THE CGT Saver Report

   

Let me introduce you to our new product, the CGT Saver™ Report – A report specifically created to prevent our clients from paying too much in Capital Gains Tax.

Although you can no-longer claim depreciation on second-hand Plant & Equipment Items (ovens, dishwashers, etc.), with Washington Brown’s CGT Saver™, you can claim the applicable and documented value as a capital loss if you remove or replace any of these in the future.

Similarly, using this report, if you were to sell a second-hand property with those items still intact, what you would have been able to claim in depreciation in the past, you can now claim as a capital loss which reduces your capital gains tax bill.

This report lists and values all those included items that you have purchased at settlement. It then allows you to claim a capital loss straight away if any of these items are removed.

The best bit…This loss can offset other share &/or property gains that you might make.

This report is exclusive to Washington Brown, so ask for it by name and contact us to find out more.

The Secrets of Backdating Your Property’s Depreciation

Property’s DepreciationProperty depreciation is one of the largest tax deductions for homeowners in Australia. But did you know that you can backdate your property’s depreciation? Doing so could save you thousands of dollars every year.

As an investor, you need to take advantage of all the tax deductions Australia has to offer. Property depreciation deductions allow you to control your cash flow from your property. As a result, you can use them to enhance your property’s profitability.

Many who own an investment property in Australia claim depreciation yearly.

Unfortunately, some overlook these deductions entirely. Happily, you can backdate your depreciation claims. Firstly, let’s look at what property depreciation means.

What is Property Depreciation?

So, what counts as depreciation for your investment property in AustraliaDepreciation Calculator

You can claim for any loss of value resulting from the wear and tear of the property as it ages. Capital works are the building’s structural elements, and you can claim for all of them, including the roof tiles and the concrete used throughout the building.

You can also claim for the wear and tear of any equipment in the property. This includes things like the property’s fixtures, but extends to things like carpets and ceiling fans. (Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).

Claiming for your property’s depreciation is one of the most effective tax deductions in Australia. It allows you to reduce your yearly taxable income, which means your tax bill also decreases. When used correctly, depreciation allows you to take home more money each year.

Behind the deductions you claim for interest expenses, depreciation is one of the largest tax deductions in Australia. However, many investors fail to claim for all their property depreciation. Some even forget about it entirely, which could result in the loss of thousands of dollars over the lifetime of your investment.

Using Backdating to Claim Depreciation

So, what can you do if you haven’t claimed for all of the depreciation you’re entitled to? This is where backdating can help you.

There are two key steps you must take to backdate depreciation properly:

  1. Work with a Quantity Surveyor to create a full depreciation schedule for your property. Your surveyor will inform you about every item you can make a claim for. They will also discuss rental property depreciation rates with you.
  2. Bring the surveyor’s depreciation schedule to your accountant. He or she will alter your tax returns so that you claim for all of the depreciation you’re entitled to.

In most cases, you can only backdate depreciation for two years.

What is a Tax Depreciation Schedule?

Depreciation Quote ScheduleIf you’ve never claimed for your property’s depreciation, you may not know what a tax depreciation schedule is.

The schedule your Quantity Surveyor creates, offers a summary of every item in your property that depreciates in value. Think of it as an investment property tax deductions calculator focused solely on depreciation. The schedule notes every item, and informs you of how much you can claim for each over the course of the next 40 years.

As noted, your accountant can use this schedule to backdate your tax returns for the previous two years. However, they will also use it to help them to complete your future tax returns. This ensures you claim properly for all future depreciation of your property’s capital works and equipment.

Can I Backdate for More Than Two Years?

In most cases, you can’t backdate your tax returns for over two years. The Australian Taxation Office (ATO) has strict guidelines in place. These usually prevent you from exceeding the two-year limit.

However, that isn’t to say it is impossible. The ATO has different rules for companies than it does for individual investors. There are also different rules for those using a self-managed superannuation fund (SMSF), or a trust.

As a result, it’s worth speaking to your accountant to find out if your situation allows you to backdate for more than two years. It’s unlikely, but you may strike it lucky and be able to claim for even more depreciation than you expected.

Is Backdating Worth It?

