With all the recent discussion about the merits and disadvantages of negative gearing, it is interesting to note data from the Australian Tax office (ATO) that suggests that almost 1.9 million people taking advantage of tax breaks to help them fund property investments.
Data From The Australian Tax Office
The average loss for the figures for 2011 to 2012 (the most recent data released by the ATO) on rental income from a property investment was around $11,000. According to further research carried out by the Housing Industry Association, a substantial portion of investors – almost three quarters – report their taxable income as $80,000 or less. This would mean that a large majority of property investors make up what the media likes to refer to as the “mums and dad investors”.
Commentators have been quick to point out, however, that the differences between “taxable income” and “total income” may be substantial, with many high income earners claiming losses to reduce the amount of tax they pay. Indeed, figures that the Reserve Bank rely on (from the Household Income and Labour Dynamics in Australia survey) suggest that loans for property investment in Australia are more likely to be taken out by people who are considered to be in the top fifth highest earning bracket.
Negative Gearing Fuelling Strong Property Demand
The current strong market demand for investment property in Australia is believed to be responsible for pushing prices higher. Australia is one of only a handful of countries that allow the losses from assets such as property and shares to be offset against taxable income. While they are losing money, there are many reasons why investors may take advantage of negative gearing, such as:
- Helping to recover the costs of investment loans and a range of expenses including property management fees.
- It can also help to reduce the taxable income of high-income earners.
- In some cases if you know that your investment property in Australia will make a loss over the coming financial year, you can request that the ATO reduces the amount of tax taken out from your income, helping to increase your cash flow. Obviously when considering taxation issues you should always consult with your tax accountant or advisor before making any decisions.
- If you are planning for a long future as a property investor, and have a 10 to 15 year strategy to use the equity in your investment to purchase further properties, negative gearing can help you get “runs on the board” and buy your first investment property in Australia.
Whatever your plans as a property investor – whether you are happy to consider negative gearing or are looking for positively geared investments – you should always seek professional assistance from advisors and experts in the field to ensure you are maximising your investment opportunities and setting yourself up for a stable and sustainable future.