Developers, hospitality operators in firing line over GST fraud
In a warning issued on Thursday, the Australian Taxation Office explicitly noted large companies in property, construction and hospitality were being monitored. The ATO's investigation tools have flagged that an increasing number of these companies are likely to be wrongfully claiming, in some cases, tens of millions of dollars in GST refunds.
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ABC News
17 hours ago
- ABC News
Higher interest rates smashed landlord profits, but negative gearing means few sold up
Eddie Dilleen is a 33-year-old who claims to own 150 properties. His confidence in property investing cannot be overstated. "To me it's definitely a no-lose game, it's the best way to create wealth in Australia," he says. Mr Dilleen runs his own buyers agency, and his holdings make him one of 166 mega landlords identified by the ATO as owning 20 or more rentals in their own name during the 2022/23 tax year. Mr Dilleen says despite amassing immense property wealth on paper, his personally held rentals run at a loss. "The biggest thing that I would focus on would be the capital growth and the ability to take that equity out from those properties and further expand," he says. Cash flow "would be the last thing" Mr Dilleen says he would focus on. It is an approach that appears shared by most of the country's largest investors. The ATO data, released exclusively to the ABC, shows the only investors making an average rental loss in 2022/23 were those with 19 or more property interests, both on an individual investor and individual rental basis. The losses put mega landlords at the extreme end of a trend that swept through the rental market that year. In 2022/23, profits from investor-owned rentals plummeted 73 per cent. In dollar figures, that equated to net rental income (income after expenses) falling from almost $5.9 billion in 2021/22, to less than $1.6 billion in 2022/23. Despite the drop, investor numbers, and the number of rentals they owned, shrank less than 1 per cent, suggesting falling rental profitability did not trigger any significant rental sell-off. Rachel Ong ViforJ, professor of economics at Curtin University, says she was so shocked at the collapse in rental revenues, she had to check it twice. "It's quite astounding," she says. Professor Ong ViforJ put the fall in profitability down to surging interest rates, plus rising rental management and repair costs. According to Reserve Bank figures, the average interest rate on variable-rate loans to property investors in 2022-23 was 5.7 per cent, up from 3.4 per cent in 2021-22 and just 3.5 per cent in 2020-21. The rise put the interest paid by investors at its highest since 2018-19, when it averaged 5.89 per cent. Although total net revenues remained positive, it was likely many rentals became loss-making that year, Professor Ong ViforJ says. She puts the lack of a widespread landlord sell-off down to two things: negative gearing rules allowing investors whose rentals were losing money to reduce their personal tax bills, and the promise of a large payday when rentals are sold, sweetened by the 50 per cent capital gains discount. The combination of these two tax breaks makes property investing attractive, she argues. The drop in rental profitability occurred despite a period of rapid rent increases, when rents jumped 7-9 per cent annually. Tim Lawless, chief analyst at property analytics firm Cotality, says the significant rise in rents from mid-2020 had "very little to do" with the interest rates expenses investors were facing. "The underlying forces of demand and supply were at play," he says. Independent economist Saul Eslake says some investors will have "welcomed" their rentals losing money in the higher interest environment. "They wouldn't have planned to have been positively geared during the COVID years, because that defeats the whole purpose of negative gearing, which is to reduce tax payable on other income," he says. The ATO data showed mega landlords with 20 or more rentals were the only group that made average losses throughout the COVID era of record-low interest rates. Mr Eslake says this underscores the importance of negative gearing to the wealthiest investors and scuppered the argument that it was predominantly used by "mums and dads trying to get ahead". "To which I always ask, ahead of whom?" Mr Eslake says. "The answer — their own children and grandchildren, or their children's and grandchildren's peers." Mr Eslake says other data from the ATO's 2022/23 Taxation Statistics reinforced it was the wealthiest investors capitalising most on negative gearing rules. "18.8 per cent of individuals in the top tax bracket report net rental losses, as opposed to just 6.3 per cent of those who are not in the top tax bracket," he says. A Parliamentary Budget Office (PBO) analysis, prepared at the request of former Greens MP Adam Bandt, confirmed the greatest negative gearing advantage goes to the highest-earning Australians, as do benefits gained from the capital gains discount. The PBO analysis estimates in 2025-26, the bottom 10 per cent of wage earners in Australia will get back just $152 million from these two tax breaks, while the top 10 per cent will get back over $2.9 