Cruz and Co

We know tax. Let us look after yours.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog

Connect with us

  • Facebook
  • LinkedIn

Why the Negative Gearing Issue Is Not Going Away Anytime Soon

 

property-taxNegative gearing is not isolated to property investment, although this is where many if not most Australian taxpayers will associate the mechanism. The fact is that the measure exists within the fundamentals of Australia’s tax system anyway — a deductibility of interest on borrowings made to undertake an investment.  It is nothing more than a specific case of the general principle that the expenses incurred in generating income are deductible.

And yet one reason that the debate on the negative gearing regime will not go away, especially in relation to the abolition or retention of its use for investment property, is the cost of this concession to the government’s bottom line and the role it may or may not play in the current debate about housing affordability.

A recent blog post of the Federal Parliamentary Library (its blog is called FlagPost, and here’s a link to its home page if you’re interested) touches upon the topic, with the library compiling a list of reports going back many years into housing affordability and the tax and other mechanisms that influence this section of the economy.

For example, the CGT discount is seen by many to be part-and-parcel of the negative gearing problem. The tax benefit can be triggered just one year after a property is first owned (and may be making an on-going revenue loss as outgoings, mainly interest, exceed the rental income).

The negative gearing benefit is therefore in effect propping up an investment along the way until the probability that the investor makes a capital gain at the end of the period of ownership. (A scenario seen as almost certain, notwithstanding the long-predicted bubble-burst.)

In other words, the negatively geared property operates at a loss (thereby earning the investor valuable tax deductions) with the assumption that the real return in the end will come when the property is sold.

But the ability to negatively gear needs to be kept in perspective as an aid to investment – a means to an end, not a goal in itself. The strategy is sound as long as the investment is also sound, and will over the long term give the investor a positive return. A good investment must eventually show a profit, and its merit should never hang only on its ability to garner a tax benefit.

Another thing to keep in mind is that for negative gearing to work, there must be other income from which to claim the tax benefit. This may seem obvious, but it’s worth stating – if all the income you have coming in centres on your geared investment, and you make a loss on it, there’s no way to turn that “negative” into a positive.

Ideally, one should have confidence that the investment property will be worth much more in overall capital terms once it comes time to sell, and that it will be worthwhile to carry the losses in the meantime – with a little help from the tax benefits that negative gearing can give.

From a tax practitioner’s point of view, Tax & Super Australia’s submission to a government tax white paper a couple of year’s ago (read it here, and turn to page 38) included the results of a survey of members, which confirmed that negative gearing continues to be a contentious issue in the context of real estate. Scant few members (2%) supported the proposition that the CGT discount should not be available to offset a capital gain on the sale of a negatively geared property.

A significant 42% of members felt that nothing need be changed with the incumbent system, although 24% held that one valuable change would be to quarantine negative geared losses from an investment property to be only applied to future income derived from investment property. This is similar to the system in New Zealand.

Furthermore, if the case were to be that negative gearing is disallowed for real estate investments, then as a general principle it should also be disallowed for any negatively geared investment in any asset type, such as shares.  While there is still a need for the CGT discount to apply to asset holdings, there is a case for offering a greater incentive for holding the asset in the longer term.

Discussions on the future fate of the negative gearing regime are far from over. It will be interesting to see if any reform comes out of this government’s looming Federal Budget on May 9, or indeed if future governments, spurred on to stop the consolidated revenue deficit, act with some decisiveness to touch any aspect of this tax benefit. In other words, watch this space.
Source: Tax & Super Australia

Testimonials

  • Kellie Pincham

    Director
    Automotive Parts Retailing business

    Cruz & Co offer a great professional and friendly service. Ritchie gave me confidence running the business knowing that he was readily available for…

    Read full testimonial
  • Napoleon Guines

    Director, Travel Company Operations

    Ritchie Cruz and Co are accommodating and have excellent service.

    Cruz & Co have impressed me the most is due to their efficient service.  They are…

    Read full testimonial
  • Dr Krish Perananthan

    Cosmetic and Implant Dentistry

    Ritchie was recommended to me by my father and I have also continued to recommend him to my friends. He is reliable, efficient and has a…

    Read full testimonial
  • Jonathan Fambart

    Business Tax – Travel Industry

    Cruz & Co was introduced to me this year and it was the best decision for my sole trader and personal taxation affairs. Ritchie the…

    Read full testimonial
  • Daniel Robey

    I have and continue to recommend Cruz and Co to many businesses and individuals who are looking for a business advisor and accountant that goes over and above…

    Read full testimonial
  • Jonathan Yeoman

    Director, Technical Design Company

    This is a new business startup and Cruz&Co. have provided great help, guidance and reassurance from the beginning.

    Ritchie has provided us with excellent service and…

    Read full testimonial
  • Regina Wang

    Business Tax – Beauty Salon 

    Ritchie has been managing my tax matters as a sole trader for 2 years+. Always very responsive to my questions and make effort to reply…

    Read full testimonial
  • Zac Fryer

    Director, Import and Distribution Company

    Ritchie Cruz provides and high level of accounting expertise and goes above and beyond in answering any queries we have.

    Read full testimonial
  • Vanita Aloda

    Restaurant Owner

    Ritchie Cruz is my Accountant. We have a solid 10 year relationship.

    Ritchie as always provide me with honest and efficient service.

    Is a great communicator, always replies efficiently to…

    Read full testimonial
  • Jae Kwon Yoo

    Business Tax – Electrical Contractors

    Ritchie is awesome. He is very professional and responsive and he is always there to help you. He even replies during weekend. He needs some…

    Read full testimonial

© 2025 Cruz & Co.

  • Home
  • About
    • Meet the Team
    • Our Clients
    • Testimonials
  • Services
    • Tax Consultant and Compliance Services
    • Small Business and Sole Trader Accountant
    • Outsourced Accounting Solutions
    • Business Structure
    • Outsourced CFO
    • Working Visa Refunds
  • Resources
    • Tax Refund Process
    • Client Assistant Schedule forms
    • Downloadables
    • Helpful Links
    • Rental Property Cashflow calculator
    • SMSF Tax Refund Process
  • Contact Us
  • Blog