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The Taxation of Australian Landlords: Would the British Tax Treatment of Rental Investments Increase Tax Burdens if Introduced in Australia?

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  • Gavin A. Wood

    (Murdoch Business School, Murdoch University, Murdoch, Western Australia 6150, G.Wood@murdoch.edu.au)

  • Peter A. Kemp

    (Social Policy Research Unit, University of York, Heslington, York, Y010 5DD, UK, pakl@york.ac.uk)

Abstract

The tax treatment of housing can have important implications for the relative attractiveness of investment in housing. The tax regime for private landlords in Britain appears to be less favourable than in many other advanced welfare states, including Australia, where negative gearing is commonly cited as a tax preference encouraging investment in rental housing. If private landlords in Britain are tax disadvantaged compared with their Australian counterparts, tax burdens and rents will increase if British central government tax arrangements replace current provisions. This proposition is tested using micro data from a survey of private landlords in Australia to model the impact of the two tax regimes on their user cost of capital. It is found that, at the inflation rates prevailing in the early 1990s, tax burdens are marginally lower under Australian as compared with British tax arrangements. However, at lower rates of inflation, this conclusion is reversed; this is particularly the case for landlords with relatively short holding periods who invest in low-income rental housing.

Suggested Citation

  • Gavin A. Wood & Peter A. Kemp, 2003. "The Taxation of Australian Landlords: Would the British Tax Treatment of Rental Investments Increase Tax Burdens if Introduced in Australia?," Urban Studies, Urban Studies Journal Limited, vol. 40(4), pages 747-765, April.
    • Handle: RePEc:sae:urbstu:v:40:y:2003:i:4:p:747-765
    DOI: 10.1080/0042098032000065281
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    References listed on IDEAS

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    1. Wood, Gavin A, 1996. "The Contribution of Selling Costs and Local and State Government Taxes to Home Buyers' User Cost-of-Capital," Australian Economic Papers, Wiley Blackwell, vol. 35(66), pages 60-73, June.
    2. A. D. H. Crook & John Hughes & Peter A. Kemp, 1998. "Housing investment trusts and the returns from residential lettings," Journal of Property Research, Taylor & Francis Journals, vol. 15(3), pages 229-248, January.
    3. Jeffrey D. Fisher & George H. Lentz, 1986. "Tax Reform and the Value of Real Estate Income Property," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 14(2), pages 287-315, June.
    4. Crocker H. Liu & Terry V. Grissom & David J. Hartzell, 1990. "The Impact of Market Imperfections on Real Estate Returns and Optimal Investor Portfolios," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 18(4), pages 453-478, December.
    5. D. M. Kiefer, 1978. "The Equity of Alternative Policies for the Australian Homeowner," The Economic Record, The Economic Society of Australia, vol. 54(1), pages 127-139, April.
    6. repec:syd:wpaper:9702 is not listed on IDEAS
    7. Burman, Leonard E. & Ricoy, Peter D., 1997. "Capital Gains and the People Who Realize Them," National Tax Journal, National Tax Association, vol. 50(3), pages 427-51, September.
    8. Gavin A. Wood, 1990. "The Tax Treatment of Housing: Economic Issues and Reform Measures," Urban Studies, Urban Studies Journal Limited, vol. 27(6), pages 809-830, December.
    9. Kiefer, D M, 1978. "The Equity of Alternative Policies for the Australian Homeowner," The Economic Record, The Economic Society of Australia, vol. 54(145), pages 127-139, April.
    10. David C. Ling, 1992. "Real Estate Values, Federal Income Taxation, and the Importance of Local Market Conditions," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 125-139, March.
    11. Burman, Leonard E. & Ricoy, Peter D., 1997. "Capital Gains and the People Who Realize Them," National Tax Journal, National Tax Association;National Tax Journal, vol. 50(3), pages 427-451, September.
    12. Gavin A. Wood, 1990. "Housing Finance and Subsidy Systems in Australia," Urban Studies, Urban Studies Journal Limited, vol. 27(6), pages 847-876, December.
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    Cited by:

    1. Andrew Coleman & Grant M. Scobie, 2009. "A Simple Model of Housing Rental and Ownership with Policy Simulations," Treasury Working Paper Series 09/05, New Zealand Treasury.
    2. Gavin Wood & Sharon Parkinson & Beverley Searle & Susan J. Smith, 2013. "Motivations for Equity Borrowing: A Welfare-switching Effect," Urban Studies, Urban Studies Journal Limited, vol. 50(12), pages 2588-2607, September.
    3. Gavin A. Wood & Rachel Ong, 2013. "When and Why Do Landlords Retain Property Investments?," Urban Studies, Urban Studies Journal Limited, vol. 50(16), pages 3243-3261, December.
    4. Luci Ellis, 2006. "Housing and Housing Finance: The View from Australia and Beyond," RBA Research Discussion Papers rdp2006-12, Reserve Bank of Australia.

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