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Capital Gains Tax and Negative Gearing; Myths
Topic Started: 9 Feb 2011, 04:18 PM (6,420 Views)
zaph
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Strindberg
9 Feb 2011, 04:18 PM
I'll start with this one, repeated only 2 days ago by Delusional Economics:

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
sorry i'm late to the party.....

you failed to mention a key piece of information about how cgt was calculated before 99:

the gain was indexed and then the tax worked out by dividing the gain by 5 working out the tax at the marginal rate and multiplying it by 5.
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matthew_50
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no, because then you can't upgrade, or even move.

(RE: CGT on PPOR)
Edited by matthew_50, 13 Sep 2011, 02:33 PM.
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Trojan
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I think CGT on PPOR is a bad idea.

Very few people will sell their home because you won't be able to buy back something similar after you have paid your capital gains tax.
Right now I know people who started with a 2 bedroom apartment and then upgraded to a 3 bedroom house when they started a family.
Introduce capital gains tax and people will buy the "very best home" they can afford as their first home.
Edited by Trojan, 13 Sep 2011, 03:16 PM.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Admin
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Administrator

Quote:
 
Removal of CGT discount for non-residents

The Government will remove the 50 per cent capital gains tax (CGT) discount for non-residents on capital gains accrued after 7:30pm (AEST) 8 May 2012. The CGT discount will continue to be available for capital gains accrued prior to this time where non-residents can then choose to obtain a market valuation for assets as at 8 May 2012.

This rule will largely impact non-residents individuals holding interests in Australian real property.

It may also have wider implications for individuals departing Australia who hold CGT assets which are not Australian property, for example, Australian and foreign equities. While the CGT deemed disposal rule applies to such assets at the time an individual becomes a non-resident, a choice can be made to disregard the deemed disposal and treat the assets as “taxable Australian property”. It is not known how this proposed rule will interact with the CGT deemed disposal choice rule.

Read more: http://www.pwc.com.au/tax/federal-budget/2012/international-tax.htm
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themoops
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Ruby Member
Great news. Can't see the Chinese being keen on our property anymore.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
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hoofarted
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Love it!!!

About the only very good thing here.
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Future
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themoops
9 May 2012, 12:53 PM
Great news. Can't see the Chinese being keen on our property anymore.
This is a stupid move. The Chinese are our natural partners. They provided the demand for our resources. That's why are the new rich (the Arabs of the South Pacific).

Also, I think the Chiense are ambitious and aspirational. We can all learn from them.
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Shadow
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Evil Mouzealot Specufestor

The changes to CGT for foreign investors won't have any impact on property prices.

The Foreign Investment Review Board approved 9771 real estate investments in 2010/11. Approximately 450,000 property sales are conducted in Australia each year. So foreign investors make up about 2% of the market. Of that tiny proportion of the market, how many would be buying in order to flip/sell for a quick profit? Even fewer. Most foreign investors are probably of the 'buy and hold' variety, or are buying as a currency hedge or hedge against strife in their own country. Very few would be planning to sell. And in any case...

'The Government will remove the 50 per cent capital gains tax (CGT) discount for non-residents on capital gains accrued after 7:30pm (AEST) 8 May 2012. The CGT discount will continue to be available for capital gains accrued prior to this time'

So if they sell this year, they still get a CGT discount for all gains up until this point. It only affects foreign investors who choose to sell in a few years time. If, as the bears believe, we don't have much capital gain for the next few years, it's going to make zero difference.

This budget has been a net positive for house prices, because it gives money to people who are more likely to spend it, discourages saving, and returns us to surplus enabling the RBA to further reduce interest rates.
1. Epic Fail! Steve Keen's Bad Calls and Predictions.
2. Residential property loans regulated by NCCP Act. Banks can't margin call unless borrower defaults.
3. Housing is second highest taxed sector of Australian Economy. Renters subsidised by highly taxed homeowners.
4. Ongoing improvement in housing affordability. Australian household formation faster than population growth since 1960s.
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themoops
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Ruby Member
Future
9 May 2012, 01:17 PM
This is a stupid move. The Chinese are our natural partners. They provided the demand for our resources. That's why are the new rich (the Arabs of the South Pacific).

Also, I think the Chiense are ambitious and aspirational. We can all learn from them.
How much money are you making from mining? Not much I can tell you. Maybe a bit on your super or if you have shares.

The only thing we can learn from them is to not breed too much to make our workforce so desperate and our living standards so crap.

The only thing worth learning from the Chinese is how to make Mongolian Lamb.

It's all bs.
stinkbug omosessuale


Frank Castle is a liar and a criminal. He will often deliberately take people out of context and use straw man arguments.
Frank finally and unintentionally gives it up and admits he got where he is, primarily via dumb luck!
See here
Property will be 50-70% off by 2016.
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Future
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Shadow
9 May 2012, 01:23 PM
The changes to CGT for foreign investors won't have any impact on property prices.

The Foreign Investment Review Board approved 9771 real estate investments in 2010/11. Approximately 450,000 property sales are conducted in Australia each year. So foreign investors make up about 2% of the market. Of that tiny proportion of the market, how many would be buying in order to flip/sell for a quick profit? Even fewer. Most foreign investors are probably of the 'buy and hold' variety, or are buying as a currency hedge or hedge against strife in their own country. Very few would be planning to sell. And in any case...

'The Government will remove the 50 per cent capital gains tax (CGT) discount for non-residents on capital gains accrued after 7:30pm (AEST) 8 May 2012. The CGT discount will continue to be available for capital gains accrued prior to this time'

So if they sell this year, they still get a CGT discount for all gains up until this point. It only affects foreign investors who choose to sell in a few years time. If, as the bears believe, we don't have much capital gain for the next few years, it's going to make zero difference.

This budget has been a net positive for house prices, because it gives money to people who are more likely to spend it, discourages saving, and returns us to surplus enabling the RBA to further reduce interest rates.
Right on. This is the attitude. If the Chinese want to cash up, they can.

Perhaps this is the opportunity for us budding investors. We can buy off the Asians and rent back to other Asians. Then sell back to them when prices go to the moon!
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