, with a property market rocketing out of control with ridiculous increases with funding that was too easy/too dodgy to get. Now… finally, the brakes have been put on the property market. Yeah its harder to get a loan now, but that's called RESPONSIBLE LENDING PRACTICES! If they had their way, things would have continued to overheat, causing a major property crash.
10) They are running a campaign on Fear, not Policy. That's how you win elections… tell everyone how bad it would be to vote for the other side, without actually coming up with any plans yourself.
They've done NOTHING in 6 years. 2013 Abbott got in. Ask yourself what they've done in that time… other than give us 3 Prime Ministers due to infighting and complete disagreement on important issues. Tell me again why Turnbull had to go? ScoMo still hasn't explained that one. He is bleating STABILITY as an election platform… how is that stable? And still they can't agree on coal or not. Qld wants coal for jobs… the rest of the country want action on renewable energy and climate change. Inaction is better than a plan for real change apparently… at least that's ScoMo's platform to win right now. Fear change. Fear ideas. Stick with us because any change is bad so we'll just to nothing.
How about YOU do something? Vote for someone with a plan.
Including Abortion Rights for females all over Australia (still illegal in some states!), that's 11 reasons I can think of off the top of my head on why you need to seriously consider giving Labor a go. Don't vote on fear or on habit… or even on popularity contests on the leader. Vote on POLICY!!! You know, their actual plans to run the country. What are ScoMo's plans? Other than to tell you why Labor is the devil. What's his plans?!? I still don't know because neither does the Liberal Party.
Political campaigns aren't won with facts, they are won with fear. Labour has the votes of the people who fear the liberals having more time, liberals have the votes of the people who fear change.
Looks like the majority disagrees with your assessments on all matters!
Here's Scoalmo's take on future energy:
https://www.smh.com.au/politics/federal/brandishing-coal-in-…
Six years after the Libs got in power, only the rich can afford to buy somewhere to live.
I honestly don't think it matters all that much. As a strategy, negative gearing only really made sense in the glory days when you could count on property to appreciate by 5+% year on year. Very few people have a share portfolio that is negatively geared, both because the banks aren't going to lend you a trouserload of cash to buy shares, but also because market caps for shares are much more volatile.
The people who expect things to go back to the way they were in a few years time are fooling themselves. Even if property resumes its upward trend, its going to be much slower than it was before, simply because peoples' wages aren't going up and the banks have finally stopped writing mortgages in their sleep.
The current downward trend isnt because of impending changes to CGT or NG, its because the credit spigot has been turned off. Unless its turned back on again (and for the sake of financial stability lets hope not) then people aren't going to be able to afford the current prices, let alone any increase on top.
Well said
We just went through the mother of all property booms. Sure property will trend upwards over time, but forget about double digit rises YoY for another 15 years, maybe 20 years.
This is how fake news is spread. Make a title which is false and mislead people.
Mods: can you please correct the title to labor negative gearing policy discussion. Rather than untruth said in the title.
This is how fake news is spread
You mean alternative facts…. 😂
Looks like the fake news did the job! Fake news on OZB. Give me a break.
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