100% CGT!! Most interesting excuse

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.

 

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

 

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.

 

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.

 

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?

 

We're talking in hypotheticals here anyway, since nothing needs fixing, but I was assuming they'd leave borrowing alone.

 

I can't imagine too many investors would be buying 3 million dollar homes as IPs anyway.

 

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.

 

There are many investors who buy in a Trust as I do, we do not get CGT concessions, pay 30% tax.

 

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

 

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?

 

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.

 

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.

 

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?

 

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.

 

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 ... ??

 

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.

 

No tax discount. ...

 

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

 

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%