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John Passant

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Keep socialist blog En Passant going - donate now
If you want to keep a blog that makes the arguments every day against the ravages of capitalism going and keeps alive the flame of democracy and community, make a donation to help cover my costs. And of course keep reading the blog. To donate click here. Keep socialist blog En Passant going. More... (4)

Sprouting sh*t for almost nothing
You can prove my 2 ex-comrades wrong by donating to my blog En Passant at BSB: 062914 Account: 1067 5257, the Commonwealth Bank in Tuggeranong, ACT. More... (12)

My interview Razor Sharp 18 February
Me interviewed by Sharon Firebrace on Razor Sharp on Tuesday 18 February. http://sharonfirebrace.files.wordpress.com/2014/02/18-2-14-john-passant-aust-national-university-g20-meeting-age-of-enttilement-engineers-attack-of-austerity-hardship-on-civilians.mp3 (0)

My interview Razor Sharp 11 February 2014
Me interviewed by Sharon Firebrace on Razor Sharp this morning. The Royal Commission, car industry and age of entitlement get a lot of the coverage. http://sharonfirebrace.com/2014/02/11/john-passant-aust-national-university-canberra-2/ (0)

Razor Sharp 4 February 2014
Me on 4 February 2014 on Razor Sharp with Sharon Firebrace. http://sharonfirebrace.files.wordpress.com/2014/02/4-2-14-john-passant-aust-national-university-canberra-end-of-the-age-of-entitlement-for-the-needy-but-pandering-to-the-lusts-of-the-greedy.mp3 (0)

Time for a House Un-Australian Activities Committee?
Tony Abbott thinks the Australian Broadcasting Corporation is Un-Australian. I am looking forward to his government setting up the House Un-Australian Activities Committee. (1)

Make Gina Rinehart work for her dole
(0)

Sick kids and paying upfront

(0)

Save Medicare

Demonstrate in defence of Medicare at Sydney Town Hall 1 pm Saturday 4 January (0)

Me on Razor Sharp this morning
Me interviewed by Sharon Firebrace this morning for Razor Sharp. It happens every Tuesday. http://sharonfirebrace.com/2013/12/03/john-passant-australian-national-university-8/ (0)

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What is negative gearing, and what is Labor proposing?

Negative gearing just means an investments ongoing deductible costs are greater than its income. In other words the investment is losing money.

Many types of property can be negatively geared. The most obvious example is a rental property. Let me use that as an example.

Say I borrow $1 million dollars to purchase a property in Sydney to rent out. I borrow the whole of that amount, as say an investment loan, to buy the property. It is an interest only loan.

According to Kate Burke in Domain:  ‘Those with their heart set on a house have to look much further afield, casting their gaze about 25 kilometres south of the city centre to Caringbah and Gymea and their respective medians of $1.005 million and $1,002,500.’

Let’s run with Caringbah, in the heart of Scott Morrison’s electorate.  It is also a place I remember well from my youth, with my family visiting my grandmother there every second weekend or so from Wollongong.

Let’s assume I can borrow $1 m to purchase a 3 bedroom, 2 toilet, 2 car park, rental property. I buy a property in Caringbah and rent it out, say for $800 a week or $41,600 a year month. From this the agent deducts a 10% commission, and there are other cost like depreciation (2.5% of the initial construction price of say $500000), rates (say $2000,) and repairs (say $1000.)

Let’s assume the interest on an interest only investment loan is 4.19% per annum, or $41,900 for the year.

So my gross rental income is $41,600 a year.

For tax purposes I can deduct from that figure my interest costs, the depreciation, rates, commission and repairs and other income costs. Those deductions are interest on the loan of $41,900, the agent’s commission, being $4160, depreciation of $6250, rates of $2000 and repairs of $1000. These deductions total $56,310. (Insurance will be another deduction but I have not included that. There are enough figures already to give you the idea.)

So my rental taxable income is $41,600 less $56, 310. In other words am making a loss of $7130.

That is not where it ends. I can offset this loss against any other assessable income. Let’s say as well as rental income I have salary and wages of $203,000 (which coincidentally just happens to be a backbench MP’s salary.) There are a few costs I have in earning that, say newspaper subscriptions, deductible gifts etc totalling $2300. So I deduct those costs from my salary and wages to give me $200,700 taxable wages income.

But wait. There’s more. I can now deduct the rental loss of $7130 from this net salary and wages income of $200,700, giving me a net taxable income of $193,570.

So I have saved tax of 45% plus the 2% Medicare levy, of the amount of the loss, or 47% of $7130, a saving in tax of $3351.

Still, a loss is a loss is a loss. Why do this? The answer lies in part in the capital gains tax regime. I hope like hell my investment increases in value over the years.

Why? Again, let’s use some imaginary figures. Let’s say in five years’ time I sell the property for $1,450000. Leaving aside calculations that do not concern us (additions to the cost base etc) I have made a gain of $450,000 in five years (my sale price less my cost price.) I include only HALF that gain in my assessable income, i.e. I include only $225,000 as my taxable capital gain.  Nice work if you can get it. (Labor is proposing to halve this discount, i.e. reduce it from 50% to 25%.)

What Labor is proposing is to stop people like this imaginary me in the future deducting the rental loss ($7130 in my example) against my other income. However, that limitation is grandfathered. It will only apply to properties purchased on or after 1 January 2020. It also will not apply if the property I purchase to rent out is a new property.

A range of countries limit negative gearing. And despite the Coalition’s protestations, the major beneficiaries of negative gearing are the very well off. As the ALP says:

‘70 per cent of the benefits of the CGT discount and 50 per cent of the benefits of negative gearing go to the top 10 per cent of income earners.’

John Passant is a poet, an adjunct member of the School of Law and Justice at Southern Cross University, co- editor of the Journal of Australian Taxation, and a member of the Canberra Press Gallery.  He publishes at En Passant with John Passant.

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