billion. The same analysis shows investor tax savings, and government revenue lost, from negative gearing did jump as rental returns fell. It shows in 2022-23, negative gearing led to lost tax revenues of $3.5 billion — $1.4 billion more than the year before. The PBO analysis predicts the amount of tax income lost to negative gearing will rise significantly in the coming years, increasing to $5.2 billion in 2023-24, $6.5 billion in 2024-25, and will keep rising to an estimated $14.1 billion per annum by 2035-36. Australia Institute chief economist Greg Jericho says falling rental profitability in the ATO data shows negative gearing was becoming "a much more common situation" and investors are "winning both ways". "We've got a tax system that is geared towards making buying an investment property a pretty risk-free proposition," he says. Mr Jericho says theoretically investors shouldn't be able to negatively gear long-term, because it means they are losing money every year. "The only reason that is now a viable option is because of the 50 per cent capital gains discount," he argues. "You can afford to cover those losses, and live with the rental losses for a period, reduce your overall taxable income, and then when the price of the property goes up to a worthwhile amount you can sell it and get a 50 per cent tax discount that way." Mr Jericho says the ATO data should reignite discussions of limiting negative gearing to one or two rental properties per investor — a move that would not affect roughly 90 per cent of current investors. The ATO data shows about 817,000 properties were held by investors with interests in three or more properties in 2022-23. Despite this, Mr Jericho did not think limitations on negative gearing would dramatically affect house prices, as demand remained high. "Presumably those properties would mostly go to owner-occupiers, rather than investors [if they were sold]," he says. Mr Jericho's call echoes those of the Australian Council of Trade Unions, and the Australian Council of Social Services, both of which are calling for bold changes to negative gearing and the capital gains tax, with the latter wanting to see the tax revenue generated by changes invested into social housing. Property Investment Professionals of Australia (PIPA) chair Lachlan Vidler argues against changes to negative gearing, saying it would disincentivise investment, which would mean fewer rentals and reduced house building. Mr Vidler argues it would still damage sentiment across the sector, even if the majority of investors would be unaffected. "Considering we are in a rental crisis, the last thing we need is less rental properties on the market from investors," he says. Mr Vidler says Labor took negative gearing reforms to the 2019 election — an election the party lost — and voters would be shocked to see reforms back on the agenda so quickly after the recent election. In response to the added tax revenue negative gearing reforms would likely deliver, Mr Vidler questions why rises in government spending lead to discussions of who to tax more. "Why can't we look to be more efficient with the revenues we do create?" he argues. The vast majority of investors (a little over 1.6 million) own one rental, and a little over 423,000 investors own or part-own two rentals. Roughly one-in-10 investors own three or more but, because of the size of their portfolios, this relatively small group owns about a quarter of all rentals in the country. There are 2,529 investors who each have interests in 10 or more properties, and this group owns or part-owns more than 32,600 rentals. There are limitations on the ATO data — it doesn't capture rentals held in companies and trusts, and there is the chance some commercial properties are captured by the dataset, although economists say these numbers would be small. To estimate how many rentals and large investors the dataset might miss, the ABC contacted multiple property investment advisories. Data from these advisories showed roughly 70-75 per cent of clients held their rentals under their personal name, while the rest held rentals in trusts, companies or self-managed super funds, suggesting the ATO data was missing up to a third of rentals. Amanda Turner, director of Queensland-based investor advisory Opulence Property Group, says trusts are sometimes preferred because they protect the asset if, for example, the investor is thinking of handing property down to children. Eddie Dilleen says he holds most of his properties in trusts and companies, meaning most would not be captured in the ATO data. Mr Dilleen speaks at length about his own childhood growing up in public housing, and how it drove his determination to buy property. In his opinion, those struggling to buy a first home should not hate the investors — they should hate the tax rules that made the market. However, he doesn't think those rules should change. He says the key was figuring out the rules and how to take advantage of them. "It's always been like that, and always will be like that." Negative gearing was introduced in 1936, while the 50 per cent capital gains discount was introduced in 1999 and, before then, capital gains were taxed in the same way as other income, although only the "real" gain, over and above inflation, was taxed.
