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Published: Saturday 12 October, 2013

outlet berlin outlet berlin ?Tax change would cut home prices

Some of the tax changes under consideration would reduce house prices and raise rents, but they would also increase home ownership, Westpac economists say.

Their conclusions are based on a mathematic model which derives what a property investor would pay for a house based on such variables as rent, tax rates, interest rates, maintenance costs and longrun expectations for inflation and capital gains.

Houses not already taken by debtfree owneroccupiers are worth most to investors because they get better tax breaks than owneroccupiers with high debt.

Their conclusions also rest on a ruleofthumb assumption that onethird of the adjustment to a tax change outlet berlin would come through higher rents and twothirds through lower house prices.

How much lower depends on the tax change.

One change considered by the tax working group chaired by Professor Bob Buckle would cut the top personal tax rate from 38 per cent to 30 per cent.

That is because landlords normally pay more in deductible expenses and mortgage interest than they receive in rent, and they can use those tax losses to shelter other income, such as salary.

The tax working group has found that ownership of rental properties is skewed towards highincome people of working age, and that the sector as a whole claims more in tax deductions than it pays in tax.

Some of the cost of reducing the tax benefit of own outlet berlin ing a rental property would be recovered by higher rents; Westpac estimates they would rise about 8.7 per cent if the top income tax rate were cut to 30 per cent.

Another option under consideration is a tax on the unimproved value of land. The economists estimate a land tax of 0.5 per cent would cut the value of land by 11 per cent.

As land represents about 40 per cent of the value of the median house, that would cut house prices by 4.4 per cent, and on the basis of the assumed twoforone burden sharing raise rents 2.2 per cent.

The combination of a cut to the top income tax rate and the introduction of a land tax to replace the lost revenue would cut house prices by just under 17 per cent and raise rents by 8.4 per cent, Westpac reckons.

All these options, by making houses cheaper and renting dearer, are expected to boost home ownership.

Another option under consideration is to apply the riskfree return method to rental properties.

Instead of taxing r outlet berlin ents and allowing deductions for the expenses incurred in the course of earning rental income, owners of rental properties would be deemed to have earned 6 per cent on the net equity in their property and be taxed on that.

The impact would depend on how leveraged the investment is, but in all cases would be high, cutting the value of the house to an investor by anything from 26 per cent, for those who are debt free, to 34 per cent for someone 100 per cent leveraged.

A capital gains tax on rental properties would reduce their tax advantage and thus reduce prices by 15.7 per cent and raise rents by 7.8 per cent, the economists say. outlet berlin