Yes, it is. If you don’t account for your investment property depreciation, you could lose out on thousands of dollars every year. In fact, claiming for depreciation can turn a negatively geared property into a positive one.

On top of that, you can also claim the cost of your Quantity Surveyor as a tax deduction.

The Final Word

That’s everything you need to know about backdating depreciation. Speak to your accountant today to find out how far you can backdate your claims.

Washington Brown is here to help if you need a quality Quantity Surveyor. Contact us today to get a full depreciation schedule for your investment property.

Finally, Some Clarity

On Friday 14th July, the Treasury Office released a draft bill regarding how depreciation deductions on a second-hand property can be claimed moving forward. They also invited interested parties to make submissions.

It’s complicated, to say the least, so I’ve tried to simplify this Bill and the key points. Here are my 9 Key Takeaways from the Legislation;

  1. If you acquire a second-hand residential property after May 10, 2017, which contains “previously used” depreciating assets, you will no longer be able to claim depreciation on those assets.
  1. Acquirers of brand new property will carry on claiming depreciation exactly the way they have done so to date. This is great news for the property industry and the way it should be.

We suspected this would be the case and I believe the property industry can collectively breathe a sigh of relief.Depreciation Quote Schedule

  1. The proposed changes only relate to residential property. Commercial, industrial, retail and other non-residential properties are not affected in the slightest.
  1. The building allowance or claims on the structure of the building has not changed at all. You will still need a Depreciation Schedule to calculate these deductions. This component typically represents approximately between 80 to 85 percent of the construction cost of a property.
  1. The proposed changes do not apply if you buy the property in a corporate tax entity, super fund (note Self-Managed Super Funds do not apply here) or a large unit trust.

This is interesting and I suspect a lot more people will start buying properties in company tax structures.

  1. If you engage a builder to build a house and it remains an investment property, you will still be able to claim depreciation on both the structure and the Plant and Equipment items.
  1. If you renovate a property that is being used as an investment, you will still be able to claim depreciation on it when you have finished the renovations.
  1. If you renovate a house, whilst living it in, then sell the property to an investor, the asset will be deemed to have been previously used and the new owner cannot claim depreciation.
  1. Perhaps the most interesting point: Whilst investors purchasing second-hand property can now no longer claim depreciation on the existing plant and equipment, they will have the benefit of paying less capital gains tax when they sell the property.

How? Well, in summary, what you would’ve been able to claim in depreciation under the previous legislation, now simply gets taken off the sale price in the event you sell the property in the future.

 Here is an example of how this will work:

Peter buys a property in September 2017 for $600k, included within the property was $25k worth of previously used depreciating assets.

 As they were previously used, Peter can’t claim depreciation on those items.

 Peter sells the property in 2022 for $800k, which included $15k worth of those depreciation assets.

 Peter can now claim a capital loss of $10k ($25k-$15k) for the portion that Peter has not claimed in depreciation.

 SUMMARY OF THE PROPOSED CHANGES

Depreciation CalculatorIn my view, the Draft Bill could’ve been a lot worse for both the property industry and the Quantity Surveying professions.

It will certainly address the integrity measure concern of stopping “refreshed” valuations of plant and equipment by property investors.

It may, however, create a two-tier property market in relation to New and Second-hand property.

You can see the ads now “Buy Brand New – We’ve Got The Depreciation Allowances”.

It will still be just as critical for all property investors to get a breakdown of the building allowance & plant and equipment values so you can:

 

  1. Claim the building allowance (where applicable) and
  2. Reduce the CGT payable when selling the property by deducting the unclaimed Plant and Equipment allowances.

The Quantity Surveying industry, just like the property development industry just breathed a huge sigh of relief.

I believe this integrity measure could’ve been better addressed and will be making a submission accordingly.

But it wasn’t a bad ‘first run’ by the Government!

P.S. If you purchased an investment property prior to The Budget, and it’s been an investment property the whole time, you are not affected and you should get a depreciation schedule quote now.

Tax Time: What You Can Claim

Tax time is creeping up on us! So I thought I’d provide a simple list of some things that you can claim on. And that will help you save some money.

