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A landlords’ burden: Expert calls to cut ‘regressive’ taxes

A prominent property market analyst and buyer’s agent has called for governments to slash “regressive taxes” such as capital gains tax, stamp duty and land tax.

Propertyology Head of Research, Simon Pressley, said everyday Australian investors who elected to own a rental property ended up making a tax contribution about $1.7 million bigger than an identical couple who simply bought and lived in their home.

“The nutters who accuse property investors of somehow getting preferential tax treatment must be called out,” he said.

“Not only is it absolute nonsense, but their suggestions of what should happen are also outright vicious.

“Policymakers must give serious consideration to significantly reducing regressive taxes such as capital gains tax, stamp duty and land tax.”

Simon Pressley

Mr Pressley said better policy, that supported aspirational investors (which he terms ‘lifters’), was essential for placing downward pressure on the billions of taxpayer funds spent each year to pay aged pensions to 2.6 million people.

“People lose sight of the importance of encouraging investment because one, if there’s not enough you end up with a rental crisis, that no one likes, for the last umpteen years,” he said.

“But the biggest problem is the $51 billion every year of taxpayer money that has to go on the aged pension.

“We should always have aged pensions, don’t get me wrong, but it should never be anywhere near that amount of money.

“Imagine how many extra hospitals we could build, and train stations and highways if we just encourage good behaviour and we got from $51 billion per year down to $45 billion per year, there’s $6 billion.”

A typical investor case study

Mr Pressley said he calculated how much an everyday Aussie couple would pay in taxes if they, at age 45 and earning a gross annual wage of $100,000 each, bought an investment property worth $800,000 with an $80,000 deposit.

He said if the investment property was rented at the 2024 market rate of $560 per week for 48 weeks, after paying all operating expenses, including loan interest of 6 per cent, the property would produce a net loss in each of the first 19 years, starting at about $26,500 in the first year.

The investors, hypothetically named Ian and Sarah, absorbed each annual loss on the property. 

Mr Pressley said even with the property negatively geared, the post tax loss would be $20,500, which would reduce to a loss of $4700 in year 17.

“Twenty years after buying the property, Ian and Sarah enter retirement and decide to sell their investment property,” he said.

“The sale price of $2.56 million equates to an average annual capital growth rate of 6 per cent, which is consistent with growth rates over the previous 20 years.

“The capital growth of $1.76 million, less transaction costs, triggers a capital gains tax of $344,000.”

Mr Pressley also calculated that the investor couple would pay $1.152 million in income tax and a combined $149,000 for stamp duty, land tax and council rates.

Source: Propertyology

He said Ian and Sarah’s choice to invest (be a lifter) enabled them to enjoy 20 years of retirement without needing a taxpayer funded pension. 

“The comparison is that of a couple of the same age and same wage, but they made different choices,” Mr Pressley said.

“The ‘leaner’ did not save, they did not invest and they therefore depend on others.

“When calculating the various taxes they paid during their last 20 years in the workforce followed by 20 years of retirement, Ian and Sarah contributed $1,735,025 more tax than the leaner.

“Ian and Sarah also prevented the government from having to use $800,000 worth of taxpayer funds to supply the community with the same rental property, plus the ongoing expenses.”

Mr Pressley called on the property industry to lobby the state and federal governments to slash taxes and provide better support for investors to encourage them into the market and to stay there.

He said there was a misconception that investors were greedy and wealthy, and without them there would be $2 trillion worth of rental properties that would need to be supplied by other means.

“One in three Australians live in accommodation that they’re renting,” Mr Pressley said.

“So, if you decide you’re going to get rid of investors, those people still need homes. 

“So where are those homes going to come from? 

“Are all the state and federal governments going to give those tenants cash so that they can buy those homes?

“Is the government going to buy the properties and are they going to become the landlords?

“That’s why we’ve got investors. There is no other way.”

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Kylie Dulhunty

Kylie Dulhunty is the Editor at Elite Agent.