Gavin R. Putland,  BE PhD

Saturday, September 27, 2014 (Comment)

Negative gearing is so 18th century!

NEGATIVE GEARING is Australian shorthand for the Australian tax lurk whereby non-work-related property losses are deductible against wages and salaries. Meanwhile, the cost of commuting to work is not deductible because it is deemed not to be work-related! One rule for the landowner; another for the prole.

Contrary to the propaganda of the property lobby, the double standard cannot be defended as an incentive to supply accommodation, because you don't have to build anything in order to claim negative gearing. You can simply outbid prospective owner-occupants for an existing home (which is easy because owner-occupants can't claim negative gearing), and thereby turn a prospective owner-occupied home into a rental home, and a prospective owner-occupant into a tenant. Indeed, you don't even have to get a tenant as long as the property is ostensibly “available” for rent.

No matter how high your gross income may be, you can make your taxable income as low as you like, simply by buying enough negatively-geared properties. Such artificially reduced taxable incomes are used in ATO statistics on negative gearing, which are then trotted out by the property lobby as “proof” that most negative gearers aren't rich — as exposed, for example, in Michael Janda's article “The myth of ‘mum and dad’ property investors” (The Drum, 24 September 2014).

No less revealing than the article itself is the comment thread, where several contributors try to explain why you proles can't deduct the cost of travel between home and work. Commenter WA Ideas, who seems to be lawyer, informs us:

... [I]f your employer prescribed a uniform for you to wear, or had a range of clothes available with their logo etc displayed on them and you purchased the uniform, then it is deductable for you! The issue is it must be specific to your workplace.... That's why my court robes are deductable but my suits are not!

So because the cost of getting to work is not “specific to your workplace” but also depends on where you live, it is not deductible. But, just as not all workers need to commute, not all property investors need to borrow. Hence, by the same logic, a property investor's interest bill is not “specific” to the property and therefore should not be deductible against the rent from the property, let alone unrelated income! One rule for the landowner; another for the prole.

WA Ideas continues:

Individuals, whose primary income is wages, do not have to incur any expenses in the course of earning their income.

Indeed, while you proles may say that the cost of going to and from work is a cost of earning your income, the cost is not incurred “in the course of” earning your income, but rather is incurred in order to reach a position where you can start earning the income, and is therefore not deductible. Similarly, while property investors may say that interest on an investment loan is a cost of getting the rent, the cost is not incurred “in the course of” getting the rent, but rather is incurred in order to reach a position where they can start getting the rent. As it is not incurred “in the course of” getting the rent, let alone other income, it should not be deductible against the rent, let alone other income! One rule for the landowner; another for the prole.

And to anyone who suggests that the tax-free threshold is the allowance for the cost of commuting, I pose two questions:

  • What about those who earn less than the threshold?
  • If it's good enough to give the proles a fixed allowance for commuting, regardless of the actual cost, then why isn't it good enough to give property investors a fixed allowance for interest, regardless of the actual cost?

In the comment thread, the only discernible reason for the double standard is to be found in the following exchange (in which I have corrected a few single-character errors):


... Deductions for expenses incurred are a fundamental of our and every other economy. Show me one society where you cannot deduct expenses incurred.


Gavin R. Putland:

How about *our* society? The cost of commuting to work is manifestly a cost incurred for the purpose of earning your wage or salary, but you can't deduct it against your wage or salary (or anything else) for tax purposes. QED.

Mitor the Bold:

That's an ATO commandment, but theoretically you should be able to.


Actually, Mitor, it predates the ATO by about 200 years, and is derived from a pre-industrial-revolution House of Lords ruling which said that if tradespeople choose not to live in or over their business premises, then they should not be able to deduct the cost of travelling to their work.

However, I agree that theoretically you should be able to. Which is why the novated vehicle lease business has grown so rapidly, because that effectively enables people to deduct the cost of travelling to their chosen place of work. Bad luck for all of us who travel by public transport.




The cost of travelling from your home to work is not a work related cost.

It is the cost relating to your choice where you live, a personal aspect of your life.

No worker, contractor or business can claim as a deduction ‘personal’ costs.


So there you have it, proles: The industrial revolution never happened. You always have the option of living at your place of work. If your place of residence is somewhere else, that is a “personal” choice on your part, and the cost of travel between the two is a ”personal” expense, not a work-related expense. If you want a big deduction against the wages of your labour, you'll have to gear up and speculate on assets.

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