Government didn’t have the “ticker” to abolish negative gearing in budget: Scott Pape

By Larry Schlesinger
Thursday, 16 May 2013

'Barefoot' investment adviser Scott Pape has slammed the government for not having the “ticker” to remove negative gearing in his latest newsletter following the federal budget announcement.

“Our 1.25 million loss making landlords cost taxpayers $5 billion a year - a significant saving when the budget is in deficit of $18 billion,” writes Pape.

“And all it achieves is to make it harder for young people to compete to buy their first family home.

“Sadly, the government didn't have the ticker to abolish it this year."

Pape bills himself as "Australia’s favourite money guy", but his views on negative gearing won’t be popular among the 1.2 million property investors who claimed losses on their investment properties for the 2010-11 tax year.

The recently published ATO annual reportrevealed that around two-thirds of 1,811,174 property investors - 1,213,597 taxpayers – claimed losses on their investment properties for the 2010-11 tax year up from 1,110,290 who claimed losses in the 2009-10 tax year.

The average loss recorded for negatively-geared property investors was $10,947 in 2010-11, up from $9,132 in 2009-10.

The highest proportion of tax payers claiming rental deductions are those earning between $37,000 and $80,000 per year, making up more than a third of all negatively-geared property investors.

Pape has long been a critic of negative gearing calling for its banning on talk back radio in 2011 and telling a negatively-geared listener that “negative gearing is really just a socially acceptable way of saying ‘I’m losing money’”.

Pape has labelled it a “dud policy” despite admitting to having been a “big beneficiary of negative gearing over the years”.

“Contrary to real estate rhetoric, it does little to increase the supply of new homes, since the majority of investors buy established properties. What’s more, it costs the Australian taxpayer billions of dollars in forgone revenue,” he says.

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Checks on tax deductions add up to make sense

Date

May 11, 2013

• 12reading now

Chris Tolhurst

Now's the time to ensure that you don't miss out claiming your full entitlements.

There's less than two months to go until the end of the financial year, so investors need to be on the lookout for additional tax deductions. Take the time now to review your property depreciation allowances, maintenance costs and other expenses.

According to quantity surveyors who prepare depreciation reports, about 20 per cent of Australian investors claim for less depreciation than they're entitled to or don't claim for depreciation at all. This can mean missing out on deductions worth many thousands of dollars. To avoid such costly errors, focus on these key tax areas:

Smart gearing

Few investors miss a trick when it comes to using negative gearing. But offsetting losses from an investment property against your salary to generate a tax deduction should never be the be-all and end-all of your investing approach.

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The percentage you can claim back is based on your marginal tax rate, so the lower your income the less effective negative gearing will be for you. The biggest beneficiaries of negative gearing are the 251,400 Australians who earned $180,000 or more in 2010-11, according to the latest statistics from the Australian Taxation Office. They're able to gear properties at the top marginal tax rate (45¢ in the dollar) but, not surprisingly, account for just 2.7 per cent of all Australian taxpayers.

Wear and tear

Getting the full tax deduction for wear and tear is vital. The most valuable property losses are those you can generate at no cost, and being able to claim for the decline in the value of a building and for wear and tear fits squarely into this category.

If an investment unit or house was constructed after July 1985, the Tax Office lets you claim a capital works allowance to depreciate the roofs, walls and ceilings. For buildings built before July 1985, plant and equipment (carpets, lights, ceiling fans, new bathrooms etc) in all residential dwellings can be depreciated over their effective lives.

Paperwork

Investors often have the potential to write off depreciation against taxable income but haven't been given the necessary paperwork on depreciation allowances by the previous owner of a property. In other cases, building developers will provide less-than-accurate depreciation reports to potential buyers to assist with the sale.

These reports can be incomplete and include ''guesses'' about values that may be wide of the mark. It's well worth having them che...

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LJ Hooker looks to sell more property to Chinese buyers with three-year marketing deal with international property listings portal Juwai.com

By Larry Schlesinger
Monday, 13 May 2013

Amid expectations of a surge in Chinese buyers of Australian and New Zealand property, LJ Hooker has signed a new three-year strategic partnership with Chinese property listings portal Juwai.com.

A previous 12-month agreement was signed in July last year and has been successful to date with 30% of calls from estate agents to the LJ Hooker head office about wanting a closer relationship with Juwai.com.

Juwai’s two co-CEOs will attend LJ Hooker’s annual conference in Queensland this week to explain how LJ Hooker franchisees can attract as many Chinese buyers as possible to their listings.

Juwai.com bills itself as the top-ranked international property portal for the world’s Chinese-language population.