If you’ve been reading this blog, you’d know by now that some things cannot be claimed as an immediate deduction. However, there are some that can be.

So make sure you don’t miss out on claiming them!

claim tax

So, what are these expenses that can be written off immediately?

Well here’s a list that will save you immediately. Make sure your accountant is able to claim these for you!

  1. Acquisition and Disposal Costs incurred to gain a tenant.
  2. Charges and fees such as body corporate charges and fees, council rates, lease document expenses, legal expenses, mortgage discharge expenses, tax related expenses, insurance, and interest on loans.
  3. Fees related to hired services such as property agents’ fees and commissions, quantity surveyor’s fees, pest control, cleaning, gardening and lawn mowing, and secretarial and bookkeeping fees.
  4. Expenses that cover utility bills such as water charges, electricity and gas, and telephone calls.
  5. Installation and activation charges for items in the property such as in-house audio and video service charges and servicing costs.
  6. Other miscellaneous expenses such as travel and car expenses, and stationery and postage.

Remember, these expenses can only be claimed if they were directly incurred by you and not the tenant. Depreciation Calculator

So if you are renting out your property, now is the best time to go over your receipts and check which expenses fall under the list and before you know it, you’ll have more deductions than you bargained for!

If you need a depreciation schedule for your investment property – get a quote here or work out how much you can save using our free calculator.

The Depreciation Party Is Over

The depreciation party is over…

Well, kind of!

In an attempt to “reduce pressure on housing affordability” the Government has announced dramatic changes to the way depreciation is claimed on property.

Let’s start with the good news:

1.  Any existing investment properties purchased (contract exchange date) prior to May 9 2017 are not affected (unless they were not income producing in the 2016/2017 financial year).

2. Commercial, industrial and other non-residential properties are not affected.

3. Capital works deductions have not been affected. This means you will still be able to claim depreciation on the structure of the building provided it was built after the 16th of September 1987. And you will still need a Quantity Surveyor’s depreciation schedule to do so.

Now that we know what isn’t affected, let’s look at what has changed…

The government will limit plant and equipment depreciation deductions to outlays actually incurred by investors. In essence, unless you as the buyer had physically purchased the items – you can no longer depreciate them. This is a massive change to what you can claim – there by reducing investors’ cash flow.

Originally I thought a quick fix would be to structure the sales contract so that the plant and equipment is separated. But I suspect that the legislation will be worded such that if the plant and equipment was in situ at the time of purchase, you can no longer claim it.

You see, under the recent changes, I suspect the developer will be deemed to have bought the plant and equipment – not you.

budget depreciation changesHowever, the acquisition of existing plant and equipment will form part of the cost base, thus reducing your capital gains liability. So investors who hang on to their properties long term, will no longer reap the benefits of depreciating plant and equipment.

So in summary: if a residential property was built prior 1987,and has not been renovated – there will be no depreciation claim.

Depreciation CalculatorThis is very rare as most pre-1987 built properties we inspect have had some renovation carried out.

If built after 1987 – only the construction costs can be claimed.

Whilst there is still much uncertainty regarding the specifics of this budget’s depreciation-related changes, one thing is crystal clear: If you own a residential investment property and haven’t had a depreciation schedule prepared, now would be a good time to get a quote!

Developers, Project Marketers and Property Sales Agents – If you are selling property and using depreciation numbers that include plant and equipment: STOP NOW! This element needs to be removed from the selling equation, at least until the legislation is finalised.

Here is why I think this is dumb policy.

The proposed changes are being made to “reduce pressure on housing affordability.” In my opinion, it will have the opposite effect for 3 reasons:

  1. Property investors may now feel the need to hang onto their existing properties to continue claiming depreciation because if they sell that property they won’t be able to get as many deductions on the next one.
  2. Developers rely on high depreciation figures in the early years to show investors how affordable an investment property can be. If the allowances are taken away, they will struggle to get pre-sales which are required by banks to fund the deal.
  3. These budget measure are forecast to save $260 million over a 3 year period. I suspect far more will be lost if developers can no longer get new projects off the ground.

