Tax Changes – Income Tax, Capital Gains etc

Negative gearing tumbles on lower interest rates

The proportion of landlords negatively gearing rental properties has fallen below 60 per cent for the first time on record, reflecting a decline in interest rates.

Of the 2.2 million taxpayers owning at least one rental property, 1.3 million declared a net rental loss in 2018-19, according to new annual data published by the Australian Taxation Office.

Overall, net rental income was negative $3 billion.

Total gross rental income of $47.8 billion received by landlords was less than deductions for their cost of interest, capital works and other rental deductions incurred.

Despite the decline in negative gearing there are still many landlords owning multiple properties who are claiming a tax deduction for earning less rental income than the cost of running investment properties.

The number of landlords negative gearing at least six properties was 11,226 in 2018-19.

Some 10,935 landlords negative geared five properties, 26,719 owners had four properties claiming a net rental loss, 74,955 property investors had three properties negative geared and 250,035 had two properties claiming a loss.

Almost 1 million people – 931,132 – had one property negatively geared.

Landlords who claim a net rental loss are in effect betting on making money from a property investment via house price increases.

There were 19,113 fewer negatively geared landlords than in 2017-18, the first fall in five years, analysis by The Australian Financial Review shows.

As a share of landlords, 58.6 per cent claimed a net rental loss – the first time since records dating back to 2003-04 show a sub-60 per cent result.

The decline in negative gearing coincided with the Reserve Bank of Australia cutting the overnight cash rate to 1.25 per cent by June 2019 – then a record low.

The share of landlords claiming net rental losses peaked at 69.6 per cent in 2007-08, when the RBA raised the cash rate to 7.25 per cent during the mining investment boom and when market mortgage rates were about 10 per cent.

The share of landlords negative gearing property is likely to continue falling in the low interest rate era, because low mortgage rates make it harder to claim a net rental loss and make it more likely rental income will exceed the expenses of owning an investment property.

Landlords reported gross rental income of $47.8 billion in 2018-19.

More than offsetting this were deductions of $24 billion for rental interest, $4.1 billion for rental interest and $22.8 billion for other rental deductions.

Negative gearing tumbles on lower interest rates2021-07-02T10:32:30+10:00

Dear  Valued Client,

As we turn the page over and close what has been an unprecedented year, the focus is now on 2021 and 2022 given the prevailing uncertainty across all markets.

A number of new and ongoing developments bear close watching:

  • Sydney outbreak containment – this is new and has obvious consequences on the domestic front.
  • Global and domestic economies – will they continue to surprise on the upside?
  • US Covid – will the re-acceleration lead to harder lockdown and potentially an economic slowdown in the US?
  • Vaccine Data- Whilst latest data form Moderna and the China vaccines remain positive a new virus strain has been spreading in the UK. The ability to deliver effective vaccine at necessary scale remains a challenge.
  • US Fed and growth in its balance sheet continues to be strong.
  • Brexit negotiations appear to be progressing to plan.
  • Constrained world trade – China and various trading partners – could potentially result in undesirable outcomes.
  • The Australian Economy – Level of uncertainty post full withdrawal of the stimulus in March 2021.

The COVID-19 pandemic has had a stunning impact on the global economy and to a lesser extent, on the local economy.

This in turn has led to a permanent shift in the operating landscape for millions of businesses and to varying degrees, changed all our lives.

On balance, we are cautiously optimistic that progress forward is possible on both health and economic fronts, the Australian economy has maintained improvements in this respect.

In saying that, 2021 and perhaps a couple of years out are likely to experience a degree of volatility given that asset classes (in general) appear to be fully valued, high liquidity appears to have played a part in this outcome.

On reflection, history tells us that this often brings about some uncertainty.

Excessive liquidity by central banks although warranted, can over-shoot and create unintended consequences (asset bubbles). A potential outbreak in inflation, although currently with low probability, is also of concern.

At times like these it is always good to gain a perspective and focus on what we can control and ignore the uncontrollable.

Some of the controllable areas might include:

  • Review our financial, estate and personal protection plans.
  • Calculate and control our lifestyle costs ( When things don’t add up start subtracting )
  • As investments are made, consider the principle of ‘dollar cost averaging’
  • Consider Dividend Reinvestment Plan ( DRP)
  • Diversification and history are our best friends, reflect and actively rebalance asset allocations
  • ‘Cash is king’ as we accumulate wealth, not so in retirement
  • Target modest improvements and find many of them

In closing, we would like to take this opportunity and thank you for placing trust in AMCO to provide guidance and certainty during what are unquestionably uncertain times.

We wish you and your family a Merry Christmas and a happy, healthy and prosperous new year.

Danny D. Mazevski 

Chartered Tax & Financial Adviser

FIPA   CTA  FTMA  MBA (Un.NSW/SYD)  Dip.FS   JP

2020-12-22T09:27:06+11:00