Government to introduce 2.25% Levy on Sale of Investment ppty's
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Lastly, I leave for a long weekend in NZ tomorrow. Maybe I should take the cheque book and avoid the "horrible taxes" in OZ. Do a Bob Carr and buy in NZ ?
Hang on, how do I tell "SHE who must be obeyed" arrr,..umm..lets spend our holiday looking at property?!?
(punch to ribs is non-verbal answer)
So some times paying taxes CAN be the less painful option
Peter 147
Lastly, I leave for a long weekend in NZ tomorrow. Maybe I should take the cheque book and avoid the "horrible taxes" in OZ. Do a Bob Carr and buy in NZ ?
Hang on, how do I tell "SHE who must be obeyed" arrr,..umm..lets spend our holiday looking at property?!?
(punch to ribs is non-verbal answer)So some times paying taxes CAN be the less painful option
Peter 147
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Some interesting editorial comment
Can't leave it seems. O' well I can sleep on the flight!
Here's some comment by SMH raising some very interesting figures and questions re application of the new tax, sorry levy.
http://www.smh.com.au/articles/2004/04/07/1081326794314.html
Check this excert out for truth in politics taken from article:
How many NSW residents will be affected by the land tax changes? In 2000-01, there were 421,616 NSW residents reporting rental income to the Australian Tax Office. That number would have substantially increased since then.
Moreover, the number takes no account of properties held which are not rented, such as holiday homes. Since the land tax will no longer have a threshold, all properties which are not the principal place of residence will be taxed.
The Treasurer has indicated that about 250,000 people will be affected. The ATO statistics would indicate that the number is more likely to be about 500,000, double the State Government's estimate.
The problems start? Peter 147
Can't leave it seems. O' well I can sleep on the flight!
Here's some comment by SMH raising some very interesting figures and questions re application of the new tax, sorry levy.
http://www.smh.com.au/articles/2004/04/07/1081326794314.html
Check this excert out for truth in politics taken from article:
How many NSW residents will be affected by the land tax changes? In 2000-01, there were 421,616 NSW residents reporting rental income to the Australian Tax Office. That number would have substantially increased since then.
Moreover, the number takes no account of properties held which are not rented, such as holiday homes. Since the land tax will no longer have a threshold, all properties which are not the principal place of residence will be taxed.
The Treasurer has indicated that about 250,000 people will be affected. The ATO statistics would indicate that the number is more likely to be about 500,000, double the State Government's estimate.
The problems start? Peter 147
Hi Peter
In regard to your clients inheritance your quote
Just a thought
Cheers
In regard to your clients inheritance your quote
"I have a client who just inherited $2.65M of property. He has no other investments. He worked 15 years as a carer to his Aunt for this bonus.
She paid Land tax at 1.7% and rates every year.
He had expected to pay agents fee, marketing, me and thats it. No CGT applies.
Now for no benefit the NSW gov will take on $2.65M $59,625 of his money."
Would this not establish a cost base at the time of the inheritance ie $2.65m, and as such the tax will not apply as he will not have made the 12% threshold!!!! Better still make sure that the valuations are done the ensure a slight lose on sale (particualrly in the current doom and gloom environment.She paid Land tax at 1.7% and rates every year.
He had expected to pay agents fee, marketing, me and thats it. No CGT applies.
Now for no benefit the NSW gov will take on $2.65M $59,625 of his money."
Just a thought
Cheers
Many people are obviously making decisions without thinking through the ramifications. Whilst these new taxes might make people consider where they want their next investment property to be and what structure they might hold investments in, why should they make us want to sell. While land tax in NSW now might take away some of the need for multiple trusts, multiple trusts might still be a means for people in their estate planning so that control of different trusts goes to different beneficiaries so beneficiaries can make their own choice of selling or holding without affecting other beneficiary's tax
Say someone has purchased a property and has after purchase and anticipated selling costs $100,000 CG, there will be $24,250 CG tax, meaning if you reinvest there is only $75,750 additional equity so on a 20% deposit borrowing would be around $300,000. However, if the property is retained and borrowings are against the $100,000 Capital growth, borrowings could be $400,000.
