There were 1,213,595 individuals with a negatively geared property over the 2010/11 financial year

Last week the Australian Tax Office (ATO) released the taxations statistics for the 2010/11 financial year.  The statistics showed that over the year there were 1,811,174 individuals that owned a rental property.  This was out of 9,416,002 individuals that have a taxable income and 12,637,623 individuals that lodged a tax return.

The data indicates that 14.3% of individuals that lodged a tax return owned investment properties while a greater 19.2% of individuals that reported a taxable income owned investment properties.  This indicates that despite the fact 1,811,174 individuals own investment properties, the vast majority of Australians don’t invest in residential property.

Of the 1,811,174 individuals that reported to the ATO as having an investment property, 1,213,595 of these individuals, or two out of every three investors, were recording a loss on their rental income.  The total value of these losses over the year was $13.285 billion.  Obviously negative gearing of investment properties allows owners to claim a tax deduction on these costs.  The average annual loss for these property investors with negatively geared properties was $10,947 or $210.50/week.

Individual's rental income and deductions

There were 597,577 individuals that made a profit from their investment property in 2010/11.  The total value of this income was $5.423 billion.  These investors have no losses to claim a tax deduction on and would have to pay tax on their investment property; of course they would have more money in their hand each week as a result of the positive gearing.  The average annual profit earned from these positively geared investment properties was $9,075 or $174.50/week.

Tax summary of rental properties

The data shows that on average, the losses made on investment properties that are negatively geared are larger than the profit on the positively geared propertied.  What negatively geared investors sometimes lose sight of is the fact that a loss is a loss.  What I mean is that although the loss is tax deductible at the end of the financial year they have to carry the cost of that loss throughout the year at a sometimes significant cost.  For some it would undoubtedly be preferential to have that extra money on hand throughout the year rather than getting a larger tax return at the end of the financial year.

Net rental income deductions over time

The $13.285 billion in rental losses over the 2010/11 financial year was 24.7% higher than the 2009/10 financial year however, it remains -0.2% lower than the historic high value of losses recorded over the 2007/08 financial year.  The number of negatively geared property investors rose by 4.8% over the year however, the number of investors was also below the historic high of 2007/08 by -1.8%.

Individual's interest in rental property

According to the ATO data, 72.8% of individuals that owned an investment property owned just one.  Meanwhile, 18.9% of individuals owned 2 properties while just 0.9% of individuals owned 6 or more.

No doubt the total value of the losses and the proportion of total investors claiming a loss on their property are quite alarming.  From an investment perspective you’d assume that it is generally preferential to make a profit than it is to carry a loss for 12 months of the year.  Where negative gearing works is when it reduces an individual’s taxable income to such an extent that there is a greater financial windfall from claiming that loss than there would be if that property made a profit.  Of course investors using a negative gearing strategy also expect the value of their asset to rise, offsetting the shortfall. These benefits are usually more likely to accrue to those earning higher incomes and this is where you have to wonder if many investors really are benefiting from the negative gearing of their investment properties.

Individuals net rental income by income range

The ATO data indicates that 72.3% of individuals with a loss making investment property have a taxable income of less than $80,000 a year, with 32.3% having a taxable income of less than $37,000 per year.  The total value of the losses for individuals earning less than $80,000 equated to $9,756.25 a year or $187.62 per week.  Assuming that they all had a taxable income of $40,000 per year, which represents the middle of the range, the $9,756.25 annually is 24.4% of their annual taxable income.  That is a significant proportion of their taxable income and a significant cost to the individual throughout the year just to secure a tax deduction at the end of the year.  If we assume the average income earner that has a taxable income of $51,342 owns an investment property, that investment property is costing them 21.3% of their taxable income throughout the year.

