Government to introduce 2.25% Levy on Sale of Investment ppty's
- Thread starter Learner
- Start date
Well,
it will be DAMN interesting to see where this goes - I for one am not suprised and think our taxes are going to get worse before better. I have read that:
- 20 years ago 18 taxpayers per 1 welfare recipient
- today 6 taxpayers per 1 welfare recipient
- 2020 1 taxpayer per welfare recipient
I know in 1989 our welfare budget was around 30% GDP, in 2003 it was close to 45%.
Even if the above is not totally accurate it sure highlights a trend IMHO
So does this new tax mean:
1) suddenly new home buyer's affordability improves
2) sale of IP's incurring the sale levy decreases
3) rents go up to dampen effect of land tax
4) the above impacts demand and supply of NSW sub $500k
5) these prices go up
???????????
Oh sorry, forgot, silly me, then Carr takes credit for fixing up Howards/Costello's tax grab mistakes?
Oh well wot can ye say..........
Timbo
it will be DAMN interesting to see where this goes - I for one am not suprised and think our taxes are going to get worse before better. I have read that:
- 20 years ago 18 taxpayers per 1 welfare recipient
- today 6 taxpayers per 1 welfare recipient
- 2020 1 taxpayer per welfare recipient
I know in 1989 our welfare budget was around 30% GDP, in 2003 it was close to 45%.
Even if the above is not totally accurate it sure highlights a trend IMHO
So does this new tax mean:
1) suddenly new home buyer's affordability improves
2) sale of IP's incurring the sale levy decreases
3) rents go up to dampen effect of land tax
4) the above impacts demand and supply of NSW sub $500k
5) these prices go up
???????????
Oh sorry, forgot, silly me, then Carr takes credit for fixing up Howards/Costello's tax grab mistakes?
Oh well wot can ye say..........
Timbo
geoffw said:
Hi Geoff,
I did say "what the market would bare".... but I really wonder whether this is going to generate some REALLY fundamental changes in NSW Property Investment.
Rental Yields(especially in Sydney etc) have been dropping to such low levels that no one in their right mind would buy an investment property for these ridiculous returns. Capital growth (with a barely acceptable level of tax) has been what has kept things going.
If we are to assume that much of the market has peaked and that we can expect somewhat subdued Capital Growth in the next couple of years, I really wonder whether these tax changes will be the 'last nail in the coffin' for some property investors. Although they're even trying to nail the door shut with the exit Stamp Duty.
A reduction in property investors will obviously affect supply and send up rents. What will cause it I'm not exactly sure, but current Rental Yields are not sustainable in the long term. Something has to give and this may well be it.
Time will tell.
Acey,Aceyducey said:
As I mentioned earlier, I'm a newcomer to this country, so please apply a great degree of caution to any of my local unexperienced analyses
. About my traps, I had avoided some but in a different situation and in a different place.
There must be
How about the tax, council rates, agent fees & maintanence expenses on that 31K from rent? And, BTW, there are no bank fees. 86K after tax is 58.7K
But then one should borrow 1.52Mil, that is repayments of 2046 pw IO @7%, 106.5K pa for "renting" that money from the bank!
That is, if there is growth. And if not?
Now let's look from another angle, hypothetically: Your investor pays 106.5K pa interest for "renting" the cash FROM the bank in that proposed 1:20 leverage. The cashed up tenant gets 82K pa for letting the above mentioned sum TO the bank, that is roughly 56.5k after taxes. He pays the landlord 31K for living in a well maintained property, all expenses included, and still gets his 25.5K change.
What do we have here? - The tenant lives "for free", plus gets 25.5K (after tax) from his leveraged landlord, plus any risks of market fluctuations and illiquidity are on the landlord. What do you think of this?
Heres one part of the Budget Release that jumped out at me as being patently absurd, and doesnt seem to have been mentioned yet (regarding the 2.25% sale levy) ...
So, in other words, to avoid the levy you need to have bought a house for 200k and sold it for less than 24k...
Or...
If you bought a property for 200k, but due to some unforseen circumstance were forced to sell it for 150k, not only would you lose 50k of your original investment, you would also be liable for a sale levy of $3,375...
Im hoping this is a mistake... Any thoughts?
Jamie.
So, in other words, to avoid the levy you need to have bought a house for 200k and sold it for less than 24k...
Or...
If you bought a property for 200k, but due to some unforseen circumstance were forced to sell it for 150k, not only would you lose 50k of your original investment, you would also be liable for a sale levy of $3,375...
Im hoping this is a mistake... Any thoughts?
Jamie.
Last edited:
I am not so sure that its all bad news.
Investors don't have to sell.
The government will probably find that they are not able to raise the 690mil.
because investors won't sell.
