The cost to the federal budget of negatively geared rental property deductions has fallen 12.5 per cent to $10.9 billion, the lowest level in four years because of record low interest rates.
Months from a federal election in which negative gearing will be a key issue, the latest Tax Office statistics show the country's two million landlords claimed interest deductions of $21 billion, a decline of 9 per cent, while earnings from rents were flat at $38 billion.
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The figures, published on Friday and based on taxpayer's 2013-14 tax returns, show 62 per cent of landlords are returning net losses, down from 64 per cent the year before.
A record 776,672 taxpayers earned a net profit from their investment property in fiscal 2014, an increase of 44,322 people compared with the year before.
Prime Minister Malcolm Turnbull has ruled out changes to negative gearing but Labor has proposed changes to limit all new negative gearing from July 2017 to new homes only.
The Turnbull government says the policy, in combination with Labor's plan to halve the 50 per cent discount on capital gains will "crash" the stock market and bring the economy "to a shuddering halt".
Shadow treasurer Chris Bowen told The Australian Financial Review that there would always be cyclical movements in the property market and that Labor's proposed reform was structural and for the long term.
"It's carefully calibrated, continuing for new properties while grandfathered for investors who have purchased their properties prior to 1 July 2017," Mr Bowen said.
Many experts, including the Grattan Institute, Business Council and the Henry tax review, argued for changes to negative gearing and capital gains tax.
KPMG tax partner Grant Wardell-Johnson said the figures show now is a good time to reform the taxation of savings, as fewer people will be adversely affected.
"Given the low interest rates, now is the time to reform the taxation of savings including the discount for interest income, both positively and negatively geared properties, interest expenses on shares and capital gains," he said.
Capital gains jump $4b
The Tax Office statistics show net capital gains being reported by taxpayers jumped 37 per cent to $14.4 billion, far faster than the rise in the property or stock markets.
Mr Wardell Johnson said the big rise was because losses from the global financial crisis have now washed through the system, inflating the level of gains.
The statistics show that the postcode with the highest mean taxable income was 2027, home to prime minister Malcolm Turnbull, which includes the Sydney suburbs of Darling Point, Edgecliff, and Point Piper.
Eight of the top 10 richest postcodes were in NSW or Victoria. WA's 6011, covering Peppermint Grove and Cottesloe was sixth, and 6009 covering Dalkeith was 10th.
The poorest postcode was 4467 in outback Queensland some 600 kilometres from Brisbane with a mean taxable income of $3,149.
Surgeons once again topped the list of occupations with the highest mean taxable income of just over $375,000, followed by anaesthetists, specialist doctors, financial dealers and judges and lawyers.
The Tax Office statistics show 8.5 million taxpayers claimed $20.8 billion in work related expenses, a rise of 2.3 per cent on the year before.
Mr Wardell-Johnson said men claimed $6 billion more in work-related expenses than women and while 77 per cent of the difference was largely due men earning more, 17 per cent was due to men being more aggressive in their tax returns.
In a recent court case, an IBM salesman made $100,000 in bogus work claims, including his family grocery bill and $5000 in "secretarial services" from his seven year old.
"In my personal view, men are more aggressive in claiming home office, travel, particularly at the higher income levels," Mr Wardell-Johnson said.
KPMG argues that work expenses should be capped. "Our argument is you need to cap them. In my view is they are capricious and should be cashed out."
He said work expenses were also based on law that now seems outdated.
"For example, a woman who drops her kids off at child care on her way to work, that's considered a private expense and not tax deductible.
"But a doctor whose employer won't pay for him to go to Vienna for a conference, so he pays for it himself; that's a deduction in our law. There is inequity in that."