There have been many calls for negative gearing to be removed from residential property however, I believe it is extremely unlikely that either side of politics is likely to go down that path.  Negative gearing of residential property saw the ATO forego $13.285 billion in taxation revenue over the 2010/11 financial year.  What it did allow for, because it is so ingrained in the psyche of those who invest in property, is for private residents to cater to demand for rental properties from those residents that don’t own their own home.  It is clear that the provision of rental accommodation is not a burden that Governments wish to bear however, one has to wonder if foregoing more than $13 billion in tax revenue is a cost that the federal Government can afford to give up.

The data also shows that many lower income earners are investing in negatively geared properties, perhaps many are doing so without understanding what, if any, the true benefits are.  The goal of investment should ultimately be to make a profit not a loss and with capital gains in housing much slower over the past five years and this trend anticipated to continue perhaps some investors should re-assess whether their current negative gearing strategy is truly working for them.

About Cameron Kusher

Cameron Kusher is Head of Research at CoreLogic, specialising in primary and secondary data analysis, property market commentary and consultancy. Cameron has a thorough understanding of the fundamentals such as demographics, trends, economics and spacial analysis and is a regular keynote speaker for property-related groups, regulated industry bodies, corporations and the government sectors. Follow Cameron on Twitter @cmkusher

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24 Responses to There were 1,213,595 individuals with a negatively geared property over the 2010/11 financial year

  1. Peter May 9, 2013 at 5:36 pm #

    Interesting read Cam. What about where a negatively geared investor completes a PAYG Withholding Variation at the start of the tax year? In which instance the loss isn’t carried through the year.

    Great blog, this.


    • Cameron Kusher May 10, 2013 at 10:10 am #

      Good point Peter.

      Obviously I am no expert on the taxation side of things but from my experience I haven’t seen too many people use that variation but that just be the crowd I run with. Either way it is a good point but the data certainly is food for thought and investors should potentially re-look at their numbers.

  2. Doug May 10, 2013 at 1:22 pm #

    Peter, as Cameron says “a loss is still a loss”. To imply that because one gets a Withholding variation and therefore won’t feel the loss is a delusion. The real reason you are getting the tax off-set is because you are paying loss-making costs and your income is not big enough to support them without it. If you weren’t, the ATO wouldn’t give you the variation. My property management company has a huge majority of its property owner clients who are not making any net income from their asset and never will. On top of that, for many, they have invested in property types which have burgeoning ownership costs that the market has identified, and so there is little if any prospect of their property improving substantially in value in relative terms over the next decade at least. Many have debt greater than their current market value. Most PAYG salary earners should take a very deep breath before they plunge into investment property ownership. Property investment can be very lucrative but you need good capital to do it properly.

  3. Terrence Hope May 10, 2013 at 1:36 pm #

    Good article Cameron, just a couple of points.

    Referencing your comment….. “one has to wonder if foregoing more than $13 billion in tax revenue is a cost that the federal Government can afford to give up”

    The whole $13b is not foregone by the government – this is total amount lost by the investors. The amount of tax foregone by the govt is the marginal tax on that amount or approx 30% of that amount, or $4-5 billion only.

    But even if NG was quarantined, the tax forgone would simply be deferred until the property becomes cash flow positive, so long term there is no net benefit to govt revenue if they disallow NG.

    See discussion linked below for more details…..



    • secH May 10, 2013 at 3:07 pm #

      Terry, yours is a good point, but according to your theory, at some time in the (near?) future, the income from all the IPs that are positively geared in Australia should be larger than the losses claimed on negative IPs so that govt can get its tax money back? Instead the gap is still growing. Why?
      I think the truth is that the “aim” of NG is to realize the gains as a capital appreciation instead of income and access the CGT discount and distribute big gains via a trust to minimize taxes. The other point is that investors usually start seeing the property becoming positively geared when they retire and their tax rate is lower because they no longer have an income or they stream the income via superannuation. So again govt is losing taxation money there. I think negative gearing pushes tax payers into investing in property just because it is easier to leverage in property (rather than in shares or a business), and just because of the tax savings, without consideration to the real value of the underlying investment and that can eventually form a distorted market. It is something worth discussing further. cheers

  4. Peter May 10, 2013 at 2:40 pm #

    I didn’t say “it isn’t a loss”. I said it’s incorrect to say that “losses are carried through the year” because they aren’t. Of course making losses isn’t a good idea – pretty obvious.