The new measures will probably stop speculators from getting into
property. The serious investors will still invest.
It seems that we will have a shortage of property after July and thats
likely to push prices up.
Properties below 500K will now be even more affordable and they will be in
demand. Perhaps now its the time to snap up a few cheapies before they go
up.
The new land tax is a problem for those previously excempt but its all tax
deductible anyway. I don't mind paying 50% of the 04% in land tax for an
extra capital gain of lets say 5%?
I can see a Shortage of rental properties in the future.
That shortage is likely to push rents up.
cheers
Investors don't have to sell.
The government will probably find that they are not able to raise the 690mil.
because investors won't sell.
The new measures will probably stop speculators from getting into
property. The serious investors will still invest.
It seems that we will have a shortage of property after July and thats
likely to push prices up.
Properties below 500K will now be even more affordable and they will be in
demand. Perhaps now its the time to snap up a few cheapies before they go
up.
The new land tax is a problem for those previously excempt but its all tax
deductible anyway. I don't mind paying 50% of the 04% in land tax for an
extra capital gain of lets say 5%?
I can see a Shortage of rental properties in the future.
That shortage is likely to push rents up.
cheers
Caution is one thing Spark, but there's a difference between caution & ignorance!spark said:What do you think of this?
I think you need to do a lot more work to understand property
'If there is any growth'....
Well look at the key indicators & trends over the last 30+ years - you can expect house prices in Sydney to double in 7-8 years (per last 4 cycles).
Let's say this cycle is extended due to the extended boom - to 10 years.
That means that over 10 years your $1.6M property increases in value to $3.2M - and keep in mind that you carefully selected this property after quite a bit of research, we're not throwing darts at a map here.
NOW not that many property investors buy one $1.6M property as their portfolio anyway - however I'll run with it because you seem fairly deadset on this level of investment.
So you make 160K profit per year from CG - PLUS your rental income of $31K (hmm - dunno how you work this one out either, but it still works) - we'll even say that rents don't change for 10 years (and that interest rates don't change to be fair). Let's say it costs you $100K on top of this per year to hold - Government subsidies half of this via negative geating & you pay $50K per year out of your pocket...
Thus your profit per annum is cut right back to an averaged $110K per year.
This is NOT taxed unless you sell the property....if you do sell you pay 50% in CGT, walking away with $800K.....
Now let's look at your Cash at Bank - oh dear, the property profit AFTER tax is quite a bit more than the $567K (10x your Citibank figure...which is using tax rates assuming it's your sole income) you get for keeping the money in the bank - assuming these interest rates remain stable as well & they don't introduce any fees in that period.
But I've forgotten compounding - that would make your bank interest over 10 years a grand total of $963K...but you have to then pay tax each year - assuming it ISN'T your sole income you only walk away with $510K at the end of ten years...hmm worse than your no-other-income figure.
Of course, you don't need to pay the $800K in CGT to the government anyway - you can simply hold the asset & drawdown on your equity - either to buy other assets or to buy a tax-free income stream, such as an annuity.
Even if you do decide to sell, you can carry losses over (assuming you're a smart investor & buying via a Hybrid Unit Trust to allow both loss carries & negative gearing) and significantly reduce the tax you pay anyway.
So in your example Spark, property is far and away the better investment.
Spark if you've got a serious intention to invest in property you'd do well to read this forum some more and invest some time reading some good property books.
Cheers,
Aceyducey
Hi all
Well the Labour government has now actually helped the rich for change
Firstly everybody who had ips in a trust will benefit as the their land tax bill will be cut considerably.
Now let's consider an investor who has 20Mil worth of ips in a trust :
Previously he was paying 20 000 000 x 1.7% = 340 000 per year
Now he is paying
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
19 500 000 x 1.4% = 273 000
Total of 275 000 per year that's a saving of 65 000 per year
Now let's go a step further. Let's say he has 20 x 1Mil ips in 20 different trusts
Previously it would have been the same 340 000 per year.
But now it's
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
500 000 x 1.4% = 7000
That's 9000 for each ip so a total of 9000 x 20 = 180 000
That's a great saving of 160 000. That's almost HALF his previous land tax bill.
I like this labour government.
Regards
Investor
PS. It's late and my figures may be totally wrong, please correct them if they are.
Well the Labour government has now actually helped the rich for change
Firstly everybody who had ips in a trust will benefit as the their land tax bill will be cut considerably.
Now let's consider an investor who has 20Mil worth of ips in a trust :
Previously he was paying 20 000 000 x 1.7% = 340 000 per year
Now he is paying
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
19 500 000 x 1.4% = 273 000
Total of 275 000 per year that's a saving of 65 000 per year
Now let's go a step further. Let's say he has 20 x 1Mil ips in 20 different trusts
Previously it would have been the same 340 000 per year.
