Question:
Discuss about the Essential Tax Law.
The market of residential property in Australia is distorted due to the implementation of lawful combination between capital gain tax discount and negative gearing. The factors are encouraging assumptions and high income group are using this advantage for saving the tax (Amatucci et al., 2006). According to a survey conducted by The Australia Institute shown that the Australian government is losing an amount to $7 billion each year because of these tax benefits. It has also been revealed that middle income group that faces most of the burden of tax is getting any benefits from the tax advantage (Australian tax reporter, 2001). Around 67 percent of benefits are going to top 20% taxpayers and low income group are just about 4 percent who are getting advantage by this scheme. The combination of CGT discount and negative gearing is encouraging the investors of Australia to invest into the residential property that leads to increase in the price of the houses and is lowering the home ownership. The financial institutions on the other hand are more investing into the housing finance and investing into a particular sector is alarming. Consequently, investors are taking the advantages of tax by earning income from rental without paying tax (Australian taxation reporter, 2004).
Negative Gearing
Negative Gearing in the language of taxation is the benefits derived by the taxpayer in form of losses from the investment property. The investors borrow money in order to purchase an investment property and giving the property on lease (Avi-Yonah, 2007). If the income from rental is less than expense incurred by the tax payer on investment property then taxpayer would be allowed to claim the deductions from other income from tax. The loss incurred by the investors from the investment property is compensated by the tax saved on the other income and a deductible expense includes payments of interest on loans that are taken for investment property.
The investment is considered to be unusual investments as the loss is being actually being compensated by exchequer. Most of the investments in the business are made by the tax payer is with utmost care with the intention to make more profits but the investments in residential properties are made with the intention of making losses so as to take the benefits of deductions (Barker, 2005). The favorable factors for investors are that when the investment property is incurring losses then by itself the value of the property increases.
Capital Gain Tax
The investment property sold by an investor then the worth of the property increases. Since, the value of the investment property enhanced the investors of the country has made capital gains as per the Australian Taxation Law which is subject to the capital gain tax. The capital gain tax is referred to the tax paid on net value of asset gain that are earned from the sale of the assets after deducting the expenses that are incurred on the maintenance, repair and for its sale (Barkoczy et al., 2010). In 1999, the Australian taxation office is introduced, 50 percent discount on net value of capital gain is made by the taxpayer on sale of the assets that is subjected to the capital gain tax. The main propose of discount is allow the taxpayers to pay the tax on half capital gain earned from the investment property.
The taxpayer can deduct the revenue losses owing period of the investment property under grab of the negative gearing and getting the benefit of paying tax on the proportion of capital gain that is made from sale of investment property (CORTESE, 2006). Therefore, discount on the capital gain tax allows the taxpayers to collect full amount of investments made at expense of the exchequer.
The government of Australia has been practicing liberal tax treatment towards the investment made in the rental property. Like most of the wealthy nations such as USA and UK, income tax system of Australia has not set limit on the deductible expenses that a taxpayer can claim for the investment expense that are related to the rental properties. The sale of the assets takes place then the capital gain tax amount is taxed half of the marginal rate that is applicable for the tax payer (Deutsch, 2006). The negative gearing in the investment property means that the interest on the loan and other expense investment includes stamp duty charges and agent fees often exceeds the income from rent. The main issues are that the investors are not able to make losses as the value of the investment property rises year after year (Eccleston, 2013). Another advantage that is being enjoyed by the investors is that capital gains are not to be included in the taxable income of the taxpayer till the investment property sold. Therefore, the negative gearing is combination of capital gains that is being taxed at half after the sale of investment property at normal rate tax and benefit to the taxpayer to claim the unlimited deductions for expenses. The following taxation law system is encouraging the taxpayers to borrow more amount of money for the purpose of speculating in investment properties.
The tax revenues are reduced due to combinations provided by CGT discount and Negative Gearing, the factor is contributing to the problem of housing affordability all across Australia. The other issues associated with it is the rise in the prices that are speculative because of the favorable treatment of tax for the investment properties that attracts more number of investors to the market of rental property and outbid the buyers in the country who want to purchase house of their own (Harvey, 2009).