  5. Oldstew May 10, 2013 at 3:12 pm #

    Guys just cut your losses and get rid of those negative geared properties and start getting educated in buying neutral to positive properties. Paying taxes is a good thing as it means you are making money which is the main aim of investing in the first place.

  6. Andy May 10, 2013 at 3:40 pm #

    “…although the loss is tax deductible at the end of the financial year they have to carry the cost of that loss throughout the year at a sometimes significant cost.”

    Cameron, it sounds like you think they get it ALL back at tax time? The average wage earner will only get 31.5% back (their marginal tax rate plus Medicare levy). Even high-income earners get less than half back. So it’s not just carrying costs throughout the year that they have to worry about. It’s also a real loss at the end of the year, albeit one that is partially reduced by reducing tax.

    “Where negative gearing works is when it reduces an individual’s taxable income to such an extent that there is a greater financial windfall from claiming that loss than there would be if that property made a profit.”

    This is impossible. As per my point above, you will always be worse off claiming a loss compared to making a profit.

    • Cameron Kusher May 10, 2013 at 3:48 pm #

      Hi Andy

      I appreciate the email, I completely understand that you don’t get all the money back. As someone who has previously owned negatively geared properties I am also acutely aware that the ongoing costs of owning an investment property throughout the year can be onerous and I have previously sold some of these properties because the benefit at the end of the financial year was not worth the financial strain throughout the year especially when unexpected costs pop up.

      Where I believe owning a negatively geared property is worthwhile is that when the costs of owning that property are not onerous and that property has some hope in the near future of moving into positively geared territory. I am in no way a tax expert however, I think many negatively geared investors should be questioning whether there investment is really working for them especially considering current market conditions where value growth is at much lower levels and there are generally only moderate increases in rental rates each year.



      • Andy May 10, 2013 at 9:35 pm #

        Agreed. Thanks for the reply Cameron.

  7. Adriel May 10, 2013 at 3:50 pm #

    Great article and discussion.

    I noticed you calculated the rental loss as a proportion of ‘taxable income’. However taxable income already takes into consideration the loss. It is more meaningful to calculate it as a proportion of ‘assessable income’, because you pay for the loss out of your total (assessable) income.

    Another point which has yet to be mentioned is that rental deductions include non cash items such as depreciation and capital allowance. This means that the actual holding cost of the property is smaller.

    And not all negative geared properties cost money to hold. The following is an example of a negative geared with positive cash flow.

    Rent of 20,000
    Interest & other cash deductions of 20,000
    Depreciation & Capital works 10,000
    = loss of 10,000

    Refund of 3,000 (assuming 30% marginal tax rate)

    Net cash flow = positive 3,000. (Rent – cash deductions + tax refund)

    • secH May 10, 2013 at 4:17 pm #

      Adriel, I agree on depreciation but depreciation & capital works of 10,000 on a rent of 20,000 and deductions of 20,000 seem an unrealistic case? What would be the capital value of the property in that case considering 4% rental yield? Property would probably have to have LVR at 50%, seems like a very poor return (3000 only, again if you exclude capital gains, which IMO is the main game here). cheers

      • Adriel May 10, 2013 at 8:04 pm #

        I was referring to a budget inner city units which generally have higher yields.

        Property price 300,000
        Purchased with deposit of 60,000 (20%), and loan of 240,000. (other purchasing costs about 15,000).
        Rent at 385per week = 20,020 (gross rental yield of 6.7%)
        Interest at 6% = 14,400
        other yearly cash expenses = 6,600

        Given the cash outlay is only 75,000, a return of 3000 a yearly results in a return on equity of 4% (cash).
        Assuming 3% capital growth (9,000 in the first year), resulting in capital growth return on equity of 12%. Total return 16%.

