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Should wealthy property investors be excluded from negative gearing tax deductions?

09 October 2018

Should wealthy property investors be excluded from making big tax deductions under negative gearing laws?

A report earlier this year by the Australian Housing and Urban Research Institute (AHURI) says $1.7 billion could be saved if negative gearing tax laws were changed.

The AHURI modelling proposes that lower income investors in the bottom half of incomes would continue to receive the full rental reduction while those in the top 25 per cent would lose out on reductions altogether.

Those with incomes in the remaining 51st – 75thpercentile would have their rental deductions under negatives gearing cut to 50 per cent.

Professor Alan Duncan from the Bankwest Curtin Economics Centre told the ABC he didn’t believe drastic negative gearing reform would have any unintended side effects.

“Our modelling suggests that a progressive rental deduction for investors cushions less wealthy ‘mum and dad’ investors from significant drops in tax savings, and may be an appropriate policy option,” he said.

The report also highlighted capital gains tax as being in the favour of the wealthy and report co-author Professor Rachel Ong ViforJ, also from Curtin, said reducing the capital gains tax discounts would mean high income investors would pay more tax and it would be a lower proportion of their take home income.

“The reform would be progressive in nature, reducing negative gearing tax savings by greater margins as tax assessable income increases,” she told the ABC.

“Any CGT policy reform will need to be carefully communicated to avoid a misconception that the changes will have a proportionate impact on rental investors’ net incomes.”

The Federal Government continues to dismiss negative gearing overhaul proposals but that may change based on the outcome of next year’s federal election.

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