If a lot of investors put their properties on the market prices may fall, but if they do there will be some good buying opportunities. I look at it as if my property falls in value so does my neighbours and that will be more affordable. Look at the interest I can save. Looking at one property I have last month it was valued at $284k, 12 months earlier at $200K. Even if it falls to $200K, then I can buy the neighbour for $200K. So over 25 years at 7% interest I will save something like $96,000 in interest (or $48,000 out of my pocket after tax) and $84000 in principal. Yet the tenant will be paying me the same rent whether the property is $200K or $284K. So in the longterm scheme 2.25% duty on the sale price on exit is irrelevant. If the property value falls only by $20K, my interest saving is $22k before tax (11k) after and $20000 in principal.
Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?
For many of us we are aiming to use property as a means to a self-funded retirement. But for many of the people who invested and now intend to sell solely because of the tax, what was their purpose in investment?
Say someone has purchased a property and has after purchase and anticipated selling costs $100,000 CG, there will be $24,250 CG tax, meaning if you reinvest there is only $75,750 additional equity so on a 20% deposit borrowing would be around $300,000. However, if the property is retained and borrowings are against the $100,000 Capital growth, borrowings could be $400,000.
If a lot of investors put their properties on the market prices may fall, but if they do there will be some good buying opportunities. I look at it as if my property falls in value so does my neighbours and that will be more affordable. Look at the interest I can save. Looking at one property I have last month it was valued at $284k, 12 months earlier at $200K. Even if it falls to $200K, then I can buy the neighbour for $200K. So over 25 years at 7% interest I will save something like $96,000 in interest (or $48,000 out of my pocket after tax) and $84000 in principal. Yet the tenant will be paying me the same rent whether the property is $200K or $284K. So in the longterm scheme 2.25% duty on the sale price on exit is irrelevant. If the property value falls only by $20K, my interest saving is $22k before tax (11k) after and $20000 in principal.
Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?
For many of us we are aiming to use property as a means to a self-funded retirement. But for many of the people who invested and now intend to sell solely because of the tax, what was their purpose in investment?
I'd like to point out the the effects are exaggerated in NSW.jahn said:
They are the largest and wealthiest state.
12% of Australia's households is a national figure.
I'd anticipate that this would be much closer to 20% in NSW.
It only takes around a 5% shift in votes to unseat most governments in Australia.
With so many households in NSW holding IPs I'm sure the percentage of landlords previously voting for labour is well north of this 5% mark.
Interesting times!
The idea of a pre-sales stamp duty flurry of sales activity is a bit dubious.
Why sell your property at a discount (for a fast sale) now in a buyers' market to save the stamp duty? I'd suggest that you'd have to discount more than the impact of the stamp duty to sell fast!
Ergo - people are better holding on to their properties, maybe refinancing - business as usual!
Interestingly, the buzz in the ACT is that people will choose to buy into the new NSW developments occurring just over the border due to the removal of stamp duty for 1st homies......we'll see
I wonder if this is being reflected in other border regions - North Coast & Albury-Wodonga spring to mind.
Cheers,
Aceyducey
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geoffw said:
Notice how the NSW government gets it new taxes, but the Federal government has to pay out by having increased deductions on peoples tax returns. That's one way of getting back there GST revenue they were recently complaining about! Therefore in a round about way the entire national is affected.
Sit on Fence /Leave Wife @ home
Hi all .
My opinion . Don't rush in & Sell. Etc, Etc. As now paying Land tax.
Sit on the fence for a while. (See what happens. Don't follow the crowd)
#@#@#%****OK Know ya sick of my comment
Basically I feel a lot of mums & dads people that would have bought will not.
So although not immediately; but in the future 3yrs +. Supply of property available may drop.
Therefore creating a high demand. With limited supply
But Capital Growth May be a question After last 4 yrs + boom
Hi all .My opinion . Don't rush in & Sell. Etc, Etc. As now paying Land tax.
Sit on the fence for a while. (See what happens. Don't follow the crowd)
#@#@#%****OK Know ya sick of my comment
Basically I feel a lot of mums & dads people that would have bought will not.
So although not immediately; but in the future 3yrs +. Supply of property available may drop.
Therefore creating a high demand. With limited supply
But Capital Growth May be a question
After last 4 yrs + boom Property remains a great investment . . . and will outlast this economically stupid State Government!
Until then, there are many other places to invest . . . other states, shares etc.
Actually NSW has received exactly what it deserves, for voting these lying cretins back into power in the first place. I seem to recall that Carr promised to remove all road tolls IF we voted him in.
