Should the tax court take responsibility for negative gearing?

Friday, 24 June 2016  Media Alerts

“The negative gearing issue in Australia has descended into a political slug-match where rational debate is near impossible, false claims and over claims abound and incontestable facts are contested,” says Dale Boccabella from the UNSW Business School.

“The question now is - should the ‘tax court’ take some responsibility for the negative gearing concept, and/or can the courts curtail it?”

There has so far only been one test case put before the courts as to whether negative gearing is tax effective, and that case is some 30 years old now. Dale Boccabella suggests that now is the time for the ATO to seriously reconsider taking a test case to court; one that reflects the modern day use of negative gearing, such as on multiple negatively geared properties, or the churning of investments.

The deductibility of most expenses, including rental property expenses, related to making taxpayers’ assessable income is determined under the general deduction provision, says Dale Boccabella.

“The current version of the relevant tax law contains very few words aside from broad descriptions of the necessity for a connection between the expense and the making of assessable income, such as revenue expenses incurred to make assessable income are deductible.”

Accordingly he says little guidance is provided from the parliament. “This means that the parliament has largely left rule-making in this area to the courts, mostly the High Court, but from around 25-years ago, mostly the Full Federal Court. When rule-making is largely left to the courts, the courts have to make choices on what the rules or principles are, the scope of those principles and how they develop over time.”

It is here that the courts may have some legal room to curtail negative gearing.

Dale Boccabella is available to discuss the implications of Negative Gearing for the media.

For further comment call Dale Boccabella on 02 9385 3365, 0427 591208 or Email d.boccabella@unsw.edu.au

Media contact: Julian Lorkin: 02 9385 9887

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