Negative Gearing in Australia

1. What is Negative Gearing ?
2. Why can’t Negative Gearing be abolished ?
3. What happened when Negative Gearing was abolished in 1985 ?
4. Does Negative Gearing really cost the government money ?

A few questions above that are often asked, and answered with various replies depending on political and economic leaning of the person answering.

What is Negative Gearing ?

A negatively geared investment propery is one where the cost of the property exceeds the income.

What happened when Negative Gearing was abolished in 1985 ?

The Australian treasurer, Paul Keating ,abolished Negative Gearing in July 1985, but by September 1987 he decided to re-instate it.

Why ?

Does Negative Gearing really cost the government money ?

Some people say it costs billions, but it actually doesn’t, it only delays the collection of some of the taxes.

• The system with negative gearing allows any losses to be offset against other income that the person has in that tax year.
• The system without Negative Gearing would delay offsetting that loss until the investors property portfolio is producing its own profits.

The loss is still claimed eventually, it does not dissapear.

An article in the AGE newspaper, in April 2009 started with:

NEGATIVE gearing is disappearing as a tax strategy for landlords, and it seems it won’t be missed.

Falling interest rates and rising rents over the course of the financial crisis have made it increasingly hard for landlords to make deliberate losses to offset their other income for tax purposes, and the Government’s Henry Review has the practice under the microscope.

and went on to include the following:

In the in-depth telephone and face-to-face interviews with 20 to 40 landlords, from each Australian state, only one of the investors interviewed nominated negative gearing as the chief reason for deciding to become a landlord.