Where is the accountability??
The man is dishonest . . . I say VOTE HIM and his socialist cronies OUT.
Angry,
Steve
Until then, there are many other places to invest . . . other states, shares etc.
Actually NSW has received exactly what it deserves, for voting these lying cretins back into power in the first place. I seem to recall that Carr promised to remove all road tolls IF we voted him in.
Where is the accountability??
The man is dishonest . . . I say VOTE HIM and his socialist cronies OUT.
Angry,
Steve
I knew something like this had to come, it was just a matter of time. Infact I have no doubt that more changes will come soon to other states.
The government here does not want AUS properties to be similar to the crazy UK property prices. They either have to shutdown all the seminar shows or implement new changes. I wonder if anyone has general statistics on the property seminars from 1995-2004. These seminars and books have had a huge impact lately. For example, Joe goes and sees such seminar, I wonder how many friends he tells his newly found 'secrets' of the rich to. Probably 10.. who go tell another 10. It spreads like an air-borne virus, everyone gets the itch and wants to make a quick buck. Sooner or later you have a boom, even single mums on welfare are buying IPs (through Lowdocs)
Of course, when people apply rules that have worked for fundamentally hundreds of years, they will make money. It's property, if you play the game right and follow good tips from the book and seminars you're bound by the laws of property investing, the game that use to be available to only the rich. Now, the secret's been out and every average Joe is applying it. Once the secret becomes a common 'household' tip, then somethings got to tip.. It's like a magician, once his magics are revealed, its worthless. Keep it a secret and his a rich man (Copperfield anyone?). Its a universal principle. Unless the government steps in, everyone's going to keep doing it.
Now don't trash the government, Bob's not sitting in his room with a few beer mates making up this policy. This is the government you are talking about, the RICHEST business in the country. They have advisors who suggest what needs to be done. Of course at the end of the day, votes are important so they need to create policies that appear to favour the average Joe.
I don't see him getting voted out, statistics show us that randomly picking 100 Joes will yield a few smarties. The averages will win the vote over the smarties. The smarties of course is speaking about some investors/members on this forum.
The government here does not want AUS properties to be similar to the crazy UK property prices. They either have to shutdown all the seminar shows or implement new changes. I wonder if anyone has general statistics on the property seminars from 1995-2004. These seminars and books have had a huge impact lately. For example, Joe goes and sees such seminar, I wonder how many friends he tells his newly found 'secrets' of the rich to. Probably 10.. who go tell another 10. It spreads like an air-borne virus, everyone gets the itch and wants to make a quick buck. Sooner or later you have a boom, even single mums on welfare are buying IPs (through Lowdocs)
Of course, when people apply rules that have worked for fundamentally hundreds of years, they will make money. It's property, if you play the game right and follow good tips from the book and seminars you're bound by the laws of property investing, the game that use to be available to only the rich. Now, the secret's been out and every average Joe is applying it. Once the secret becomes a common 'household' tip, then somethings got to tip.. It's like a magician, once his magics are revealed, its worthless. Keep it a secret and his a rich man (Copperfield anyone?). Its a universal principle. Unless the government steps in, everyone's going to keep doing it.
Now don't trash the government, Bob's not sitting in his room with a few beer mates making up this policy. This is the government you are talking about, the RICHEST business in the country. They have advisors who suggest what needs to be done. Of course at the end of the day, votes are important so they need to create policies that appear to favour the average Joe.
I don't see him getting voted out, statistics show us that randomly picking 100 Joes will yield a few smarties. The averages will win the vote over the smarties. The smarties of course is speaking about some investors/members on this forum.
Just my view.
I think that there are a lot of Mum & Dad Investors out there at the moment who are already hurting because they are too negatively geared for their comfort zone. Along comes the Government and imposes Land Tax on top of this (remembering of course that most investors only have one investment property and probably don't pay Land Tax). This will in turn have the effect of them selling out, despite the new Stamp Duty, and spend their Capital Gain on either other investments or doodads. I believe that many novice investors will think that property has too many stumbling blocks in the way at the moment, so this will bring on lower prices and higher rents.
It could be time to go shopping soon.