But now it's
400 000 x 0.4% = 1600
100 000 x 0.6% = 400
500 000 x 1.4% = 7000
That's 9000 for each ip so a total of 9000 x 20 = 180 000
That's a great saving of 160 000. That's almost HALF his previous land tax bill.
I like this labour government.
Regards
Investor
PS. It's late and my figures may be totally wrong, please correct them if they are.
dantheman said:
Hehe Dantheman,
You have hit the nail on the head! The very govt that supposedly "encourages" us to be independent and save for our own retirement (rather than rely on the pension) through investment vehicles has penalized us for the privilege. They are using our education and motivation against us. Then again, we are all able to "afford" this, so we should suffer shouldn't we?
*Jax goes and buries her head in her Capitalist Pig manual again *
In this mornings SMH, one of our forum members ROSSV features on page 7.
Ross says his rentals will need to increase by 10% to cover this new land tax - and he probably sell at least one property as a result.
Ross is right - these taxes are over the top.
Fancy making you pay 2.25% on the whole amount!!!! - rather that the capital gain which would have been a slightly fairer way of doing it.
So basically, some principles will become even more relevant from now on for the serious property investors -
1/Hold in different trusts to minimise land tax per year.
2/Use your equity and NEVER sell.
Ross says his rentals will need to increase by 10% to cover this new land tax - and he probably sell at least one property as a result.
Ross is right - these taxes are over the top.
Fancy making you pay 2.25% on the whole amount!!!! - rather that the capital gain which would have been a slightly fairer way of doing it.
So basically, some principles will become even more relevant from now on for the serious property investors -
1/Hold in different trusts to minimise land tax per year.
2/Use your equity and NEVER sell.
I wonder if the new levy will have any affect on Agents selling fees...
Now on the sale of a 500k property, not only do you have the 25% CGT levied on the profits, and the agents $12k+ selling fee (approx 2.5%), now you have the additional 2.25% sale levy (another $11k+)
I wonder if this will spark a new bidding war between agents to secure the dwindling number of investors selling properties due to the new levy.
If this additional levy is coming out of each and every sale, will agents be forced to drop their fees?
Jamie.
Now on the sale of a 500k property, not only do you have the 25% CGT levied on the profits, and the agents $12k+ selling fee (approx 2.5%), now you have the additional 2.25% sale levy (another $11k+)
I wonder if this will spark a new bidding war between agents to secure the dwindling number of investors selling properties due to the new levy.
If this additional levy is coming out of each and every sale, will agents be forced to drop their fees?
Jamie.
This Government is not totally stupid.
By getting a grip on land tax with no threshold provides them with a steady income stream regardless of the property cycle. Boom or bust they get their dollars.
It also appears that there is no allowance for indexation in the proposed legislation, thus land values will increase and ultimately the $300K land will become $450K in a few years and into the next bracket.
Rents will have to increase to cover the impost on the investor.
The worst affected will be the battler (who rents) and the self funded retiree with 1 or 2 IPs that cannot carry the land tax burden in the short term.
The main advantage is for those that have IPs in Disc/HDT as overall they will pay less land tax.
The initiatives for the first home buyer are great, however the cost of the stamp duty on sale will be ultimately borne by the purchaser which may well include these people anyway.
Most sellers not forced to sell, know how much they want in their hand after agent fees etc. This stamp duty will become a function of the sale price and may well force prices up.
This reinforces the strategy of buy and hold for the long long term.
Nick M
By getting a grip on land tax with no threshold provides them with a steady income stream regardless of the property cycle. Boom or bust they get their dollars.
It also appears that there is no allowance for indexation in the proposed legislation, thus land values will increase and ultimately the $300K land will become $450K in a few years and into the next bracket.
Rents will have to increase to cover the impost on the investor.
The worst affected will be the battler (who rents) and the self funded retiree with 1 or 2 IPs that cannot carry the land tax burden in the short term.
The main advantage is for those that have IPs in Disc/HDT as overall they will pay less land tax.
The initiatives for the first home buyer are great, however the cost of the stamp duty on sale will be ultimately borne by the purchaser which may well include these people anyway.
Most sellers not forced to sell, know how much they want in their hand after agent fees etc. This stamp duty will become a function of the sale price and may well force prices up.
This reinforces the strategy of buy and hold for the long long term.
Nick M
perky29 said:
how will holding in different trusts minimise land tax per year? Its my understanding that under this new policy, that the tax will be applied to individual properties rather than the sum of the properties, probably with the aim of stopping people from setting up multiple trusts with this end in mind.
regards,
julie
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