Whilst I believe housing affordability is a major issues, this appears to be policy on the run…so the Government can be seen to be targeting property investors, when changes to negative gearing could have been more effective.

I will provide a further update once the legislation is finalised.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation Quote Schedule

Who does Depreciation Schedules?

who-issues-or-makes-depreciation-reportsHaving been in this industry for more than two decades now, I’ve met all sorts of property developers and investors. Many of the calls and inquiries I receive are from frustrated investors who could not get depreciation reports (or schedules) from their accountants or real estate agents. However, what most investors don’t know, is that there is an ethical and practical reason behind this method.

Depreciation Laws

The main reason accountants and real estate agents are not qualified to create these reports boils down to one issue. Essentially, if your residential property was built after 1985 your accountant is not legally allowed to estimate the construction costs. It is important to note that the Tax Ruling 97/25, issued by the Australian Taxation Office (ATO) has identified quantity surveyors as properly qualified to make the appropriate estimate of the construction costs, where those costs are unknown.

Qualified Quantity Surveyors

Based on this ruling, this means accountants can offer advice around other aspects of tax depreciation. But construction costs and property depreciation are highly Depreciation Calculatortechnical domains and must be calculated or estimated by qualified quantity surveyors in order for the report to be legally acceptable.

In nearly all cases, you will gain a larger benefit using a quantity surveyor to prepare your depreciation schedule. This is simple due to the fact that the quantity surveyor will physically visit the property. This can only be of benefit to you, the property investor, as the quantity surveyor will discover items that can only be seen from a visit to the property, and could have otherwise been missed and left out of the report.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

Looking Into The Future of Depreciation

What does the future of depreciation look like?

*UPDATE – Read about the Budget changes here*.

Often I’m asked by investors who are about to purchase an investment property “what should I look for in order to maximise my future depreciation claim?”

People seem surprised when I respond by saying whilst depreciation is an important part of the property investment equation, I recommend that it should not be part of your initial decision-making process.

future of depreciation

Prospective investors should first be asking questions like:

Where will I get the most capital growth? What’s the yield of the property? What’s the population growth of the suburb?

Once you’re satisfied on these fronts, THEN consider how to make depreciation work for you.

Here are four things to consider to increase the return on your investment property for the future:

  1. Carpet and floating floors will depreciate at a greater rate than, say, a tiled floor which is only depreciable at 2.5% per annum.
  2. Blinds and light fittings are highly depreciable and can often be written off immediately.
  3. Split-system air conditioning systems provide higher depreciation compared to ducted ones. As the ducting itself is part of the building and only claimable at 2.5% per annum.
  4. If built after 1987, can claim the building allowance component significantly increasing your claim. Depreciation Quote Schedule

Why do I need a Quantity Surveyor?

quantity surveyorYes, builders are good at building. However, that doesn’t necessarily make them good at maximising the depreciation allowances you, the
developer or investor, are entitled to.

That’s why if you have contracted a builder to construct your investment property, it definitely pays to have a quantity surveyor prepare a depreciation report for you.

In my two decades of being a quantity surveyor, I’ve never seen a builder’s depreciation schedule that I could not improve upon and thus, significantly increase the claim for the investor.

Some of the common mistakes I see in builder-prepared depreciation schedules are:

The last mistake is by far the worst, as this can cost you considerably.

(NOTE: Deductions for these plant and equipment items may only apply if you bought the property prior to May 9, 2017 – Read about the Budget changes here).

Let me give you an example;

Depreciation Quote ScheduleYou see, when a builder buys an oven for $800, that’s not what you pay for it. By the time the investor pays for this item, a range of other fees would have been included,
such as the architect’s design, transportation, installation and supervision. Next thing you know the real cost of this oven to you is $1,100, and it’s the real cost we’re after, not what the builder paid.

Now, that extra $300 on the oven depreciates at 20% per annum, rather than at the 2.5% building allowance rate. This means you can claim the depreciation much faster.

So at the end of the day, let builders build and let quantity surveyors save you money.

Work out how much you save using our free property depreciation calculator or make it happen and get a free quote for a depreciation schedule now.

This blog is an extract from CLAIM IT! – grab your copy now!

