Individuals claiming a net rental loss starting to flatline
The number of individuals claiming a net rental loss has flat-lined over recent years according to recent data by the ATO. CoreLogic research analyst Cameron Kusher provides commentary on the recent data.
The Australian Tax Office (ATO) released their taxation statistics for the 2014-15 financial year last week, and from a housing market perspective it provides some really valuable data on property investor behaviour.
Over the 2014-15 financial year, property investors claimed $11.120 billion in net rental losses compared to $7.491 billion in net rental profit. The value of net rental profit rose by 0.3% over the year while the value of net rental losses was -2.3% lower resulting in an overall position of $3.628 billion in net rental losses claimed over the year. The $3.628 billion in rental losses over the year was the lowest value of overall losses since 2003-04.
Over the 2014-15 financial year, 15.7% of individuals claimed net rent. Overall, 6.0% of individuals claimed a net rent profit, and 9.7% of individuals claimed a loss.
The data also highlights that a relatively small proportion of individuals actually own an investment property, but the portion is growing. In the 2004-05 financial year, 13.6% of individuals claimed net rent. In 1994-95, the figure was 11.3%.
The above table breaks down the proportion of total individuals that are claiming a net rental profit or loss by their age. Individuals aged 70 to 74 years of age are the most likely to be claiming a net rental profit while individuals aged between 50 and 54 years of age are the most likely to be claiming a net rental loss.
If we look at the proportion of total net rental loss/profit claimants by age group, the trends are quite interesting. Less than a quarter (24.4%) of those individuals claiming a net rental profit are less than 45 years of age. Conversely, almost half of those individuals claiming a net rental loss over the year were under 45. The table shows that as an individual ages, they are increasingly less likely to be claiming a net rental loss.
You might say this is the way negative gearing is supposed to work: owners of residential investment properties look to secure a positive net rental income from their investments as they enter retirement.
Looking at the average net rental profit/loss by age group shows that older individuals are likely to claim greater net rental profits. At the same time, individuals aged between 50 to 54 years of age are likely to be claiming the greatest losses.
Individuals with a taxable income of between $500,001 and $1 million are most likely to be claiming a net rental profit while individuals earning between $40,000 and $50,000 are the least likely to claim net rental profits. In terms of net rental losses, 23.8% of all individuals with taxable incomes between $250,001 and $500,000, as well as $500,001 and $1 million, are claiming net rental losses. As taxable incomes increase, the data shows that these individuals are overall more likely to own rental properties and therefore claim either a net rental profit or loss.
Looking only at those individuals claiming a net rental profit or loss, the most likely to be claiming either have a taxable income of $100,001 to $150,000. The least likely income range to be claiming a net rental loss or profit are those with a taxable income of more than $1 million.
The above table shows the average net rental profit or loss claimed by taxable income ranges. People with a higher taxable income generally receive both the greatest average net rental profits and net rental losses. Previous data has shown that relatively few people sit in the higher taxable income brackets however, those that do and own an investment property enjoy substantially greater average profit or loss from those rental properties.
The final table highlights the number of individuals with interests in rental properties over the three most recent years along with how many properties they have an interest in. Overwhelmingly most people that have an interest in a rental property have an interest in only one with 90.3% of individuals having an interest in two or fewer rental properties. Over the most recent year, the number of individuals with an interest in five properties has recorded the greatest growth (7.4%) followed by: six or more properties (5.3%), four properties (4.5%), three properties (4.0%), two properties (3.4 properties) and one property (1.7%).
The data provides great insight into the characteristics of property investors. The data shows that just under 16% of individuals are property investors and, over recent years, the number claiming a net rental loss has been relatively unchanged. Furthermore, as interest rates have fallen, relatively fewer individuals are claiming a net rental loss. As you would expect, people in the middle of their working life are most likely to be claiming net rental losses and older individuals are most likely to be earning a profit from their rental property. Those on higher incomes tend to claim higher average net rental profits and losses. Finally, for most Australians that own a rental property, they only own one. However, individuals with a greater number of investment properties have been experiencing faster growth than those with relatively few properties over recent years.
With interest rates having fallen even further since June 2015 we would anticipate that the total value of net rental losses has also reduced. At the same time we have seen investment lending become more active since mid-2015. It will be interesting to see if that reflects a greater number of individuals owning investment properties, or those that already own investment properties buying more. We will have to wait until next year’s data to see how this plays out.