A Controversial Issue On The Australian Government And Reserve Bank

1893 Words Oct 4th, 2015 8 Pages
Negative gearing is a controversial issue and has been a hotly contested debate amongst the Australian government and Reserve Bank. In my opinion, negative gearing should neither be abolished nor stay the same. Instead, we need a tax reform of this policy. In doing so, there should be a limit as to how much loss a taxpayer can deduct from his negatively geared investment property. This limit should be no larger than one’s assessable income. This way, bias towards investments producing capital gains over income would be reduced. In addition, this deduction should be offset against a taxpayer’s rental instead of assessable income.

Concept of negative gearing and relevant income tax provisions
Negative gearing arises when an asset is purchased using borrowed funds and income generated from that asset is less than the other costs involved in maintaining the asset and interest expense; reflecting a net loss position. This net loss can be offset against one’s assessable income which under s6-1(1) of ITAA97 includes ordinary and statutory income. If the deduction is large enough, it can take the taxpayer’s marginal tax rate to the next lower bracket. Thus, reducing their tax liability. However, if deductions are greater than assessable income, that net value may be brought forward to the following tax year. There is no limit as to how much recognised losses can be deducted hence encouraging investment as losses recognised at an individual’s current marginal tax rate would…

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