Property investors under fire as tax summit kicks off

Property investors continue to come under heavy fire for distorting the housing market and exacerbating housing affordability problems as the Canberra Tax Forum gets under way today.

The latest to have a go at landlords is Sarah Toohey, campaign manager of lobbying group Australians for Affordable Housing, who says the current tax system allows investors to use their rental properties like an offshore bank account. Toohey is not attending the tax summit.

Toohey points the finger at negative gearing provisions, which she says “encourage investors to make a loss and reduce their tax payable”.

“Essentially it allows higher income earners to use rental housing as a tax shelter. It's the offshore account of the Australian tax system,” Toohey writes in an opinion piece for the ABC’s opinion website The Drum.

“If that wasn't enough, investors also get a 50% tax discount on any capital gain they make on the sale of the property. It means that any income gained through property appreciation gets taxed at half the rate of other income,” she adds.

Her complaint follows property investors being called the “landed gentry” by Ian Winter, executive director at Australian Housing and Urban Research Institute and accused of being unfairly favoured under the current tax system by Melbourne University’s Miranda Stewart.

Toohey says the insidious effect of these two tax breaks (negative gearing and capital gains) is felt when they work together.

“Tax deductibility encourages investors to borrow more than they can afford, because they're really borrowing to make a loss on the cost of running the property, in anticipation of a capital gain payoff.

“Because investors aren't constrained by what they can actually pay, they push up house prices, and get an unfair advantage over first-home buyers, indeed all home buyers, who can only spend what they're able to afford based on their income,” she says.

Toohey quotes ATO statistics for the 2008-09 financial year that show that landlords claimed a collective loss of $6.5 billion, while earning $24 billion in rent.

“These tax breaks go to people who need it least, generally existing home owners with some wealth to spare. They encourage investment in established housing at and do little to relieve the shortage of 493,000 rental properties that are affordable and available to people on low incomes,” she says.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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