Banking experts have recently raised concerns about negative gearing, placing fear in the heart of every property investor in Australia, will if impact you?
A rash of banking experts have recently raised concerns about negative gearing, placing fear in the heart of every property investor in Australia that the decades-old tax incentive may creep onto the chopping block.
They claim that the government’s practice of providing tax-effective investment for landlords encourages a “get rich quick” mindset for property investors, which in turn is hurting the property market.
ANZ Bank's Australian boss, Phil Chronican, told a business lunch in Sydney: ''Governments might want to look at whether the current extent of negative gearing tax breaks are fostering an unhealthy focus on housing as an investment vehicle, thereby compounding affordability issues.”
Former ANZ chief economist Saul Eslake, meanwhile, ranted in a recent newspaper column, “The availability of negative gearing contributes to upward pressure on the prices of established dwellings, and thus diminishes housing affordability for would-be home buyers.”
He added, “I'm not advocating that negative gearing be abolished for property investments only, as happened between 1986 and 1988. That would be unfair to property investors. Personally, I think negative gearing should be abolished for all investors.”
With more than one million landlords in Australia claiming losses on their tax returns each year, it’s easy to see why investors are nervous about the prospect of their property expenses losing their tax deductible status.
Ayda Shabanzadeh, managing director of Grow Consulting Group, says that while she doesn’t encourage the practice of investing in property solely for the purpose of claiming tax deductions, she can see the value in “taking advantage of tax benefits that are available through property investment.”
“From our point of view, tax incentives mean more cash in the investor’s pocket at the end of the day, which we advise they use to make extra payments toward their mortgage to pay it off more quickly,” she says.
Dismissing the idea that negative gearing encourages a “get rich quick” mindset, Shabanzadeh points out that property is a long-term investment that allows investors to achieve their goals for the future, and is “certainly not a method that makes money in the short term”.
“We definitely do not advocate the well-publicised practice of buying and developing, or buying and renovating, with the aim of making quick cash overnight,” she says.
“Once an investment property is paid off, the investor can then reap passive income through rent, eventually selling the property when the time is right to, ideally, make a profit… In our view, the fact that a tax deduction is available is simply an added bonus in a long-term strategy for wealth creation.”