(Realestate) – This year the ATO will be undertaking audits of 4,500 taxpayers who make rental property claims. This is around 3,000 more than it undertook last year.
The reason? A random review of 300 rental property claims found errors in almost all of them. With a more intense focus on how people are using negative gearing to make claims, what impact will this have on the market?
The ATO is conducting an audit of taxpayers who make rental property claims, following a high finding of errors. Picture: Getty
Obviously, people should be correctly paying the tax they owe, but the evidence that so many investors using negative gearing are, at best, making claims incorrectly – or at worst, trying to rort the system – is bad for confidence.
This is particularly an issue given how unpopular the tax is; often being blamed for affordability problems and low levels of first home buyer activity.
Is negative gearing seen as a negative?
Big changes to negative gearing were a key part of the ALP’s federal election campaign – and although they didn’t win, they were confident that voters disliked negative gearing enough to make it a major policy change.
Regardless of your views on negative gearing, the fact remains that mum and dad investors provide almost all of our rental housing and many are reliant on the tax break to buy a low yielding investment.
Only a small proportion of rental housing is supplied by government and not-for-profits and this tends to be necessarily focused at those with no or very low incomes.
Unlike much of North America and Europe, we have pretty much no institutional ownership of rental properties.
‘Build to rent’ or ‘multi-family’ is slowly emerging, but it will take a very long time for it to be significant enough to reduce our reliance on individual property investors.Does negative gearing help the property market?
In the end, the election didn’t come at a good time for the ALP’s proposed changes to negative gearing.
When the policy was announced in 2016, there was a price boom occurring and record levels of property investment.
First home buyer activity was particularly a problem, with many feeling it was unfair that not only were property investors generally wealthier than they were, but were also being given tax breaks that they weren’t entitled to.
By May 2019, many of the problems being faced in 2016 were no longer an issue. Property prices were going south, and investor lending had declined by 45% from the peak in 2015.Property Outlook: July 2019
First home buyers were back – partly because there was less competition from investors (first home buyers and investors often target similar properties), but also because pricing was looking better and, in many states, there were renewed first home buyer incentives.
Whether you like it or not, negative gearing is what currently ensures we have enough rental housing. As yet, there has been no viable alternative, although ‘build to rent’ is slowly gaining momentum.
The ATO targeting property investors is necessary – not just because people need to pay the tax they owe but also because we need to ensure that confidence in negative gearing isn’t eroded further.