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... 0 Negative gearing
1.1 What is Negative Gearing?
Negative gearing is a term given when interest paid on funds borrowed to finance the acquisition of an income generating investment, (for example: a rental property; shares which generate dividends or any other investment that generates assessable income) exceeds income received, ie. ...
The word “gearing”, in a tax context, refers to the off-setting of expenses incurred in respect of an income earning activity against the primary assessable income of the tax payer. ... 2Negative Gearing Investments
Any form of investment that requires the borrowing of money can use the negative gearing concept, to reduce the taxpayer’s tax liability.
Negative gearing usually occurs in the property and share market. ... 3 Related Sections
The concepts of negative gearing are set out in the Income Tax Assessment Act 1997. Negative Gearing relates to the deductions available, to an investor. ... 4 Negative Gearing Example
John is a taxpayer earning $80,000 per annum (plus superannuation) in a contract job for a major IT company. ... 5 Advantages of gearing:
• An effective means of wealth accumulation
• Purchase larger investments than would be possible if using own funds only
• Reduce income tax liability
• Potential to achieve investment returns greater than returns that could be achieved without gearing. ... 6 Disadvantages of gearing:
• Disposable income usually reduced
• Losses magnified
• Market values of the underlying asset may fall causing loss in the value of the asset combined with a debt that must be repaid
• Income from the investments may vary and could even be nil
• Fees may be charged to buy and sell the underlying assets
• Additional security may be called for in the event of adverse market movements
• Lender may request debt reduction in the event of adverse market conditions. ... 7 Related Cases to Negative Gearing
The scope of negative gearing is currently limited to a certain extent by the Full High Court decision in Fletcher & Ors v Federal Commissioner of Taxation (1991) 91
ATC 4950. ... This nexus, in some circumstances, may be satisfied by the hope that the capital gain on eventual disposal of the asset will exceed the losses incurred due to the negative gearing. ...
(Report on the arguments for the retention of Negative Gearing 1999)
Another important negative gearing case is Ure v FCT (1981) 11 ATR 484. ... 8 Impact on the general public, if negative gearing is removed
There has been a huge discussion as to whether the government should keep negative gearing or scrap it all together. ...
If negative gearing was to be removed as a tax advantage for investors, rental prices will decrease along side with housing prices. ... 9 Why Negative Gearing shouldn’t be removed
Negative gearing must be retained to keep the residential and commercial property markets healthy.
Property Council Chief Executive Peter Verwer view on this topic is “A study has found that a reduction in negative gearing concessions would herald profound economic and social consequences for the entire community. Abolishing or paring back negative gearing will dissuade all types of property investment and force up rents for businesses and people living in rental residential property in Australia. Negative gearing increases the supply of commercial property hence the availability of business space would dry up without it and therefore trigger rent increases”. (Report concludes Negative Gearing Must Stay)
2.
Approximate Word count = 3350
Approximate Pages = 13.4
(250 words per page double spaced)
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