Property – a major asset investment class in Australia, with negative gearing in both residential and commercial properties, has tax benefits for investors, especially for migrant Australians, who work hard creating wealth and investment in Australia. In the first of this two part series, we look at ……
As the Indian/South Asian community in Australia rises on its way to be the largest migrant group in Australia, similarly increases their interest in property investments in Australia, across residential and commercial, capital cities and regional centres. India is missing in action when it comes to Asian investment in real estate in Australia, as per the writer’s previous published articles. China now replaces United States in the top spot, with Singapore, Malaysia and Japan among major foreign property investors in Australia, with Great Britain, the United States, Germany and South Africa. Looking at the Foreign Investment Review Board (FIRB) data (Source, 2013/14 & 2012/03 FIRB annual reports), foreign investment approval of real estate investment in Australia now stands at an annual value of $74.6 billion, a rise of $22.6 billion or a considerable 43.5% increase from the previous year.
As we go to press, Australian Federal Trade Minister Andrew Robb MP, is in negotiations with Prime Minister Tony Abbott MP and Indian Prime Minister Narendra Modi MP, in preparing a broader version of the Free Trade Agreement (FTA), called the Australia-India Comprehensive Economic Cooperation Agreement, in which the writer company, ABS Group, has submitted a submission requesting for real estate acquisitions and investments to be considered in each other’s countries. At the moment in Australia, Indian and South Asian nationals without local citizenship/permanent residency are restricted to acquisitions/investment of new or ‘off the plan’ residential properties and commercial properties within a restricted threshold of $54 million. Recent FTAs with China, Japan and South Korea allow these countries to enjoy commercial property thresholds similar to United States and New Zealand, of $1.094 billion. Australians at present are unable to buy property and invest in property, in India.
Property investment in Australia is a major investment class here and is different from the United Stated and Europe, where property is only minor as they have share markets double the size of Australia and major investment classes. A big reason why property investment in Australia is such a big ‘talked about’ major investment class, is the tax benefits – negative gearing and tax depreciations.
Negative gearing simply means having an investment property that generates rental income that is less than the cost of loan (with interest repayments excluding principal/capital repayment components) and property related expenses (management fees, repairs/maintenance, council/water rates, strata levies, land tax, accounting fees, depreciation allowances etc), to gear tax benefits for the property investor. Mum and Dad’s property investors can benefits from negative geared investments properties, as this would have the potential benefit of pointing them into lower tax income levels and tax rates.
When looking to invest, migrants and investors who come to Australia are quick to hear about property investment here. On becoming residents, they hear about the benefits of negative geared property investment. The concept was introduced in the 1930s to help Australia out of the great depression, offering tax benefits to help the nation rebuild its savings and investment. Over the next fifty years, the concept grew to make property investment a major asset class and investment focus for Australians. In the mid-1980s, the Hawke/Keating Labor Government started to make changes into negative gearing, restricting the benefits and depreciation allowances. Some of the changes were then reversed, a result of political backlash and property market impacts (investors leaving and rental prices spiralling) and opinion polls during this time, forcing Paul Keating to reverse some of the unpopular reforms.
Since PM Keating’s attempt to reform and restrict negative gearing, no government to date, include the current Abbott Liberal-National Government, would consider restricting negative gearing for Australians with negative geared investment properties, a major investment in Australia, due to the political consequences. During Prime Minister John Howard’s tenure in office, he quickly dismissed media speculation on negative gearing, stating that many Australians have negative geared investment properties for their retirement planning. Current media reports at the time of going to press, indicate that there is discussion of tax reform, which capital gain tax to be reviewed and possible reform, in lieu of reforming negative gearing. The Australian Taxation Office (ATO) recently (April 2015) released the taxation statistics for the 2012/13 financial year, showing 1.26 million individual tax payers are landlords with negative geared investment properties, showing a $12 billion investment pool of negative geared property in Australia. The number of individual tax payers with negative geared properties rose by almost 60,000 from the previous year. Most individual tax payers with negative geared properties making tax deductions of between $37,000 to $80,000 a year, shows that negative gearing property investment system benefits ‘middle class’ Australia.