      • secH May 10, 2013 at 9:35 pm #

        OK, thanks. Yield 6.7% and capital growth of 3% p.a.? mmmmm. In my experience > 5% is VERY hard to get, at least in my city, and especially in areas where decent capital appreciation is to be expected. The formula is obviously too easy, and you can plug in whatever expectations you have, anyone with 60K to spare could do it and if it’s too good to be true then…..sounds more like a pre-GFC scenario to me. We now have lower rates and yes, inflation is low, but I would not assume rates will stay this low forever. If property prices accelerate so will the cash rate and your cash flow may not be as good. It’s interesting how banks are willing to give you 240K for your property investment on your 60K, try asking the same for shares or for a business! cheers

      • secH May 10, 2013 at 9:49 pm #

        Hey, one more thing …. how do you get to a Depreciation & Capital works of 10K on a “budget” inner city unit paid 300K? And at the same time expecting capital appreciation of 3% p.a.? As far as I know, it’s the land component that will appreciate mostly and can’t be depreciated not the building. cheers

    • Invest My Way June 13, 2013 at 12:03 pm #

      secH – there are many suburbs throughout Australia where you can achieve higher than 5% yield and also have good short term capital growth potential. You just need to look harder and outside your “backyard”.

  8. GeoffMC May 10, 2013 at 11:06 pm #

    Yes. A loss is a loss. And the loss generally spoken of here is an “income” loss.

    Also mentioned is a capital gain, or a capital “profit”.

    There are actually 2 game plans considered with a property that starts out as negatively geared.

    Game A, when you take your capital “profit” by selling the property, which typically is taken in the long term; it will be greater than the cumulative “income losses”
    Any projection you do with a long term hold, on a property in an area with a long term historical capital growth for property in a town or city that has a consistant and ongoing population growth will result in the capital growth being more than the cumulative income losses.
    Game B. In Townsville, 30 years ago, rent was about $25 per week. Today it is about $400 per week. Conservatively, in 30 years time rent will be $1800 per week. Buy today and hold for your retirement; you will own it, without a loan, it will not have cost you a cent. You will have recouped all of the cumulative “income losses” incurred, as well as recouping “lost opportunity” interest which could have been earnt on the money injected to cover the “income losses”, you will also have put away a stack of additional cash, and you will just be getting the free rental income each and every week.

    A couple of my observations, which won’t apply to all situations, but are observations rather than opinions. Properties that can be positively geared with similar LVRs do not have the certainty of capital growth that negatively geared property may have. (Putting aside the negatively geared property that has been “carelessly” purchased from some of the marketeers.)

    At the end of the long term investment, there is a good chance the stronger capital growth of the negatively geared property will produce an overall better return than the positively geared property.

    Any investment in property will succeed or fail based on the choice of property chosen in the first place. Refer to previous comment; ” … a long term hold, on a property in an area with a long term historical capital growth for property in a town or city that has a consistant and ongoing population growth.”

    Tax. The economy relies heavily on the building industry. The building industry would crash and burn without negative gearing. Pretty sure that would result in a greater loss to the Tax man than the cost of negative gearing. Eg. They would suffer a huge cut in GST income, They would be paying significantly higher unemployment benefits, they would be getting less company tax from building and all the supply chain in the industry and all associated industries. And yes, they sure would have a problem with housing the population if negative gearing tax benefits were taken away.

    For years I looked at investing in residential property without looking at the complete picture, so never did anything; and I regret it. I am now, finally “carefully” investing in rental homes to ensure a financially independant retirement.

    Once again, I agree with a previous comment. You should only invest in anything if you can afford the outlays associated with that investment. It is however important to understand the real weekly outlay AFTER the tax benefits which after considering depreciation is very often significantly less than many people think. But it does make sense to put some money aside each week for your future. And if you invest in a rental home with just reasonable “care”, you are likely to accumulate far more wealth than you would be putting the same amount of money into a cash savings account each week.

