Beware of unintended negative gearing consequences
There will almost inevitably be unintended consequences flowing from any changes to the negative gearing regime, according to leading tax agency business H&R Block.
The company's director of Tax Communication, Mark Chapman warned that any changes risked impacting both the wealthy and lower income earners across Australia.
In doing so, Chapman pointed to Australian Tax Office (ATO) figures showing that 72 per cent of investors with negatively geared properties earned $80,000 or less (2011-12 figures) and suggested the removal of negative gearing stood to impact many middle income families, who may be forced to sell their property as they see their tax bills rise.
Looking at the proposals being discussed by both major parties he said Labor had talked about removing negative gearing for all but new properties (and also grandfathering current arrangements, so taxpayers currently negatively geared would not be affected) but noted there was also talk that the Liberals are looking at negative gearing as part of their tax reform process, with a particular focus on those with multiple negatively geared properties, which might involve restricting negative gearing to a set number of properties or capping deductions at a set proportion of taxable income.
"What is certain is that whatever approach is taken, there will be unintended consequences, not just in terms of the impact on the property and rental markets but in terms of administering whatever new rules are introduced," Chapman said.
"The potential for taxpayers to work around the rules is very real. That will increase the pressure on government to seek to block any potential loopholes with complex law, which will be difficult for ordinary taxpayers to follow and will increase compliance costs — not exactly a good look when the government and the ATO are pushing to cut red tape and reduce compliance costs", he added.
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