What a load of Scrap!

Whenever I am delivering a presentation or conducting a webinar, I always make sure to leave time for a 30 min Q&A session at the end.

In most Q&A sessions, the topic that by-far receives the most queries has to do with the concept of “scrapping” in relation to property tax depreciation.

Claiming the Residual Value on items that are about to removed can significantly increase your tax depreciation deductions. The problem is that many investors who renovate miss out on this due to a lack of awareness.

It’s important to understand the basics of property depreciation before diving into the subject of scrapping so, let’s have a quick re-cap into what property depreciation is all about.

What is Property Depreciation?

Just like you claim wear and tear on a car purchased for income producing purposes, you can also claim the depreciation of your investment property against your taxable income. Depreciation Calculator

There are two types of depreciation allowances available: depreciation on Plant and Equipment Assets and the Capital Works deductions.

Whilst both of these costs can be offset against your assessable income, the property must be used for income-generating purposes. It is also important to note that to be eligible to claim on the Capital Works component, a residential property needs to have been built after the 18th of July 1985.

So what is scrapping and why is it a hot topic for property investors?

Put simply, scrapping is the ability to claim deductions on items within your investment property that you are about to throw away.

Engaging a qualified Quantity Surveying firm will ensure that you do not miss out on claiming any eligible residual value of these items as a depreciation deduction. This value can be claimed immediately in whole, once the items have been removed.

The reason it’s such a hot topic is due to the fact that these deductions can often add up to thousands of dollars.

There is one major caveat though. In order to claim the residual value on these items, your rental property must be producing an assessable income prior to the disposal.

There is no clear guideline on how long the property needs to be rented out for though, just that is was producing an assessable income.

scrapping schedule

There are two ways we can assess the scrapping allowances of an investment property.

Option 1 – Only depreciable assets can be scrapped

(This means the building was built before 1985 and no residual capital works deductions are available)

For Division 40 depreciable assets, if a taxpayer ceases to hold a depreciating asset (sold or destroyed) or ceases to use a depreciating asset (doesn’t need it anymore) a “balancing adjustment” will occur.

You work out the balancing adjustment amount by comparing the asset’s termination value (sales proceeds) and its adjustable value.

If the termination value is greater, you include the excess in your assessable income but if the termination value is less, you deduct the difference.

These deductions can add up quickly. Even if only in relation to depreciable assets.

Let’s crunch some numbers:

Joan Smith settles on a property for $650,000 on Oct 15 2015, the property had a long term tenant in place, who had agreed to stay for another 6 months. The property was 19.5 years old when she settled on it. Depreciation Quote Schedule

Washington Brown inspected the property on Oct 15 2015 and assigned the following values to the depreciable assets listed

below:

Oven $  625, Carpets $ 1536, Blinds $  885, Range Hood $  475 & Dishwasher $  558

Joan decides, voluntarily, to upgrade the apartment so that she can attract a higher quality tenant. At the end of the lease, when the tenant moved out, Joan replaced the items above.

Joan can claim the full depreciable amount of $4079 in her 2015/2016 tax return for these items that she is removing.

In addition, Joan has spent $8,555 replacing the items above, she can now start to claim these new items based upon their individual depreciation rate.

Option 2 – Depreciable Assets and & Capital Works deduction can be scrapped.

If you start moving walls or replacing kitchens in buildings built after 1987: your claim has the potential to be huge!

And let’s face it, it’s not that unusual to want to update a 20 year old kitchen.

Now let’s crunch the numbers on a situation where Joan renovated the kitchen and bathroom as well:

Capital Work item Cost in  1995 Residual Value in 2015
Kitchen Cupboards $7,750 $3,875
Kitchen Benchtop $2,500 $1,250
Plumbing Bathroom & Kitchen $6,375 $3,188
Electrical Bathroom & Kitchen $4,750 $2,375
Tiling Kitchen & Bathroom $8,750 $4,375
Ceilings $850 $425
Render $655 $328

The items above have been depreciated at 2.5% per annum for 20 years. That equates to 50% left of the value that can be claimed as an immediate deduction when removed in 2016.