    • secH May 13, 2013 at 12:13 pm #

      For both A and B, you should consider inflation. The “game” works if rents and/or property prices (depending on plan) grow faster than overall inflation. The differential between property prices and rents and inflation is your upside. In the previous decade that differential was exceptional, also helped by a very significant credit boom. But since 2008 I’d say a lot of property investments would be losing money now, and that is also why the RBA is lowering rates and making money cheaper. Property can’t be a risk free investment or returns would be zero, and if it’s a low risk investment, returns will be proportionally low. cheers

  9. Adriel May 10, 2013 at 11:36 pm #

    Hi secH

    The properties I’m referring to are highrise units in Melbourne CBD and surrounding suburbs.
    e.g. 488 Swanston St Carlton
    The yield is easily achieved, even possible to get around 8%.

    The land component is around 10% of the value (based on council rates), so your correct the 3% capital appreciation might be an issue. But capital gains are not only dependent on land value. Inflation increases the cost of construction, therefore also increasing the value of already established buildings (of course the rate is increase will be smaller then inflation).

    Because 90% of the value is the capital works (building and contents), the capital works deduction and depreciation is high (depending how old the building is).
    If the building cost was 150,000 for example, at 2.5% = 3750. Depreciation makes up the rest of the 10,000. Although depreciation does drop off quickly.

    Yes Interest rates can change, and we are at very low levels currently, so when they increase they will eat into profits.

    I just want to point out, that you don’t get a return on equity of 16% every year, only in the first.
    In the second year your outlay is 84,000 (75k+9k), therefore your return on equity would be smaller as it is calculated on a larger base.
    So on an outlay of 84,000, 3,000 cash return = 3.57% return on equity
    3% capital growth on 330,000 is 9,900 which is a return of 11.79%
    Total return on equity for second year is only 15.36%, and the return will continue to decline each year.

    (Any increases in rent will change the outcome, and eventually the property will become positively geared.)

    I too find it interesting that banks are willing to loan such a high percentage (80% or higher) when buying property, however when it comes to shares you are lucky to get 60%. Its no wonder people gear into property.

    • secH May 13, 2013 at 11:55 am #

      I think the ability to easily leverage is the #1 reason why investors like property over other investments, combined with the fact that you are not required to mark-to-market unless you have to sell it (i.e. margin calls on property are extremely rare in my experience, as far as you can sustain the repayments to the bank you are OK).

      Yes, I agree, new CBD apts can provide high yield in my city too, and good depreciation, but quite poor capital appreciation. The costs are a killer, strata fees are very high and getting higher with inflation, sometimes even higher than rents. Most CBD apts are also “not unique” IMO and they get older and not as nice. I, myself, would recommend to invest in land over buildings, which I think is where the scarcity really is.

      I think investing in property still makes sense, but PLEASE do not consider it risk-free! 🙂 Past performance is not an indicator of future performance.


  10. The Watcher May 11, 2013 at 6:50 am #

    Great article, Cameron and agree that there are many property investors out there who should be questioning whether their negative-gearing strategy is working or not. The key word here is “strategy”. Negative gearing should never be a strategy. It should be considered as an element (tactic) of a wealth-creation strategy.

    And this is where I believe mistakes are made. That is, buying property with the objective of negative gearing. The overall objective of any wealth strategy is to generate net positive returns – a combination of net income (rent) and net capital (property value) returns. When the primary focus is to reduce tax, rather than quality of investment, then the risk of negative returns increases.

    And the same principle applies for shares as well. It should also be noted that negative gearing policy applies to shares and other investment as well. I believe it would be very dangerous to remove negative gearing on property without doing the same with shares – I can only imagine the kind of bubble that would be created when such money would flood into the share market – a much more volatile asset to invest in.

  11. daniel February 25, 2016 at 8:09 pm #

    thanks for the post about property investment .really amazing


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