Cheers
I think that there are a lot of Mum & Dad Investors out there at the moment who are already hurting because they are too negatively geared for their comfort zone. Along comes the Government and imposes Land Tax on top of this (remembering of course that most investors only have one investment property and probably don't pay Land Tax). This will in turn have the effect of them selling out, despite the new Stamp Duty, and spend their Capital Gain on either other investments or doodads. I believe that many novice investors will think that property has too many stumbling blocks in the way at the moment, so this will bring on lower prices and higher rents.
It could be time to go shopping soon.
Cheers
I think the saddest thig about this whole approach will be the damage it does to the newly found "let's provide for our own retirement" attitude in NSW.
Various seminars, books etc have really scared the pants off many to getting off their backsides, taking a bit of personal responsibility, get out of their comfort zones OR their own personal retirement may not be what they think it will be. If it's been a wakeup call for many.........good!!
In principle the Government loves this type of attitude as it may just reduce later funding burdens on the Government. However, human nature dictates that only some will take this type of action, only some will get these types of rewards....then what? Oh no........perceived inequality!! Some have more than others!! Quick.........let's chop down those wealthy rich investors asap......the attitude is lost and we go back to where we started.
I'm all for FAIR taxation. I want good schools, hospitals etc as much as anyone but the level of taxation on this asset class now goes beyond a joke. Also the gulf it artificially creates between other investment classes such as shares is simply wrong.
To be honest, while we investors will certainly get badly bruised by these taxes in many cases, we generally pocess the options/possibilities to pass some of these costs on through tax deductions and/or rent increases. But to who? Tenants and every tax payer in Australia.......that's who........and in the process many "mum and dad" investors will give up on providing for their own retirement because thay can't trust that the goal posts won't be moved again and again. The ripple affect damage of these types of short term policies are so much bigger than a simple short term grab for a few hundred million dollars.
Also, I personally know a few elderly people(definitely not wealthy) who worked hard to buy a little place down the coast as a weekender for their families etc. Pensioners in many cases. These people have none of the options to pass on costs that I do and many may well be forced to sell with this new Land Tax. Tell them to just go and find another couple of thousand dollars a year.
Yes....yes.....I'm glad first home owners got a reduction, and we might get better trains too........but as an overall package I think this one had some BIG holes in it.
Various seminars, books etc have really scared the pants off many to getting off their backsides, taking a bit of personal responsibility, get out of their comfort zones OR their own personal retirement may not be what they think it will be. If it's been a wakeup call for many.........good!!
In principle the Government loves this type of attitude as it may just reduce later funding burdens on the Government. However, human nature dictates that only some will take this type of action, only some will get these types of rewards....then what? Oh no........perceived inequality!! Some have more than others!! Quick.........let's chop down those wealthy rich investors asap......the attitude is lost and we go back to where we started.
I'm all for FAIR taxation. I want good schools, hospitals etc as much as anyone but the level of taxation on this asset class now goes beyond a joke. Also the gulf it artificially creates between other investment classes such as shares is simply wrong.
To be honest, while we investors will certainly get badly bruised by these taxes in many cases, we generally pocess the options/possibilities to pass some of these costs on through tax deductions and/or rent increases. But to who? Tenants and every tax payer in Australia.......that's who........and in the process many "mum and dad" investors will give up on providing for their own retirement because thay can't trust that the goal posts won't be moved again and again. The ripple affect damage of these types of short term policies are so much bigger than a simple short term grab for a few hundred million dollars.
Also, I personally know a few elderly people(definitely not wealthy) who worked hard to buy a little place down the coast as a weekender for their families etc. Pensioners in many cases. These people have none of the options to pass on costs that I do and many may well be forced to sell with this new Land Tax. Tell them to just go and find another couple of thousand dollars a year.
Yes....yes.....I'm glad first home owners got a reduction, and we might get better trains too........but as an overall package I think this one had some BIG holes in it.
Why does this silly term 'mum and dad investors' keep popping up!skater said:
Would people STOP using the term, as it is used, in a derogatory fashion.
Just because you're a parent doesn't mean you're a naive & inexperienced investor. In fact I'd suggest that the majority of experienced investors ARE Mums and Dads.
Characterising investors by whether they have children is a rhetorical tactic designed to emotionalise the poster's viewpoint. It doesn't make the viewpoint any more relevant - in fact it may detract from the relevance.
