ACC304 Taxation Law Assignment: Negative Gearing and Tax

This assignment response addresses a taxation law problem related to negative gearing. The student analyzes the concept of negative gearing, which involves borrowing money to invest in revenue-generating assets where the costs exceed the income. The response explains how this strategy can allow taxpayers to reduce their taxable income and benefit from reduced income tax. It discusses the potential impact of recent and proposed reforms on negative gearing, including changes to tax deductions and capital gains tax discounts. The response also highlights how these changes might affect investors with varying income levels and how taxpayers can claim allowable deductions. The assignment references relevant literature and legislation to support its analysis, providing a comprehensive overview of the topic.

Running head: TAXATION LAW
Taxation Law
Name of the Student
Name of the University
Authors Note
Course ID

1TAXATION LAW
Table of Contents
Answer to Part 2B:.....................................................................................................................2
References:.................................................................................................................................4

2TAXATION LAW
Answer to Part 2B:
Negative gearing can be defined as the type of financial leverage where an investor
borrows the sum of money to purchase the revenue generating investment. The gross income
derived from such investment is lesser than the cost of acquiring and administering the
investment together with the depreciation and interest that is charged on the loan. The
strategy offers the taxpayer with the exposure of probable gains and losses (Pawson 2018).
This strategy is very popular for the taxpayer as the tax losses can be lowered by the investors
in respect to their taxable income. This would help the investors in benefiting from the
reduced income tax bill.
Recent reformation in negative gearing might offer the investors with the tax
concession. The changes that is proposed may provide the taxpayers with the tax breaks
which would reduce the negative gearing deduction by 57.3% (Rogers, Nelson and Wong
2017). The changes in the model proposes that investors under 50% income distribution slab
or those having modest income would obtain the benefit of receiving 100% deduction.
The proposed future changes would provide the investors in claiming an allowable
deduction for majority of the outgoings together with the interest on loan as the taxpayer can
produce more income. Probable changes in negative gearing may enable the investors in
experiencing progressive rental deductions whereas a less wealthy investor might witness a
noteworthy decline in tax savings (Cho, Li, and Uren 2017). Further changes that may
happen in negative gearing policy is that the CGT tax discount may be cut up from the
current 50% to 25% by restricting the negative gearing to new rental houses.
An individual taxpayer with the taxable income of 100k in the income year may
experience certain tax benefits (Chappell and Campbell 2018). Taxpayers at 30% marginal

3TAXATION LAW
tax rate can obtain the benefit of 2.5% allowance under division 43. The taxpayers can obtain
reduction in cost base leading to larger taxable income capital gains or reduced capital loss.

4TAXATION LAW
References:
Chappell, J. and Campbell, N., 2018. The Housing Gap—Sydney, Australia. In Sustainable
Development Research in the Asia-Pacific Region (pp. 293-304). Springer, Cham.
Cho, Y., Li, S.M. and Uren, L., 2017. Negative Gearing Tax And Welfare: A Quantitative
Study For The Australian Housing Market.
Pawson, I., 2018. Reframing Australia's housing affordability problem: The politics and
economics of negative gearing. Journal of Australian Political Economy, The, (81), p.121.
Rogers, D., Nelson, J. and Wong, A., 2017. Full House: how property pressures impact
intercultural relations. Disruptive Asia: Asia’s Rise and Australia’s Future, pp.47-50.