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Capital Gains Tax and Negative Gearing; Myths
Topic Started: 9 Feb 2011, 04:18 PM (6,421 Views)
Bob
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What about if I sub divide a property and sell immediately? is 100% of this subject to CGT?

What if a) I subdivide a property I've lived in for 10 years and sell the new land immediatley?

or b) I purchase a property sub divide and sell both immediately all within a few months?
Edited by Bob, 9 Feb 2011, 09:47 PM.
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BubbleBoy
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Strindberg
9 Feb 2011, 04:18 PM

Negative Gearing has always been around. It was partially removed for 2 years from 1985 to 1987. I say partially because it was only stopped for new transactions. People were still entitled to claim NG for previous purchases. Losses on new transactions could be deferred and used against gains later. In fact when the full NG was restored, in 1987, any losses for transactions between 1985 and 1987 could immediately be set against other income. So NG never really went away.

Although most of this paragraph is correct, I disagree with the comment that NG "never really went away". I get what you are saying, but the quarantining of net rental losses to future net rental gains - albeit only for properties purchased after the relevant date - was in fact getting rid of NG.
My name is based on a Seinfeld character, not on a belief of a housing bubble.
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BubbleBoy
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Bob
9 Feb 2011, 09:47 PM
What about if I sub divide a property and sell immediately? is 100% of this subject to CGT?

What if a) I subdivide a property I've lived in for 10 years and sell the new land immediatley?

or b) I purchase a property sub divide and sell both immediately all within a few months?
a) Subject to CGT. I see no reason why you won't get a 50% concession. However, if you sold the subdivided bit that you lived on you would be exempt from CGT under the main residence exemption - ie, subdivide land, move onto the bit you weren't living on before (assuming there's a residence there!), sell the bit you were living on before, would be exempt.

b) You would pay CGT on both bits assuming you didn't live in any of them. Assuming was sold in less than 12 months, no 50% concession.
My name is based on a Seinfeld character, not on a belief of a housing bubble.
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nasty
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barns
9 Feb 2011, 04:46 PM
You are seriously an odd little man if you think that is a refutation of strindbergs point.
+1 and an odd raving mad little man at that. Still, there is no point in arguing with people like that because they are always right even when they know they are wrong. :laughing:
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matthew_50
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regardless, anyone can see that negative gearing encourages speculation in capital gains rather than the more fundamental, income. i.e. rent.

while this acts as a great accommodation affordability scheme (rents are low because to an investor, its just something that gets in the way of their tax refund)

except its eventually going to fail at that too... because its negative effect on affordability (house prices) is far worse than its positive effects...


how about... give em a tax break on rent earnings instead? ?? just thinking aloud...

maybe franking credits!! consider the house a 'business' in which the 'employees' (tenants) make money (income) get taxed on it (income tax) and then use that after tax income to pay the 'investor' (rent, to the land lord) :D

come on guys... work with me here!!

P.S.:

if you wanna look at history... maybe it wasn't negative gearing on its own that's the problem... maybe its the combination of it and EASY CREDIT... (which is a relatively new thing)

it does act to amplify any adverse effects of easy credit...





Edited by matthew_50, 11 Feb 2011, 12:01 AM.
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ckmurray
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Strindberg
9 Feb 2011, 04:18 PM
I'll start with this one, repeated only 2 days ago by one of the bears' pin-up boys, Cameron Murray:

http://macrobusiness.com.au/2011/02/trouble-on-the-western-front/




Negative Gearing has always been around. It was partially removed for 2 years from 1985 to 1987. I say partially because it was only stopped for new transactions. People were still entitled to claim NG for previous purchases. Losses on new transactions could be deferred and used against gains later. In fact when the full NG was restored, in 1987, any losses for transactions between 1985 and 1987 could immediately be set against other income. So NG never really went away.

Another myth is that the CGT 50% discount for holding 12 months is a modern perk for property investors and has pushed up property prices.

The first thing to point out is that before 1985 no one paid CGT. Property investors before 1985 had a great advantage over property investors nowadays. Property investing is penalised now compared to pre-1985.

The second point is that the 50% discount introduction in 1999 was coupled the removal of CPI indexing. This has the effect that for all modest capital gains, up to twice the inflation rate, the tax payable is now greater than it was before 1999, before the discount system came in.
For example, take a one year gain (after cost base allowances etc) of X% on $1m, marginal tax rate of 48% and CPI of 3%:

a) X=1.5%
pre 1999 tax = ZERO,
post 1999 tax = $3,600

b) X=3%
pre 1999 tax = ZERO
post 1999 tax = $7,200

c) X= 4.5%
pre 1999 tax = $7,200
post 1999 tax = $10,800

d) X = 6%
pre 1999 tax = $14,400
post 1999 tax = $14,400
Again, Strindberg, I think you have me mixed up.

