100% CGT!! Most interesting excuse

Discussion in 'Accounting & Tax' started by Property Twins, 9th Nov, 2015.

Join Australia's most dynamic and respected property investment community
  1. Property Twins

    Property Twins Mortgage Brokers - Australia Wide Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    1,985
    Location:
    Sydney, Australia
    Someone said to me today, they wanted the CGT to be 100%. Because the home they want to buy is $3m. 100% CGT may stop people from investing..

    I disagree. Investors will always find a way and will live with it.

    There was no CGT pre 1985, did it stop people from investing? No.

    Those who want to make it happen, will make it happen.
     
  2. D.T.

    D.T. Specialist Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    7,524
    Location:
    Adelaide, SA
    Yep, same as a couple of the permabears on these very forums. They're trying to buy PPOR's but can't so are trying to scare away investors from the market.

    Just keep on keeping on :)
     
    Property Twins likes this.
  3. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    862
    Location:
    Adelaide, Australia
    You don't think 100% CGT would put a dent in investor demand?

    No CGT is the opposite end of the spectrum, of course it's not going to be a disincentive like 100% CGT would be.

    There would still be investors, but prices would crash and investors would need to be getting a high enough return from rents to forgo the capital gains.
     
  4. D.T.

    D.T. Specialist Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    7,524
    Location:
    Adelaide, SA
    Wouldn't change much for me - CGT is not part of my calcs as is.

    Implementing that would likely cause an immediate slump as people hurry to sell off before the change comes live, but some of us are in it for the long term.
     
    juzzy and melbz like this.
  5. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    862
    Location:
    Adelaide, Australia
    Consider government would likely have to stop investors from borrowing against any equity over and above purchase price + costs (otherwise run large risk of investors borrowing too much against capital growth and going bankrupt if there was an unexpected need to sell), how would that impact on your strategy?
     
  6. D.T.

    D.T. Specialist Property Manager Business Member

    Joined:
    13th Jun, 2015
    Posts:
    7,524
    Location:
    Adelaide, SA
    We're talking in hypotheticals here anyway, since nothing needs fixing, but I was assuming they'd leave borrowing alone.
     
  7. Ace in the Hole

    Ace in the Hole Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    2,136
    Location:
    Sydney
    I can't imagine too many investors would be buying 3 million dollar homes as IPs anyway.
     
    Bayview and Property Twins like this.
  8. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    8,990
    Location:
    Perth
    I do... for a while. But have a look at property investing pre CGT, then between CGT and the introduction of the 50% CGT discount then post 50% discount. As far as I know, the introduction of CGT did not cause prices to crash. The market would recover as people adapt.

    Prices might dip temporarily but they would recover. Look at abolition of negative gearing in the US. Initially, prices slumped but then they recovered and rose higher than then NG was in place. Also, have a look at countries that don't have CGT concessions. Are properties more affordable there? I don't think so.

    I think any reduction in prices would be temporary and prices would recover.
     
  9. MTR

    MTR Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    13,024
    Location:
    Perth, Melbourne and Atlanta
    There are many investors who buy in a Trust as I do, we do not get CGT concessions, pay 30% tax.
     
    Bayview, Perthguy and Property Twins like this.
  10. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    9,642
    Location:
    Sydney or NSW or Australia
    Why not? Not everyone wants to purchase a $3m home and tie up their capital for a measly 1-3% gross rental return yet there is a market for those who want to rent such premises.

    Have a look in domain.com.au for Sydney's Eastern Suburbs, North Shore, Toorak, Peppermint Grove etc - plenty of houses over the $3k/wk bracket for rentals.

    You're 100% right @Ace in the Hole
     
  11. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    862
    Location:
    Adelaide, Australia
    Would you still buy property if you had to pay 100% CGT instead of only 30% or would you be more likely to consider other asset types where you could keep the capital growth?
     
    Gingin likes this.
  12. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    8,990
    Location:
    Perth
    Are you saying you would have to pay 100% of the capital gain to the government or you are taxed on 100% of the gain? For example, if the 50% capital gains tax concession was abolished, I could buy a property in a company. A company would pay tax on 100% of the capital gain but it only has a 30% tax rate. Seems reasonable to me. So perhaps if the 50% CGT concession was abolished, perhaps investors would simply purchase investment properties in trusts or companies.

    Also, what asset types where we could keep the capital growth? I thought all assets are subject to capital gains tax.
     
  13. JDP1

    JDP1 Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
    3,850
    Location:
    Brisbane
    100% CGT will have some deterring affect on pi, but not significantly so. Will be minor. The pure speculators will be the ones most sensitive to CGT.
     
  14. Perthguy

    Perthguy Well-Known Member

    Joined:
    23rd Jun, 2015
    Posts:
    8,990
    Location:
    Perth
    It would be interesting to try and model what might happen if CGT concessions were abolished for property investors but not other asset classes. The argument is that CGT and NG have caused a property bubble and they should be abolished to burst the bubble and bring prices back to "normal". If these were abolished for property but not other asset classes, what would happen if a significant number of investors moved their investing to shares? Stock market bubble?
     
  15. VB King

    VB King Well-Known Member

    Joined:
    8th Jul, 2015
    Posts:
    235
    Location:
    Ho Chi Minh City
    It's easy to pay 0% CGT - as an investor, trust, or business.

    Long term buy and hold ... Just don't sell.

    One of the only taxes that can be completely avoided.
     
    Rixter, juzzy and Perthguy like this.
  16. wategos

    wategos Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    475
    Location:
    NSW
    100% CGT so the gov takes everything ? Most people investing are after the CG, not so much income. almost everyone would stop buying IPs. Maybe you mean 100% is taxable instead of 50% ? If so this would probably prompt a lot of people to sell since the 50% discount would still be retroactive and people would want to lock it in.
    But this is the complete opposite ... ??
     
    melbz and Property Twins like this.
  17. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    862
    Location:
    Adelaide, Australia
    I am talking about what was posted, 100% CGT, so you keep no capital gains.

    If @MsAli meant something else (as in no CGT discount) she will need to clarify.
     
  18. Property Twins

    Property Twins Mortgage Brokers - Australia Wide Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    1,985
    Location:
    Sydney, Australia
    No tax discount. ...
     
  19. Bullion Baron

    Bullion Baron Well-Known Member

    Joined:
    25th Jul, 2015
    Posts:
    862
    Location:
    Adelaide, Australia
    Ok well that changes my view, wouldn't impact as heavily as I implied above. Perhaps more investors would give up their day jobs (seems to be a common occurrence around here recently) to lower the effective rate of tax :)
     
  20. Terry_w

    Terry_w Structuring Lawyer and Finance Broker - all states Business Member

    Joined:
    18th Jun, 2015
    Posts:
    14,790
    Location:
    Remote
    You are confusing trusts and companies. companies are taxed at 30%, trusts are not taxed at all if a distribution is made - it is the beneficiary that pays the tax. CGT would be a max of 24%
     
    DanW, MRO and willair like this.