Frankly I believe that even when starting out in investing, anyone in an established long-term relationship with the responsibility of a family & the capacity to throw two viewpoints at investing is likely to be a significantly better money manager & investor, than, say, a single with no commitments, a large paycheck & dollar signs in their eyes.
I'm a Dad investor & proud of it!
Cheers,
Aceyducey
Hi Acey
Agree with your sentiment re the number of investors in NSW and the 'swing' figure for elections, but I'm not sure if the figure is totally correct in the first place, I was only re-quoting from a previous poster. I do believe there will be a reaction from the landlords and the 'holiday home' owners as previously mentioned, even though it would be a shame to see a large change in attitude toward investing, because this quote by JRC seems to make a lot of sense.
"Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?"
Don't you just dislike commonsense logic with figures to back it up?
PS Steve . Thought your seminar last weekend was great. Will be seeing you soon re further investing, but does your last post mean that you really don't like Bob ?
jahn
Agree with your sentiment re the number of investors in NSW and the 'swing' figure for elections, but I'm not sure if the figure is totally correct in the first place, I was only re-quoting from a previous poster. I do believe there will be a reaction from the landlords and the 'holiday home' owners as previously mentioned, even though it would be a shame to see a large change in attitude toward investing, because this quote by JRC seems to make a lot of sense.
"Looking at the land tax which for many of us will be 0.4% on the land value we have. If we had been on variable interest rates last year and didn't sell when mortgage rates were increased twice by 0.25% why would we sell now?"
Don't you just dislike commonsense logic with figures to back it up?
PS Steve . Thought your seminar last weekend was great. Will be seeing you soon re further investing, but does your last post mean that you really don't like Bob ?
jahn
OK it has been a few days now and here are some thoughts.
1) If the sate gov has a short fall in its budget, after making more money than expected from the normal stamp duty, due to the property boom over the last two years, ... what does this tell you about their budgeting skills? this begs the question... where is all the money going???
An enquiry should be setup to investigate this.
2) Having the law work in retrospect would be "criminal", the gov should not be allowed to do this. If they want to pass a new law, at least it should take effect from the time the law was passed, and not back dated. This way people would have to make a conscious decision to buy into the market if they want to.
3) What happens if you buy a block of land, (and as we all know the value of a property is in the land, NOT the building), that increases in value while you are building on it. For example:
- land cost: 100K
- Construction cost: 200K
- Land value on sale: 150K
If you didn't build you would have to pay 2.25% stamp duty on 150K = 3,375
If you build you would pay 2.25% on 350K = 7,875
Having said this, building may be advantageous in some situations if the profit is less than 12% as mentioned in a previous post. So if the land had only gone up by 20K and you decided to build you would not be up for stamp duty...
4) I know that the previous 3 comments where a bit negative, but I actually believe that this new law will benefit the "serious" investors who were already up for land tax, or who had properties in trust. So I am not all against it... however I hope point (2) will hold and I will deal with point (1) at the next ellections.... (even though this law may benefit us in the long run, their complete mismanagement of our money is unacceptable.)
Nom
1) If the sate gov has a short fall in its budget, after making more money than expected from the normal stamp duty, due to the property boom over the last two years, ... what does this tell you about their budgeting skills? this begs the question... where is all the money going???
An enquiry should be setup to investigate this.
2) Having the law work in retrospect would be "criminal", the gov should not be allowed to do this. If they want to pass a new law, at least it should take effect from the time the law was passed, and not back dated. This way people would have to make a conscious decision to buy into the market if they want to.
3) What happens if you buy a block of land, (and as we all know the value of a property is in the land, NOT the building), that increases in value while you are building on it. For example:
- land cost: 100K
- Construction cost: 200K
- Land value on sale: 150K
If you didn't build you would have to pay 2.25% stamp duty on 150K = 3,375
If you build you would pay 2.25% on 350K = 7,875
Having said this, building may be advantageous in some situations if the profit is less than 12% as mentioned in a previous post. So if the land had only gone up by 20K and you decided to build you would not be up for stamp duty...
4) I know that the previous 3 comments where a bit negative, but I actually believe that this new law will benefit the "serious" investors who were already up for land tax, or who had properties in trust. So I am not all against it... however I hope point (2) will hold and I will deal with point (1) at the next ellections.... (even though this law may benefit us in the long run, their complete mismanagement of our money is unacceptable.)
Nom
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