NEGATIVE GEARING

ngThere has been talk for many years about limiting negative gearing.  Paul Keating tried it in 1985 and repealed it two years later and, to be fair, what he proposed was not too onerous.  His idea was that net losses from a property could not be deducted from the owner’s tax return in the year of those losses but had to be quarantined – they could then to be used to offset future net profits from that property, or to reduce capital gains tax if the property never made a cash profit.

But in any event, in these days of low interest rates, negative gearing doesn’t save much tax.  Most properties should produce at least 4% per annum net income, and there are loans available with an interest rate of 5%.  If you borrowed for a portfolio of shares paying franked dividends, and the yield from the portfolio was 5% plus franking, the cash flow would be positive from day one.

It might make good press, but it’s not going to happen.

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