Identify and evaluate key arguments both for and against retaining these tax concessions, law homework help


Question Description

Part A:

Housing affordability is a goal of governments and opposition parties in Australia. A topic of discussion in the media is whether negative gearing combined with the capital gains tax discount (‘tax concessions’) increases speculative activity in the housing market – to the disadvantage of the first home buyer.


Identify and evaluate key arguments both for and against retaining these tax concessions if housing affordability is to be achieved. In your response you must explain what is meant by negative gearing and how capital gains arising from property investment are treated. You should refer to sections of legislation, tax rulings and cases where relevant.

Part B:

Jai is 50 years old, currently employed and planning to retire when he is 70. As part of his plans for retirement Jai recently sold the large home he has lived in for many years – planning to purchase a smaller home to live in and also an investment property. After paying expenses associated with the sale and repaying his home loan Jai was left with $200,000 cash. Jai has placed an offer of $200,000 with a real estate agent to purchase a home which will be Jai’s principal place of residence. Jai has also placed an offer of $150,000 to purchase an investment property to be used for rental income. Jai does not have enough funds to complete the sales on both properties, but his bank manager has approved a loan for the shortfall of $150,000 at an interest rate of 5% per annum. In order to prepare loan documentation, the bank manager needs to know whether Jai


a) use the $200,000 cash to pay for his new home and use the borrowed funds of $150,000 to purchase the investment property;

b) use $150,000 of the cash to pay for the investment property and then pay for his new home with the remaining $50,000 cash and the borrowed funds of $150,000; or

c) pay for his new home by using $100,000 of the cash and $100,000 of the borrowed funds; and pay for the investment property by using the remaining $100,000 cash and the balance of the borrowed funds ($50,000).


Assume Jai’s goal is to take advantage of negative gearing opportunities and receive the most favourable tax treatment. Advise Jai which of the three options – a), b) or c) - would best achieve this goal. Give reasons for your answer.

1500 to 2000 words for part A and B all up together

You MUST reference in the body of the essay every time you use information from other people. This requires you to keep a track of where you are taking information from and then writing the reference up. You should use the Harvard style.

Tutor Answer

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Running head: TAX CONCESSION


Tax Concession
Institution Affiliation



Tax Concession
According to economics, tax concessions can be defined as a special provision for a firm
not to pay a tax that it automatically owes. The local, state or the national government as a means
of investment provides this. It is always realized by the government where there is the need of
seeking or attracts investment, to some extent the benefits of the country might be undermined,
which may otherwise be received from the foreign direct investment. Concerning law, it is the
reduction of the amount of tax that needs to be paid. This element of tax concessions has been
capitalized in most of the countries as a means of increasing investment in the country (Bourassa
and Grigsby, 2000).
Part A
The affordability of housing remains a key attribute of the government and at the same
time, the opposition parties in Australia. For this to be evaluated, there is the need for ensuring
that there is increased assessment of whether negative gearing combined with capital gains tax
increases speculative activity in the housing market. Therefore, during the analysis, there is the
need of arguing for and against these speculations.
Negative gearing remains to be a form of financial advantage in that the investor borrows
capital, that he or she is required to acquire income. However, during investment, there is the
expectation of the gross income to generate by the investment. Additionally, there is the belief
that the cost of investment or production to remain low to gain profits. In most of the cases, the
investor may be able to enter into an arrangement with the expectation that he or she will have an
increased tax benefits when the investment is disposed of, and there is an accumulation of losses.
This is the position the investor will move to the tax tr...

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