Negative gearing arises when you borrow money to buy an asset, but the income you receive from that asset is insufficient to cover the total expenses related to it.
For example, you borrow money to buy shares, and dividend income you receive from your shares is less than the interest you have to pay on your loan.
Or you borrow money to buy an investment property, and the rent you receive is less than the interest and other expenses you have to pay (including agent fees, repairs and maintenance costs, council rates).
The income tax system allows you to offset these losses against other taxable personal income, such as wages.
Negative gearing applies to all forms of investment, not just property investment.
The ability to claim deductions for expenses you incur in earning income is part of Australia’s mainstream tax system.
It has been in place for as long as we have had a federal income tax system – over 100 years.
Ordinary Australians use negative gearing to save for their future.
Around 2 million Australians own an investment property.
Of these, 1.2 million negatively gear their investment property.
Over 770,000 Australians with taxable incomes below $80,000 a year negatively gear investment properties.
This includes 89,800 clerical workers, 48,900 teachers, 33,700 nurses and widwives, and 9,100 emergency services workers.
The average net rental loss claimed is $8,700 per year.
72.8% of investors own only one investment property, while an additional 18% own two properties.
No, negative gearing has been around for 100 years and can’t be blamed for last week’s auction results.
The rise in house prices is due to decades of chronic undersupply of new housing construction, which is caused by excessive red tape in the planning system, a lack of land releases and high property taxes such as stamp duty.
Yes, housing construction relies on a strong investor market. Around one-third of new housing sales are to investors.
While it is true that most property investment is in existing dwellings, that’s because new housing represents only a small part of Australia’s housing stock at any one time.
Property is the nation’s largest industry and one of the few parts of the economy delivering economic growth.
Property accounts for 11.5 percent of our national wealth and creates jobs for 1.1 million Australians – more than mining and manufacturing combined.
Changes to negative gearing puts all this at risk.