Reforming negative gearing can save the Australian Government more than $1.7 billion each year without hurting \u2018mum and dad\u2019 investors, AHURI research released today finds.<\/p>\n
The research, The income tax treatment of housing assets: an assessment of proposed reform arrangements, also reveals that the typical negatively geared investor is a middle-aged male, employed full-time with an average taxable income of $80,000 after deducting rental expenses.<\/p>\n
The report was commissioned by the Australian Housing and Urban Research Institute and conducted by researchers from Curtin University and Griffith University. The report models reforms to negative gearing and capital gains tax (CGT) that are likely to reduce the impact on \u2018mum and dad\u2019 investors.<\/p>\n
Report author Professor Alan Duncan, from the Bankwest Curtin Economics Centre at Curtin University, said the research sought to explore an approach to reform that has the least impact on investors with the lowest incomes.<\/p>\n
\u201cCurrent negative gearing policies are heavily skewed towards high income earners, raising concerns about the extent to which these policies exacerbate income and wealth inequality in Australia,\u201d Professor Duncan said.<\/p>\n
\u201cThere is concern among policymakers that reforms to negative gearing may have adverse impacts on \u2018mum and dad\u2019 investors.<\/p>\n
\u201cOur modelling suggests that a progressive rental deduction for investors cushions less wealthy \u2018mum and dad\u2019 investors from significant drops in tax savings, and may be an appropriate policy option,\u201d Professor Duncan said.<\/p>\n
The reform model proposes that investors in the bottom 50 per cent of the income distribution continue to receive a 100 per cent rental deduction; those in the 51st\u201375th percentiles receive a lower 50 per cent rental deduction, and those in the 76th\u2013100th percentiles (representing \u2018sophisticated\u2019 investors) receive zero rental deductions.<\/p>\n
Professor Duncan said such a reform would save Government more than $1.7 billion from the annual $3.04 billion cost of negative gearing deductions each year \u2013 a 57.3 per cent saving.<\/p>\n
The research also identified that CGT discounts are heavily weighted towards those who are\u00a0more affluent. These investors, on average, own a property portfolio worth more than $730,000\u00a0and have a tax assessable income of $82,000, compared to $31,000 for renters who do not own
\nany properties.<\/p>\n
Report co-author Professor Rachel Ong ViforJ from the School of Economics, Finance and Property at\u00a0Curtin University said modelling shows that reducing CGT exemptions means high income\u00a0investors will pay more tax than lower income investors, but the tax amount will represent a\u00a0lower proportion of their take home income.<\/p>\n
\u201cThe reform would be progressive in nature, reducing negative gearing tax savings by greater\u00a0margins as tax assessable income increases,\u201d Professor Ong ViforJ said.<\/p>\n
\u201cIt remains that any CGT policy reform will need to be carefully communicated to avoid a\u00a0misconception that the changes will have a proportionate impact on rental investors\u2019 net\u00a0incomes,\u201d Professor Ong ViforJ said.<\/p>\n
Key findings of the report include:<\/p>\n
\u2022 Negative gearing and capital gains tax (CGT) discount benefits are currently heavily
\nskewed towards those who are more affluent, with higher incomes and greater property
\nportfolios.
\n\u2022 Reforming rental deductions could provide greater tax concessions to \u2018mum and dad\u2019
\ninvestors and reduce the generous concessions that \u2018sophisticated\u2019 investors on higher
\nincome currently receive.
\n\u2022 A reduction in the CGT discount also has the potential to reduce inequality, as higher
\nincome earners will pay more tax, however this equates to a smaller percentage of their
\noverall income than lower income investors.
\n\u2022 CGT reform could be gradual, to soften the impact by providing a transition pathway that
\nraises after-tax costs incrementally.<\/p>\n
The typical investor<\/p>\n
\u2022 On average, a home-owner investor can own a property portfolio worth more than
\n$730,000. Home-owner investors\u2019 average tax assessable income is $82,000 compared to
\n$31,000 among renters who do not own any properties.
\n\u2022 The typical negatively geared investor is male, aged in his mid-to-late forties, and employed
\nfull-time and has an average pre-tax income of $91,000.
\n\u2022 On the other hand, positively geared investors tend to be evenly split between males and
\nfemales and more likely to be older and retired.<\/p>\n