Landlords and speculators reap billions from tax rule changes

[Jas]

Another interesting piece from the SMH.


http://www.smh.com.au/articles/2005/04/17/1113676648176.html?from=top5

These two paragraphs piqued my interest:

The capital gains tax changes announced by the Treasurer, Peter Costello, in September 1999 - against Treasury's advice - gave individuals a 50 per cent tax discount on assets sold after being held for more than one year.

The changes favour short-term speculators over long-term investors because the tax benefits are eroded by inflation over time.

Jas

 

[House_Keeper]

The RBA has made a lot of noises about removing the 50% discount on capital gains. The media in happy to take up the story (however inaccurately ).

Is the government considering removing the 50% discount on CGT?

 

[keithj]

Is the government considering removing the 50% discount on CGT?

The last line of the acticle said -

Both the Coalition and the Labor Party have said they will not review the property investment tax regime because it is too politically sensitive.

A possible amendment to encourage long term investment over speculation is to make it 3 yrs instead of 1 yr before the 50% discount kicks in. Alternatively give 20% discount for yr 1, 35% for yr 2, the full 50% in yr 3.

However, since CGT (& NSW Vendor Tax) is easily avoidable it's not an issue for many people.

 

[Glebe]

Can someone explain this to me:

...while investors close to retirement were allowed to avoid capital gains tax altogether.

I am unfarmiliar with this rule.

 

[Lplate]

The last line of the acticle said -

However, since CGT (& NSW Vendor Tax) is easily avoidable it's not an issue for many people.

Hi keithj
Could you elaborate on the options please?
Thanks
Lplate

 

[nic]

Hi keithj
Could you elaborate on the options please?
Thanks
Lplate

I second this request

 

[Andrew]

LPlate: Don't sell. No CGT or exit tax.

andy

 

[Jamie]

Hi keithj
Could you elaborate on the options please?
Thanks
Lplate

Just don't sell.

No CGT, no vendor tax.

Jamie.

Edit: Ninja'd by Andrew

 

[chook]

Capital gains tax

Glebe,

I don't know what the article had in mind about people near retirement being able to avoid CGT but one way I can think of is if you retire this year and next year you don't have any income (just leave your super where it is for a few years) and then you sell an investment property in the year that you don't have any income, it is quite likely you will get the whole lot tax free. Especially if you are a couple and the taxable gain is halved then it is halved again because of the 50% discount. It is likely that the remaining amount is not high enough to attract tax.

 

[keithj]

Can someone explain this to me:

I am unfarmiliar with this rule.

I vaguely remember my accountant mentioning to me several yrs ago that there was a 15 yr rule when no CGT was payable. I'm probably completely wrong about the specifics.

I seem to remember there were several conditions including -
- you had to be a small business owner
- you had to have held the business assets for 15yrs or more
- you paid no CGT on the business assets you sold
- you had to put the CG into an approved pension/super

I'd appreciate clarification about this and could this be applied to IPs and shares ?

 

[keithj]

Hi keithj
Could you elaborate on the options please?
Thanks
Lplate

Hi LP,

There's only one strictly legal option I can think of - don't sell. It also avoids agents commission & legal fees!

Cheers,

KJ

 

[HeirConditioner]

The RBA has made a lot of noises about removing the 50% discount on capital gains. The media in happy to take up the story (however inaccurately).

That's an interesting comment.

I think that the 50% discount was a terrible move by the government. It almost single-handedly caused the housing bubble, which is turn led the RBA to raise rates back in '03. Housing affordability is at an all-time low, and a whole new false economy has sprung up based on this property-trading notion.

Bad bad news.

 

[Aceyducey]

Heirconditioner,

If the latest housing boom (not a bubble) was almost single-handedly caused by the 50% CGT discount, what caused the preceding booms every ten-fifteen years or so?

For that matter, what do you reckon caused the various share booms? Personally I'm a firm believer in the hemline theory.

Cheers,

Aceyducey

 

[Sunfish]

Personally I'm a firm believer in the hemline theory.

Cheers,

Aceyducey

Me too. Bring back Twiggy!

 

[XBenX]

Really? Almost single handedly... thats pretty definative...

Edit; Bit slow tonight it seems

 

[DaleGG]

Hi Keith

Unfortunately, the exemptions mentioned do not apply to passive investments such as property and shares.

Pity!!

Dale

I vaguely remember my accountant mentioning to me several yrs ago that there was a 15 yr rule when no CGT was payable. I'm probably completely wrong about the specifics.

I seem to remember there were several conditions including -
- you had to be a small business owner
- you had to have held the business assets for 15yrs or more
- you paid no CGT on the business assets you sold
- you had to put the CG into an approved pension/super

I'd appreciate clarification about this and could this be applied to IPs and shares ?

 

[House_Keeper]

The last line of the acticle said -
Both the Coalition and the Labor Party have said they will not review the property investment tax regime because it is too politically sensitive.

True, but I interpret this as meaning no change to negative gearing, that is mostly taken up by property investor.

Negative gearing existed before the CGT discount.

Removing the CGT discount affects all investments equally. This is not (yet) a sacred part of the property investment tax regime.

 

[Les]

What about "Indexed Capital Gains" ....

Negative gearing existed before the CGT discount

Ah! But then, BEFORE the CGT discount, was the Indexing of Capital Gains. This had inflation taken into account (thus not taxed), AND any CG's were divided by 5, added to your Income for the year (maybe stepping you up a notch in your Marginal Rate) and then the resulting Marginal rate was used to calculate your Tax. The gain was then MULTIPLIED by 5 to "charge" the CG based on your new marginal rate ......

At the time it came in (Sep 99?) the two were SO CLOSE together that one had to work hard to decide which way to jump. This might not be the case now.....

And THAT is probably why the Govt HAD to introduce the "discount after 12 months" - as, if they HADN'T, they would have had a major problem with suddenly having to fund housing themselves!!!!! (And, in my recollection, for those who've held properties for MANY years, they were given a choice between using the OLD CG Tax vs the NEW CGTax - and perhaps still do ????)

Regards,

 

[Merovingian]

(And, in my recollection, for those who've held properties for MANY years, they were given a choice between using the OLD CG Tax vs the NEW CGTax - and perhaps still do ????)

I could be wrong, but was the choice between the indexed and non-indexed taxing methods, only applicable to properties purchased during a couple of overlapping years, (late 1990s)? I read it in a book of mine somewhere...