The country has shown second highest price of the houses to the income ratio among all member nations of OECD. This was the reason that the housing has become less affordable for the purchaser in Australia and trends of intentional property shows that the country has higher prices of houses in comparison to other advanced nations (Hewson, 2014). The loss size with the taxpayer is claiming on investment properties have been rapidly growing since the year 2000. According to the recent report the net income from rent was $2019 million in the year 2000 and it turned into a net rental loss that has been increasing continuously and it stood at $7.10 billion in the year 2012.
Rents and Negative Gearing
The growing trend of rental loss shows that the investors in the rental property market in Australia are not concerned with rental yield from the investment but are focusing actually on capital gains because it was being offered by the authorities to them with combo pack incentive that are being provided by the CGT discounts and negative gearing (Ato.gov.au, 2016). The investors put argument against removal of the negative gearing and the authorities will increase the rentals. The negative gearing factors encourage the investors to construct more houses for low income group of tenants. It is significant to decrease the prices of rental as the investing more means increase in the supply of the rental properties.
Negative Gearing Facts and Myths
Myth 1:
The restrictions are made by the government for the creation of the negative gearing in the year 1985-87 which resulted in the increment of the reversing of the current government.
Fact:
The increment of the price helps in the proper increment of the prices and thus it also helps in the development of the increment of the prices with the increment of the interest rates. Thus it also helps in the creation of the significance investments in the rental property investment (Littlewood, 2010).
Myth 2:
Negative gearing is not possible for the case of the increment of the gearing of the prices and thus it also helps in the development of the property in the sectors of the improvement.
Fact:
The reason for this is the boom in the prices of the property in the market and thus it also helps in the proper creation of the speculation in the property sectors. Thus it also helps in the development growth of the investors that are required for the proper creation of the access to the credit in the organisation and thus the discounts are introduced on the capital Gains (Lloyd, 2015).
Myth 3:
The investors enjoyed the negative gearing and thus it also helps in the middle segmet of the society to enjoy the facility
Fact:
Thus it is illustrated for the taxation statistics that are taken according to the deductions that are followed for the rental property and thus it also helps in the creation of the negative gearing strategies.
When proposing the changes in the negative gearing and the CGT discount, there are different aspects that are considered for the proper changes into retain the negative changes and thus it also helps in the following of the methods that are requisite for the creation of the current aspects in the policies. Thus it also helps in the consideration of the additional agreements that are required for the proper development of the rental rules and the regulations for the maintenance of the negative gearing in the case of the new houses (Mann, 2009). The proposed reforms helps in the allowing the negative gearing to the stock and hence it also helps in the creation of the limited over the period of the purpose and thus it also helps in creation of the purpose and also helps in the availability the negative gearing of the policies made. Hence such types of the case are created for the proper continuation of the legal framework for the creation of the positive framework for the company. Thus the taxpayers though wanting to invest their money also helps in the creation of the legal framework that are required for the creation of the changes in the existing housing stock. If the negative gearing is affected by the immediate restriction of the properties then the responsibility also helps in the creation of the large number of the unsold investment properties for the creation of the price instability. Thus this also helps in the increment of the low interest rates and thus it also helps in the creation of the sudden changes in the frame policies (Passant, n.d.).
Conclusion
Housing policy is a type of the difficult subject in the economy of Australia. Thus the experts also wonder that the rise of the price is creating a bad effect or the good effect. Thus the answer seems to be speculated for the creation of the problems and thus it also helps in the development of the dependency that is created for the owing of the house. Such a situation is created with the help fo the creation of the investments in the property which helps in downsizing the home or the other expensive areas for the movement to an less expensive area. On the other side the negative speculations are made for the increment in the size of the family and thus the changing of the houses takes place which is specifically seemed in the case of the shifting (Avi-Yonah, 2007).
Hence such complexities rise in front of changing the policies that are required for the provision of the donation that are made in the case of the creation of the policies for the successful consideration. Thus it also helps in considering the policies that are related to the taxation law and thus the failure of the CGT discount is seemed in case of both the areas (CORTESE, 2006). The speculations that are made for the creation of the housing policies also help in the lowering the distorting market that are helpful for the creation of the alternative equity and thus the efficiency is also affected by the effect in buying the houses. Hence the government also helps in the creation of the significant changes that are required for the proper development of the negative gearing and the CGT discount. Thus according to the author, the taxpayers gain a lot and a small amount is lost by the government. It also helps the government to make the significant changes in order to recover the losses incurred.
