Should negative gearing only apply to new property?

Should negative gearing only apply to new property?
Should negative gearing only apply to new property?

Negative gearing is regularly in the spotlight, and Aviate Group managing director Neil Smoli says there’s one simple way to address the concerns – make it only apply to off-the-plan or newly renovated property.

Smoli notes that negative gearing tax benefits recognise the role investors play in providing rental accommodation by alleviating tax burdens.

“However, when investors use a negative gearing strategy to finance the purchase of existing dwellings, this has very little impact on new supply in a market where rental vacancies are very low,” he says.

“On one hand, investors using negative gearing to support the purchase of new off-the-plan property have a positive impact by contributing to new rental accommodation. On the other hand, investors who use negative gearing to finance the purchase of existing properties do not.”

He said that buy encouraging demand for new properties it would help stimulate construction and unlock the economic benefits of new development.

“Perhaps the fairest way to enable an investor to utilise a negative gearing strategy to contribute to new supply is to make the practice accessible from an agreed timeframe after the initial lease term commences,” he says.

“It typically takes five to six years for an investment property to become neutral, that is, for the rent received to balance the interest payable. This is influenced by the interest rate of the day, the net rental income received after costs such as management fees, letting fees, body corporate fees and outgoings are taken into account, the investor’s marginal tax rate as well as depreciation allowances.”

{mijopolls 49}

Jennifer Duke

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

Negative gearing

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