That’s the tidy sum of $15,816.00 as an immediate tax depreciation deduction!

One thing that needs to be considered when calculating the amount of deductions available, is whether you or another person was not allowed a deduction for capital works.

“It’s complicated” but here the method statement from the Income Tax Assessment ACT:

The amount of the balancing deduction

Method statement

Step 1.    Calculate the amount (if any) by which the * undeducted construction expenditure for the part of * your area that was destroyed exceeds the amounts you have received or have a right to receive for the destruction of that part.

Step 2.    Reduce the amount at Step 1 if one or more of these happened to that part of * your area:

           (a) Step 2 or 4 in section 43- 210, or Step 2 or 3 in section 43- 215, applied to you or another person for it;

          (b) you were, or another person was, not allowed a deduction for it under this Division;

           (c) a deduction for it was not allowed or was reduced (for you or another person) under former Division 10C or 10D of Part III of the Income Tax Assessment Act 1936 .

          The reduction under this step must be reasonable.”

So in simple terms, you need to take into account any periods where Capital Works deductions could not be claimed and reduce that amount from any residual value left.

The last line is interesting, “The reduction under this step must be reasonable”.

 

I say interesting, because there are so many variables and not a lot of rulings to go by. But in my opinions here are some reasonable examples:

 

  1. It would be reasonable to assume that if you purchased an industrial or commercial property, Capital Works deductions were available the whole time. So no allowance for non use would be required.
  2. It would be reasonable to assume that if you purchased a serviced apartment, Capital Works deductions were available the whole time. So no allowance for non use would be required.
  3. It would be reasonable to assume that if you purchased a unit in a ski resort, it was used, perhaps, for 2 weeks of the year for private use by the previous owner and you would need to factor that in.
  4. It would be reasonable to assume that if you purchased a holiday house, in area where holiday lettings are common and that you saw the property listed on AIRBNB prior to your purchase and the holiday period was blocked out – then you should factor 2 weeks of private use per year into the equation.
  5. Now the tricky one, you buy an average unit with a tenant in place. Who knows, it may have changed 5 times since it was new. I think it would be unreasonable for you to have to find out the full history of the unit. Privacy laws are very strict now, particularly in Victoria. So in that case, I would personally assume it was an investment property the whole time – but that’s me!!

One final thing you need to factor in, just to make life more complicated, is whether any amounts were received by way of insurance.

The termination value or residual value needs to include the amount received under an insurance policy.

So, if it is insured, there is often nothing to deduct when the asset is lost or destroyed.

As you have probably gathered by now, claiming the residual value on depreciating assets and capital works deductions “is complicated”.

 

I would recommend speaking with your accountant or financial advisor prior to engaging a Quantity Surveyor to carry out a scrapping schedule. If you are going to proceed with this type of report, it is advantageous to have the quantity surveyor visit the property prior to you starting renovations.

6 Reasons Why Negative Gearing Stinks

Dear Fellow Investors,

negative gearing

Cuts to Negative Gearing Stink

I get it. I get what Bill Shorten and the Labor Party are trying to achieve by cutting negative gearing…but it stinks for 6 reasons.

First, for those of you who might not know…Labor proposes to:

  1. Eliminate negative gearing to all residential investment properties other than new housing from the 1st of July 2017.
  2. Stop investors from claiming losses on secondhand properties against their wage income after that date.
  3. All investment properties purchased prior to this date will be “grandfathered” (meaning any current tax arrangement with your investment property will remain).
  4. Reduce the capital gains discount on all investment properties from 50% to 25%.

Stinky Reason #1 – How much will the budget be improved?

The latest data from the ATO shows that in the year 2012/13 property investors “negatively geared” or reduced their taxable income by approx $5.5 Bn. That’s $5.5Bn that the Government could have taxed (not necessarily collected).

Firstly, this data, the most recent available, was based upon a period when the RBA cash rate was higher than it is now.

Interest rates on borrowing have dropped since that time – meaning the losses investors can now claim will be reduced.

Back then, the outstanding rate of interest was close to 5.5%. It’s now close to 4.5%. That’s a drop of 18.2%.

