• The housing market is distorted by tax concessions for landlords that drive up house prices for first home buyers and renters. Commodifying residential property can limit the availability of housing, which is a basic human need. The current concessions in the tax system have commodified the provision of housing, creating a speculative market from a basic human need for shelter.
• Tax concessions drive up the purchase price of housing, distorting the market and affecting first home buyers and renters as the landlord must secure an income stream sufficient to cover the cost of the mortgage.
• Negative gearing is the ability to deduct losses from an investment against income from other sources, for example employment or business. It applies to all investments, however is most commonly discussed in relation to housing.
• There is no specific provision in the income tax assessment law that allows negative gearing: it is the operation of the general provision that allows the deduction of expenses incurred in earning assessable income unless there is a specific rule preventing the deduction (ITAA97 s.8-1).
• There are laws that prevent other losses from being deducted against income from other sources; for example the non-commercial business activities provisions require that the business must meet certain commerciality tests; turnover, asset base, or profitability over five years; before the loss can be deducted against income from other sources (ITAA97 Div 35)
• The major expense in negatively geared housing investments is interest. Laws introduced with effect from 1 July 2017 have limited the amount that can be claimed for depreciation (ITAA97 40-27) and travel in relation to a rental property (ITAA97 26-31)
• Negatively gearing strategies speculate that the property will increase in value resulting in a capital gain for the investor when the property is sold. Capital gains are taxed concessionally, with only 50% of the gain being taxed. Therefore investors speculate that the capital gain when the property is sold will recoup their losses, which have been subsidized by the taxation system during the holding period.
• The prevalence of negatively geared property increased significantly after the introduction of the 50% discount on the taxable amount of a capital gain in 1999 (Duncan et al; 2018; Figure 1). • Although some analysts will refer to increases in rental prices after the Keating removal of negative gearing in 1985-87, this increase was limited to specific markets and can be attributed to other factors in the housing market at the time (O’Donnell, 2005).
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