NEGATIVE gearing by rental investors has become Australia's biggest tax break, with landlords claiming $12.75 billion of net losses in 2007-08 to reduce their tax.
Tax Office figures show a record 1.2 million investors claimed they spent more money on their rental properties than they earned in 2007-08. One in every 10 taxpayers is now a negatively geared property investor.
On average, they claimed losses of $10,640 each or $26,500 for those earning more than $250,000 a year. These reduce their taxable income, and hence tax paid.
By the time final figures are in, the cost to revenue is likely to be about $5 billion. That means, in effect, this tax break paid landlords 4 per cent of all income tax collected.
Since tax breaks on negative gearing were restored in 1987 by the Hawke-Keating government, investors' share of finance to buy existing homes has soared from 8 per cent to 40 per cent. The number of landlords has more than trebled from 538,000 to 1.73 million, with many owning two or more homes.
The huge growth in demand from investors has been one of the main factors driving up Australia's house prices. Since 1987, house prices have soared by 433 per cent while household incomes rose 195 per cent putting home ownership out of reach for many younger or lower income people.
Unlike those buying their own home, investors can use their mortgage bills to reduce the tax they pay on other income. In 2007-08, they told the Tax Office they spent almost as much paying the interest on their investment loans as they earned in rent. Rental income was $24.1 billion, mortgage bills $20.2 billion.
Treasurer Wayne Swan yesterday rebuffed calls for the government to limit negative gearing so more people can buy their own homes. "If you go back and look at my comments over the years, I have not been a critic of negative gearing."
He said he could not comment on issues relating to the Henry report on tax reform, now before cabinet. Its main author, Treasury secretary Ken Henry, said last year the negative gearing tax break meant the tax system was subsidising landlords, and the report would "have something to say" about it.
Labor restored the tax breaks in 1987, saying their removal had hurt rental investment and driven up rents. But Bureau of Statistics figures showed no impact on rents, and investment in new dwellings for rental is far lower now than in 1987.
Rising deductions for mortgage bills in 2007-08 saw negative gearing overtake dividend imputation as the biggest tax break for individual taxpayers.
The most widespread tax break of the top five is using your car for work. In 2007-08 2.77 million taxpayers claimed total deductions of $6.48 billion for using their car on the job.
TAX WHAT WE CLAIMED 10 biggest tax deductions/credits/losses
1 Negative gearing 1.20 12.75
2 Dividend imputation 3.48 11.38
3 Net capital losses* 0.62 9.37
4 Super contributions 0.23 7.39
5 Work-related cars 2.77 6.48
6 Interest/dividends 0.94 4.04
Low income tax offset 6.87 3.71
8 Partnership/trust dedns 0.48 2.99
9 Donations/gifts 4.48 2.35
10 Tax advice 5.57 1.68
FIGURES QUOTED FROM 2007-08 FINANCIAL YEAR
* NET CAPITAL LOSSES CARRIED FORWARD SOURCE: AUSTRALIAN TAX OFFICE