I can currently get a 5-year fixed rate of 4.59% from NAB and there are many others

If you reduce the amount investors have claimed in interest by 18% – there goes those negative gearing losses even allowing for CPI increases of other deductibles.

In order to get Labor’s forecast of $32Bn in savings over 10 years, Treasury must have predicted some significant increase in interest rates from years 6-10 right?

But let’s face it….Treasury can get it wrong – remember its forecast for iron ore prices? It was totally optimistic.

Stinky Reason #2 – Negatively Gearing new property only is risky business…

“Roll Up Roll Up”…I can hear the spruiker cry…

By allowing only new properties to be negatively geared….you are creating a “green light” situation for every spruiker to come out of hiding and promote new property to unsuspecting mum and dad investors.

Depreciation Calculator

Selling new property is far less regulated and commissions are rife. Time and time again I get offers to sell property to my database and receive a 10% commission on the purchase price. But I don’t.

Whilst I’d love the 10% my father lost all his super from the dodgy side of the property market and the last thing I’d want is for someone else to go through that experience.

Tip – Have you noticed spuikers generally only sell new property?

That said, not all people selling new stock are bad – currently most are good…but this type of policy might attract less scrupulous spruikers after a quick buck or two.

Stinky Reason #3 – The Reverse effect

I get it – Labor’s policy aims to increase home affordability particularly for first home buyers.

Yes. Australia is expensive on the world stage – BUT could stopping negative gearing actually inflate prices?

How? Well the first thing I thought when the policy was released was “no point selling any properties I currently negatively gear – I’m hanging on!”

According to those ABS stats I previously mentioned – there’s close to 3 Million properties that might not be sold if everyone thinks like me!

Now, I’m no Warren Buffet but I do remember one thing from economics…price is a factor of supply and demand and if you take away the supply….prices tend to head north.

Stinky Reason #4 – The elephant in the room

This stinky reason is a surprising one, and in all my research I haven’t seen any mention of it.

Whilst the Government may, in the long term, claw back some revenue if this policy is implemented, if property transactions decline, the States are going to be significantly impacted by way of stamp duty collection.

If investors hold onto stock…the building industry won’t be able to magically increase supply to make up the difference.

And if you have far less transactions, you have far less real estate agents, conveyancers, buyers agents, brokers etc paying income tax.

Stinky Reason #5 – Slippery Slope

Labor has also proposes to cut negative gearing on new share investments. This leads to a whole bunch of questions such as:

  1. By shares are we talking listed only or unlisted?
  2. How are super funds treated? Family trusts?

And back to property…

  1. What if I buy a commercial or industrial building? If bought in my own name it appears I can still negatively gear it. However, if that same building is part of a listed trust, then I guess I can’t. Please explain??
  2. Is “property” treated as land + building and plant and equipment separated? Because that’s how the CGT calculation is calculated.

I could go on…

Stinky Reason #6 – The Renovators

“New property” is not all about starting from scratch.

Depreciation Quote Schedule

Don’t underestimate the amount of people who like buying and upgrading property. This has a multiplier effect in that money is being injected back into the economy through the employment of trades and the purchasing of goods and services etc.

Final Point:

Now I’m not going buy into the debate over whether negative gearing is for the “rich” or for the working class. I would’ve thought it was pretty obvious that those with higher incomes benefit more from negative gearing.

And I don’t buy the argument, from the Real Estate Institute of NSW, that rents will suddenly go up because negative gearing is taken away. Rent is a factor of supply and demand – not what it costs an individual to hold a property.

What I worry about is the risk/reward ratio. I think at this point of the economic cycle (China’s downturn, mining slump, drop in commodity prices and a property boom in most major capital cities around the world)… this policy is potentially playing with fire for very little reward.

I agree there are certain elements that need to be fixed to make the system fairer and here’s my thoughts on that.

Regards

Tyron Hyde
CEO AAIQS

PS – If you think I’m writing this article as a staunch Liberal Voter…you are wrong. I was brought up to vote Labor. In fact, my father ran for the seat of Lowe in 1975 against Billy McMahon! I’m currently politically agnostic (my father would be turning in his grave) – but times have changed!