Given it is budget time negative gearing is in the news with some advocating it should be abolished for investing in property.
I beg to differ but first what is negative gearing? ( I should note most people from overseas need to told what it is as it seems very much an Aussie thing to do.)
It is THIS. Note however this is only for Australia. This is what Wikipedia says generally HERE.
So a person borrows money and pays out more in interest than they get for their return on the asset. Brilliant financial strategy. How many companies have adopted this? None!
Negative gearing changed a lot when the taxing of capital gains changed which has induced a lot of wealthy people to invest in property to reduce tax as SAUL ESLAKE outline in a very interesting speech.
Abolishing negative gearing on property makes little sense. why only on this asset class? Why not shares?
Way back in 20003 the RBA thought a good examination of depreciation in relation to property investments was worth a good look rather than the cutting back of negative gearing. I concur.
I do wonder why one can claim interest borrowing can be claimed against ordinary income and not just capital income.
Yeah yeah I should have added it is more likely an investor negatively geared will be looking at capital price increases rather than yield so lookout if prices level off let alone fall!