freediver
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www.ozpolitic.com
Posts: 47066
At my desk.
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Does anyone else think this is a bit silly?
If you own your own home and want to purchase another and hold onto the current one as an investment, you will not be able to claim any of the interest you pay on loans as a tax deduction, but you will have to pay tax on any income generated by the old property (rental income and capital gains). The extra loan required is a real cost of holding onto the property as an investment, but the ATO does not recognise this.
If you were to sell the old property then buy it back for the same price, or buy an identical property, you can claim the interest on a loan equal to 100% of the property value as a tax deduction. Of course this incurs two sets of stamp duty and a heap of agents fees and legal fees.
You can also sell it to a trust owned by you, or if ownership is between two people, one buys the other out, but you do not recieve the same benefit as if you sold it and bought it back, but there are still a lot of costs involved.
I think that this policy increases house prices. It basically forces people to sell the old property, as the high taxes make it a really bad investment. Once forced to sell, many people would probably decide to 'move up the property ladder' and buy a more expensive property rather than a second investment property or some other type of investment. This is partly because all of the capital gains and other benefits (ie no rent) on the house they move into are tax free, and also because of the stress and costs involved in making yet another purchase. The policy encourages people to overcapitalise and invest a lot of money on capital improvements on a small block, meaning that most of the block is taken up by the house and pool etc, with little space left over.
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