The new agreement follows Juwai.com recording a 61% rise in Australian residential property searchessince the start of the year with property viewings up 162% over the same period.

Chinese buyers spent over $4.2 billion on Australian property in 2011 compared with $1.1 billion spent in 2009, earning Australian estate agents about $48 million in commission in 2011.

The new partnership will include LJ Hooker participation in “elite international property expos in China, attended by high net worth Chinese buyers”.

The real estate group will also get greater exposure to the Chinese market through a special corporate landing page hosted behind the Chinese government firewall; corporate banner ad campaigns designed around the core offshore purchasing seasons as well as other branding initiatives.

LJ Hooker estate agents will also receive exclusive discounts on selected premium advertising products on Juwai.com.

Greater demand among Chinese buyers for prestige residential property is also expected due to the new significant investor visa (SIV) with the first such visa issued just over a week ago to a Chinese toy manaufacturer.

Further issuances of SIVs are expected to flow through to the prestige end of the property market - residential property does not qualify as part of the $5 million investment requirement, but successful applicants will want somewhere to live.

LJ Hooker chief executive Georg Chmiel says that "on the whole, Australian agency brands are not well known in China".

"Our extra branding and advertising on Juwai.com will mean that Chinese buyers know and trust LJ Hooker long before they hear about any other agency network," he says.

Simon Henry, co-CEO of Juwai.com said Chinese buyers are now more confident when planning property inspection and buying trips.

“It can take 12 weeks to obtain their visa to visit Australia and they use that time to thoroughly research the market. That makes it critical to reach them before they leave China,” he says.

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Landlords tax deductions rise to $38.6 billion or $23,000 per tax return: ATO figures

By Larry Schlesinger Wednesday, 01 May 2013 Australia’s 1.76 million landlords claimed a total of $38.6 billion in tax deduction in the 2010-11 tax year, the latest ATO statistics show. This equates to an average tax deduction of $23,000 per landlord. The aggregate figure was an 18% increase on the $32.8 billion in tax deductions claimed in the 2009-10 year, where 1.7 million landlords claimed an average deduction of $19,000. Deductions for interest paid on home loans was the greatest tax deduction claim rising from $18.4 billion in 2009-10 to $22.7 billion in 2010-11. According to accountants DBA, landlords can claim interest on borrowings if the property was acquired for the purpose of producing assessable income, including interest paid in advance. Landlords are also entitled to claim deductions for repairs and maintenance of their investment property, though not for capital expenses like alterations or additions. The ATO figures show a small rise in capital works deductions from $1.7 billion to $1.9 billion. Other rental deductions rose from $12.8 billion to $14 billion. Other allowable rental deductions include borrowing expenses including legal costs, bank account costs, accountants and property consultant fees, insurance, property management costs, local council rates, water rates and usage, land tax, advertising for tenants and depreciation. Around two-thirds of property investors havenegatively-geared property investments, the ATO figures also show.

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do I need a depreciation schedule for the home I live in?

Dear Margaret,

We are aware of the benefits of having a depreciation schedule compiled for investment properties.

Can you tell me if there is any benefit in having a depreciation schedule compiled for one's principal place of residence?

Many thanks,

Maria

While I frequently talk about depreciation, I guess we haven’t really painted the picture of how it looks as a bottom line.

Basically, all of the fixtures, fittings and furniture in any income producing property are eligible for you to make a claim for the depreciating value. This is done in consideration for the fact that one day you may have to replace them, and getting the tax breaks can help you to save up for that eventuality. In a nutshell:

• Each item has a different rate depending upon its effective life.
• Each year you work out how much value has been ‘lost’ and deduct from the income.
• No money is lost, only value. That’s why we call it ‘on paper’.
• The same applies to the building but over 40 years

Each movable item has a different rate that you can claim depending upon how long the tax office thinks it will last – usually between 2 and 10 years.This means that each year you work out how much value has been ‘lost’ and take that amount off the income.

You haven’t lost actual money here, only value, but you do get actual money back as you now pay less tax on the income. That’s why we call it ‘on paper’. You can do the same with the building, but it takes longer for that to run out, being 40 years

The extra tax you get back helps a lot with your cash flow – in essence the rent, plus your extra tax, make up your cash inflows, while your expenses make up the outflows. Claiming depreciation can mean that you reduce the gap between what comes in and what goes out and helps you to stay in the market longer!

As for your own home, as it does not produce an income there’s no point in having a schedule done as you cannot make any claims there. If you move out and make it a rental, you can have one done at that time.

Margaret Lomasis a best-selling author and writes and hosts the popularProperty Success With Margaret Lomasand heads up the panel onYour Money, Your Call, both on Sky News. She is the founder of Destiny.

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