Could negative gearing be capped?

by AB20 Jan 2016
The Federal Government is considering putting a limit on negative gearing as a part of its taxation reforms, however, a Sydney buyer's agency is warning the government that they could be the ones to lose out if major changes are made to negative gearing.

According to a recent report in The Australian, Treasurer Scott Morrison is considering whether to include a limit on the amount property investors can claim as a tax deduction through negative gearing each year.

The Treasury department is currently compiling a white paper on taxation reform. The Australian has claimed one option that may be put forward is a combination of income tax cuts, ending tax concessions that come with superannuation concessions and limiting negative gearing.

However, Rich Harvey, managing director of buyer’s agency Property Buyer, told Australian Broker's sister publication Your Investment Property that changes to negative gearing could have a huge impact on the property investment industry in Australia.

“Negative gearing seems to be the hot potato that always gets kicked around when it comes to talk about taxation changes. It seems to be an easy target for people to criticise or use so it looks like they’re doing something,” Harvey said.

“But people need to remember that negative gearing is one of the best ways to ensure the creation of affordable housing. Real estate in Australia is quite expensive, so there does need to be some sort of way to incentivise people to be involved and ensure there is a supply line of housing.”

Harvey said some “fiddling around the edges” of how depreciation can be claimed via negative gearing may not have too big an impact on investors, but he warned drastic changes to the scheme could leave the government worse off than it is now.

“Whenever I hear people talking about negative gearing and changing it, I think back to what happened in when the Keating government got rid of it," he told Your Investment Property.

“The cost of public housing blew out and they ended up bringing it back pretty quick. Making changes to negative gearing often sounds good, but it’s something that’s fraught with danger.”

Rather than tinker with negative gearing, which he says benefits the housing market, Harvey said policy makers should shift their attention to stamp duty.

“Stamp duty is where changes should be made. It’s a regressive, inefficient tax.

“It’s anti-environmental in that is discourages people from moving and living closer to work and people suffer because of bracket creep. It’s the area where changes should be made, but the governments are making too much off it to change it anytime soon.”


  • by 20/01/2016 8:51:09 AM

    Negative gearing is an easy target because it is ridiculous.

    The argument of “negative gearing is one of the best ways to ensure the creation of affordable housing” counters itself. You can only have negative gearing if you own property. We need to help those that are trying to get into property for the first time when affordability is at all time lows.

    This is someone in the industry trying to protect their income stream above any kind of logic. Reminds me of the big short and look how that turned out.

  • by Tom 20/01/2016 1:43:16 PM

    Having more incentive for people to invest in property only pushes the price up and makes it more unaffordable. If the idea of negative gearing is to encourage real-estate growth, then why not restrict it to new property development which is the intended purpose. A person buying a 30 year old house then using negative gearing to offset income tax does nothing for the supply of houses. It adds one more rental property to the market but stops one more first home buyer from leaving the rental market.. All negative gearing on old properties is increase the price and keep first home buyers out of the market..

    Investors should be investing in development of properties. If you have investors putting their money in old properties in the hopes for capital gains then you encourage speculators and do nothing for growth..

    The real estate market is big business, so its hardly surprising anyone with a vested interest in it will welcome any type of change to negative gearing of CGT. Government needs to stay away from real estate and let the market decide the price and not expect tax payers to flip the bill for peoples investments they cant afford to pay for themselves.

    If the market crashes without negative gearing and CGT then let it crash and normalize again. Eventually the market with sort out the real price people can afford without the need for government assistance...