Jai still consists of 20 years of the services and thus the experienced gained by Jai helps to make him suitable for making choices for the rest of the life after the stage of the retirement. According to the Australian taxation law, it helps in describing that the capital gain taxes should not be applied to the principle residence that is living at the rent of the house owner. If the house is sold to the rent payer, then the taxpayer must collect the taxes from the rent payers who are the householder of the house. Thus, after buyer the property, for at least 12 months that is required for the development of the strategies for the proper enhancement of the taxes (Eccleston, 2013). After disposing off the taxes and tided to surplus the amount $200,000. According to the Australian Taxation Law, the surplusing of the amount as earned by the taxpayer helps in the creation of disposing the assets and thus it also helps in the Capital Gain of the amount. Usually such taxes helps in the creation of the taxes at the marginal rates and thus the taxpayer has to be charged for his or her own income or the earnings made during the financial year. But for this case the earnings are made for the creation of the strategies and thus it also helps in the creation of the principle residence that helps in the emption process from the taxes liabilities. Hence for Jai do not have to pay the taxes for the income made by selling his house at $200,000.
On the another side, any income or the investments on the property is seemed to be liable for the collection of the taxes that is made by the taxpayer and thus it also helps the taxpayer to claim for the taxes that are required for the creation of the deduction of the expenses made during the maintenance period. Thus, an advice is provided to Jai for investing the amount $200,000 in order to purchase his principle residence but it could be fulfilled by Jai with the help of the loan that was sanctioned by the bank of amount $150,000 for the proposing of the rental investment (Harvey, 2009). As the loan is a type of the interest bearing for the deduction of the incomes, the interest amount for the income also helps in the deduction of the expenses that are claimed during the maintenance of the income. Thus it also helps in the claiming for the deduction that are made during the usage of the rental property and thus it also helps in the reduction of the tax liability with the help of the tax liability that are required for the reduction of the tax liability and thus it also helps in the creation of the rental income for the purpose of the creation of the income that are earned.
References
Amatucci, A., GonzaÌÂlez, E., Trzaskalik, C. and Amatucci, A. (2006). International tax law. The Hague: Kluwer Law International.
Ato.gov.au. (2016). Home page | Australian Taxation Office. [online] Available at: https://www.ato.gov.au/ [Accessed 28 May 2016].
Australian tax reporter. (2001). Southport, Qld.: Australian Taxation Reporter.
Australian taxation reporter. (2004). Southport, Qld.: Australian Taxation Reporter.
Avi-Yonah, R. (2007). International tax as international law. New York: Cambridge University Press.
Barker, D. (2005). Essential Australian law. Sydney, N.S.W.: Cavendish.
Barkoczy, S., Rider, C., Baring, J. and Bellamy, N. (2010). Australian tax casebook. North Ryde, N.S.W.: CCH Australia.
Cortese, C. (2006). Taxation and the Australian Superannuation System: An International Comparison. Australian Accounting Review, 16(39), pp.77-85.
Deutsch, R. (2006). Australian tax handbook. Pyrmont, NSW: Thomson.
Eccleston, R. (2013). The Tax Reform Agenda in Australia. Australian Journal of Public Administration, 72(2), pp.103-113.
Harvey, C. (2009). Cornerstones of Australian law. Prahran, Vic.: Tilde University Press.
Hewson, J. (2014). The Politics of Tax Reform in Australia. Asia & the Pacific Policy Studies, 1(3), pp.590-599.
Littlewood, M. (2010). Taxation without representation. Hong Kong: Hong Kong University Press.
Lloyd, P. (2015). Excise Tax Harmonisation in Australia at Federation. Aust Econ Hist Rev, p.n/a-n/a.
Mann, T. (2009). Australian law dictionary. South Melbourne, Vic.: Oxford University Press.
Passant, J. (n.d.). Tax Reform in Australia: A View from the Left. SSRN Electronic Journal.
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