News.com.au
a day ago
- News.com.au
‘Our tax system is broken': Economist defends proposal to raise GST to 15 per cent
The expert behind a proposal to hike the GST to 15 per cent has defended the controversial plan, saying Australia's tax system is 'broken' and needs 'bold change'. Ahead of Labor's Economic Reform Roundtable next week, UNSW economist Professor Richard Holden and WA Teal MP Kate Chaney have floated a radical plan to overhaul Australia's tax system — by raising the rate of the goods and services tax (GST) for the first time since it was introduced at the turn of the century. Under the proposal — which has already been ruled out by Prime Minister Anthony Albanese — the GST would by raised from 10 per cent to 15 per cent and broadened to include fresh food, health, childcare and education. To soften the blow, all taxpayers would receive a $3300 annual rebate, effectively removing the GST on the first $22,000 of someone's spending. 'I think there's no doubt that our tax system is broken and it's time for a bold change, but I want to give them something back in return,' Prof Holden told Nine's A Current Affair on Thursday night. According to Parliamentary Budget Office costings, the plan would raise an additional $95.2 billion for the government in its first year of operation, minus the $3300 rebate to every adult. Low and middle-income earners would be up to $371 better off, but the top 20 per cent of earners would be $2200 worse off. That would leave the government with an additional $24 billion a year. 'The Parliamentary Budget Office has gone through that and they say that on average the bottom 60 per cent of income earners would be better off,' Prof Holden said. He argued the overhaul would give the government room to cut Australia's income tax rates, which are among the highest in the world. 'What this would do after the compensation is leave you with enough money to cut the top marginal tax rate from 45 per cent to 40 per cent, [and] the second marginal tax rate from 37 per cent to 32.5 per cent,' he said. Ms Chaney denied the $3300 rebate was a 'bribe'. 'No, it's simply returning the GST on the first $22,000,' she told the program. 'What we're saying is we need more tax, paid by people who can afford to spend more. We have one of the lowest GST in OECD countries, about half the average, so by bringing the GST more in line with other countries we will actually be able to have personal income tax cuts and fix the budget.' She conceded a 5 per cent increase to the GST would 'probably' cause a 'one-off shift' in inflation. While Mr Albanese ruled out the proposal, Ms Chaney said she hoped it 'starts a conversation' ahead of the next election. 'It's politically really scary for people to talk about tax and I understand that, but if someone doesn't start it then we're never going to make any progress at all,' she said. Host Ally Langdon pressed Ms Chaney on why more could not be done to cut wasteful government spending instead of raising taxes. 'I would like it if the budget actually matched up each year,' Ms Chaney said. 'The reality is we've got an ageing population which means more health costs, more aged care costs, we have an NDIS, we want to support people with disabilities. People do expect a lot from government services.' Speaking to ABC Radio Melbourne on Thursday, Labor MP Andrew Leigh said while he liked Prof Holden, the government had no plans to touch the GST. 'The Prime Minister and the Treasurer have a longstanding view on the on the GST,' he said. 'The government isn't doing any modelling at the moment and doesn't have any plans to change the GST.' Dr Leigh argued there were 'more efficient taxes than the GST'. 'It hasn't been at the centre of the conversation around productivity,' he said. 'There was certainly more discussion around corporate tax, and that's been a matter that has occupied much more discussion from the Productivity Commission for example, which has thought more about investment allowances and company taxes than it has about expenditure taxes.' Asked whether he supported Ms Chaney's proposal, Mr Albanese on Thursday replied, 'Governments make government policy … the only tax policy that we're implementing, is the one that we took to the election.' That includes Labor's legislated $5-a-week tax cuts which would grow to $10-a-week in the 2027-28 financial year, and the push to double taxes on superannuation accounts over $3 million to 30 per cent. Mr Albanese noted there would be a 'range of ideas floated' ahead of the Economic