Nation of landlords lines up for $15bn tax deduction
17 July 2004
Negative
gearing tax deductions on rental properties have soared to
almost $15 billion, after 220,000 new landlords lodged claims
for the first time.
The Australian Tax Office has revised its estimate of rental claims for
2002-03 by $1.2 billion to $14.9 billion.
Landlords claimed $1.2 billion more in rental deductions than
they declared as rental income, prompting the Tax Office to
strengthen its compliance operations. "Total deductions have
increased by just over 9 per cent," said Elizabeth Goli, first
assistant commissioner for personal tax. "We have been given
additional resources in the budget, particularly for capital
gains tax and rental audits."
About 18,000 landlords will receive letters questioning their
claims, up nine-fold on the previous year. Unsatisfactory
answers to those letters will lead to audits. The $1.2 billion
negative gearing gap is twice as large as any previous year and
will spotlight two controversial elements of tax policy,
negative gearing and the 50 per cent discount for capital gains
tax, introduced in 1999.
Negative gearing enables landlords to borrow and claim their
interest expenses beyond what they earned in rent. The rules are
thought to be more generous here than in comparable countries.
The tax issues were highlighted recently by the Productivity
Commission and the Reserve Bank over concerns they encouraged
speculation for tax gains rather than expected rental returns,
distorting investment decisions and inflating property prices.
Rental claims exceeded declared income for the first time in
2000-01, after capital gains tax changes. They have grown 27 per
cent in three financial years since the changes, and 47 per cent
since 1997-98, the first full tax year after the Howard
Government was elected.
The number of rental claimants is up by 100,000 to 1.34 million
since the 1995-96 financial year. The amount they have claimed
has increased by $4.7 billion.
Ms Goli said increasing numbers were entering the rental
business for the first time.
The Tax Office will send out 37,000 letters pointing out common
mistakes, up from 15,000 last year. It will also publish a
rental property booklet listing housing items that can be
claimed for depreciation.
The office is likely to double the number of audits on rental
claims after recently finding 85 per cent of audits had led to
amended assessments.
Reproduced from
Sydney Morning Herald newspaper.
