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tax policy and house prices (Read 835 times)
freediver
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tax policy and house prices
Oct 4th, 2009 at 9:51pm
 
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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Calanen
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Re: tax policy and house prices
Reply #1 - Oct 4th, 2009 at 11:50pm
 
People who own more than one house, can look after themselves.

Suck it up Mr Landlord and pay your taxes.
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Re: tax policy and house prices
Reply #2 - Oct 5th, 2009 at 8:04am
 

the ability to offset the loss of a rental property against income from another source is unique and boosts home prices inequitably
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freediver
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Re: tax policy and house prices
Reply #3 - Oct 9th, 2009 at 8:39pm
 
Calanen wrote on Oct 4th, 2009 at 11:50pm:
People who own more than one house, can look after themselves.

Suck it up Mr Landlord and pay your taxes.


The problem is not with owning two houses. You can own two houses quite easily and get the full tax deduction. The problem is the apparent arbitrariness of the taxation - that selling something and buying it back for the exact same price can reduce your tax bill by an enourmous amount. The ATO usually has a general policy of ignoring any transactions made for the sole purpose of reducing tax - ie pretending they did not happen and taxing you the higher amount regardless. Yet here we have the exact opposite policy. It is obviously going to skew the market. The ATO taxes one form of investment to an entirely different extent from a slightly different form of investment.

Furthermore you appear to be assuming that this only harms the wealthy. It does not. In fact, the people it harms the most are those who cannot afford a house because of it. Class politics does no-one any good.

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the ability to offset the loss of a rental property against income from another source is unique


No it isn't. It's the same with shares for example.
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Sprintcyclist
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Re: tax policy and house prices
Reply #4 - Oct 9th, 2009 at 10:57pm
 

imho, share investing is seen as a business and taxed as such.

share losses do not come off another income, they are held as a tax credit against future share profits.

buying and selling shares is treated as a "local cornor store business"
shares I buy are like stock I'ld buy for the local shop from a wholesale supplier.
shares i sell are like the same goods I sell from the store to customers.

if i sell for more than I buy, i have made a profit.
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freediver
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Re: tax policy and house prices
Reply #5 - Oct 10th, 2009 at 6:51pm
 
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share losses do not come off another income


The advice I got says they dio - at least, the interest you pay on loans to invest do.

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they are held as a tax credit against future share profits


As far as I know, that applies if you do it via a trust. Perhaps some losses are quarantined this way.
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Sprintcyclist
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Re: tax policy and house prices
Reply #6 - Oct 10th, 2009 at 7:45pm
 
according to my tax agent, what i said goes.

interest repayments come off the dividends, not other income streams
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freediver
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Re: tax policy and house prices
Reply #7 - Oct 10th, 2009 at 9:28pm
 
How about we put your tax agent and my tax agent in the ring and let them sort it out there?

Can you clarify that if the dividends are less than the interest you pay, you cannot deduct the remainder from your income? Maybe he was just trying to simplify the situation on the assumption that you would be making a profit off the shares each year.
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Re: tax policy and house prices
Reply #8 - Dec 6th, 2009 at 4:46pm
 
freediver wrote on Oct 9th, 2009 at 8:39pm:
Calanen wrote on Oct 4th, 2009 at 11:50pm:
People who own more than one house, can look after themselves.

Suck it up Mr Landlord and pay your taxes.


The problem is not with owning two houses. You can own two houses quite easily and get the full tax deduction. The problem is the apparent arbitrariness of the taxation - that selling something and buying it back for the exact same price can reduce your tax bill by an enourmous amount. The ATO usually has a general policy of ignoring any transactions made for the sole purpose of reducing tax - ie pretending they did not happen and taxing you the higher amount regardless. Yet here we have the exact opposite policy. It is obviously going to skew the market. The ATO taxes one form of investment to an entirely different extent from a slightly different form of investment.

Furthermore you appear to be assuming that this only harms the wealthy. It does not. In fact, the people it harms the most are those who cannot afford a house because of it. Class politics does no-one any good.

Quote:
the ability to offset the loss of a rental property against income from another source is unique


No it isn't. It's the same with shares for example.



This may seem a frivolous post, probably because it is but I need to say that I did not understand the original post that started this topic but the post above that clarifies what the OP meant clears it all up for me.  So yes it is a bit silly.
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