Reform Roundtable set to take place from August 19 to 21, adding that people are 'entitled to put forward their views'. Despite this, the PM has rejected increases to consumption taxes, like GST, stating they were 'regressive in nature'. On Sunday, the Australian Council of Trade Unions (ACTU) unveiled its own proposal, calling for cuts to negative gearing and capital gains tax concessions for property investors to be limited to just one property, following a five-year grandfathering period. Asked about the ACTU plan on Wednesday, Treasurer Jim Chalmers noted the government's longstanding promise to not adjust negative gearing and capital gains tax concessions, but said he didn't want to 'get in the habit of knocking off ideas before we get in the room'. 'The guidelines I've put around people's contribution is to make sure that there's specific ideas, that they're affordable, that they're in the national interest and people try and engage with each other and not just the government on them,' he said. 'Some people have embraced that challenge, others haven't. I've tried not to kind of engage in a daily running commentary on every idea that's pitched up.' Meanwhile, the Australian Council of Social Services (ACOSS), in its submission to the roundtable, has called for reform to the tax system to raise more revenue, reduce inequality and drive action to address climate change. 'For too long now, people with plenty have been showered with tax breaks that pull investment away from productive purposes and rob essential public services of the revenue they need,' Dr Goldie said. The council is advocating for changes to employment opportunities and streamlining income support. 'The extra revenue we need to fund care and community services, schools, and an income support system that protects people from poverty must come from those with the most capacity to pay — not those doing it toughest,' ACOSS chief executive Cassandra Goldie said. 'We must better prepare and train people for jobs and finally lift income support to levels that don't trap people in poverty and destitution.' Opposition leader Sussan Ley on Thursday accused the government of using the roundtable to push tax hikes under the guise of productivity reform.
7NEWS
a day ago
- 7NEWS
Australians ‘struggling more than ever' as debts reach six-year high
A record number of Australians experiencing 'very distressed' financial situations have reached out for debt support, and the pressures are showing no signs of abating. The National Debt Helpline had more than 168,000 people reach out during the 2024-25 financial year. It marks a record high with the most calls and chat messages since 2018-19. 'It's really telling us that people are struggling more than ever,' helpline coordinator Vicki Staff told AAP. The key issues weighing on Australians are housing stress, including mortgages, rent rates and strata or body corporate costs. Utilities including electricity, gas and water costs are among the other concerns as well as problematic credit card debt, personal loans and owing the Australian Taxation Office. Each state and territory can have a different order of the most prominent financial stress. 'You might find that in one state, utilities are actually coming through as the number one presenting issue, and then maybe housing number two,' Staff said. The current financial issues are different to those experienced in 2018-19 when rental stress, strata and body corporate costs were not reported as key pressures. Personal loans were also not a predominant issue in 2018-19. Instead, Buy Now Pay Later schemes were weighing on Australians. When Australians call the debt helpline, it is when they believe they have exhausted all their options to solve their financial woes. 'People have really done their best ... to cope with this cost of living crisis, but eventually they get to a point where they can't think of what else to do,' Staff said. 'It seems pretty insurmountable. They're usually in a highly stressed state.' But the debt crisis shows no sign of slowing, with 15,000 people already seeking support in July for the new financial year. There is hope the Reserve Bank of Australia will lower interest rates — currently at 3.85 per cent — later in 2025, which would ease some pressure on households. The central bank looks set to shave 25 basis points off the cash rate when it meets next week. The National Debt Helpline offers financial counselling and self-help guides to help provide options to overcome difficult financial situations.