1) The text you quote was not written by me. I was arguing against Leith's arguments over housing supply.
2) I am not of Delusional Economics fame. I had a blog at http://ckmurray.blogspot.com but now just occasionally comment on other sites.

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Strindberg
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ckmurray
11 Feb 2011, 12:57 PM
Again, Strindberg, I think you have me mixed up.

1) The text you quote was not written by me. I was arguing against Leith's arguments over housing supply.
2) I am not of Delusional Economics fame. I had a blog at http://ckmurray.blogspot.com but now just occasionally comment on other sites.
Apologies for my misunderstanding. The gist of the OP stands. I'll delete the reference to you.
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ckmurray
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Strindberg
11 Feb 2011, 01:23 PM
Apologies for my misunderstanding. The gist of the OP stands. I'll delete the reference to you.
Thank you Strindberg.
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Admin
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(2009 article) http://www.thepunch.com.au/articles/should-we-pay-capital-gains-tax-on-the-family-home/

Quote:
 
Should we pay capital gains tax on the family home?

by Roger Coombs

21 Aug 05:50am

WHILE the Federal Government was quick to rule out speculation earlier this week that it was considering a capital gains tax on the family home, those reports would have sent a chill to the heart of many home-owners, particulary at a time when the International Monetary Fund is specifically advocating just such a tax.

And those who tend to scepticism - probably most of us - when it comes to such government “reassurances” may have derived little comfort from the denials. Especially as Treasurer Wayne Swan refuses to rule out the prospect of a tax on the rising value of family homes.

But what about the issue itself? Should we be outraged at the suggestion of a tax on this particular form of capital appreciation – particularly if it were to be levied, as has been suggested, only on the owners of the most expensive homes.

Well, many people would argue that since we have paid with post-tax dollars for our homes, we should be entitled to take advantage of their appreciating value without the prospect of a tax penalty.

After all, the capital appreciation of a home is something you don’t actually get to “capitalise” on – not until you sell up, and then, the probability is you’re in the market for another home, so your capital gain is going to be accounted for pretty quickly unless you’re down-sizing.

But there are other arguments – one of them being then old probate, or “death duty” argument. For what is the moral foundation of inherited wealth?

Why should the wealth accumulated by one hard-working generation be passed on completely intact to the next? Shouldn’t we all make our own way in the world on a relatively level playing field? After all, it’s not contemplated (is it?) that a capital gains tax on family homes should have the effect of confiscating any capital gains altogether, only that – perhaps - a tax might be “considered”.

The answer to the rhetorical question posed above might be pretty simple. Why shouldn’t I be able to pass on my assets to my kids without the threat of the government getting their grubby paws on my hard-earned wealth? For to paraphrase the late Kerry Packer, governments don’t spend tax receipts – fundamentally our money - all that wonderfully well.

But for all that, taxation is an inescapable reality; one of the two great certainties of life. Governments levy taxes in virtually every economic sphere. And there is no serious argument that our society could continue with out taxation. As emotional as the issue might be, our consent to the payment of our taxes is what the keeps society running, so why do we have such an emotional reaction to a tax on our homes?

Perhaps are part of the answer is that such a tax would act so blatantly as an income redistribution measure – a Robin Hood tax if you like. Why would any hard-working person be in favour of that?

But again, a measure of income redistribution is something we expect of our governments. Don’t we want disadvantaged schools - for example - to be given a dose of positive discrimination? Don’t we want governments to play a role in providing help and support for the less well-off? Public housing, unemployment relief, means-tested child care assistance – they’re all about income redistribution at their core, and those measures are supported, to a greater or lesser degree, on both sides of the political spectrum.

Anyway, I guess we all stand by, expecting the worst. Having spent a poultice on the “stimulus package” which has been responsible, we are told, for the fact at we are now emerging from the worst recession since The Great Depression, it shouldn’t come as any surprise to anyone that the government might now start to think of ways to get some of that cash back.

The depressing thing is just the lack of certainty. If governments would simply allow us into their thinking without considering the political consequences of absolutely every sentence, life would be a whole lot simpler.

Like we expect that to happen…
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zaph
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Alex Barton
13 Sep 2011, 01:37 PM
CGT on the ppor is a really bad thing. it discourages mobility of the workforce.

say i bought in brisbane 10 years ago for 200k and am offered a better job in melbourne. i want to buy the same style of place but if the market has doubled i will be forced to pay CGT on 200k, leaving me short for the next place.
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