CGT - What are most people doing post-selling?

Discussion in 'Accounting & Tax' started by AAA, 23rd Jul, 2017.

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  1. AAA

    AAA Member

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    Been reading some comments around the property market peaking and some are looking to sell. Interested to know what you have planned/planning to do post-selling an IP? Been thinking of selling but with CGT + employment, i'll be paying tax at the highest bracket... Seems to be a good time to quit and holiday but wondering what everyone else is doing? Have looked at Terry's list of ways to reduce CGT but don't think there's much options for me.

    Curious but anyone ever looked at the Big4 firms to get their tax reduced? Any success with CGT?
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    The highest bracket with the 50% CGT discount is just under 25%. Beats working for a wage.

    Many people that sell use the proceeds for 2 things
    a) recycling debt by paying down the main residence, or
    b) funding lifestyle while not working

    some are investing in shares to (naively I think)
     
  3. MWI

    MWI Well-Known Member

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    I only sold some bad IPs, lemons, otherwise my strategy is never to sell! Why are you in property?
    Why don't you take out the equity instead if you need the cash? When my first 3 IPs grew in value by 50% in 3 years I did not sell, why? That's the whole point to invest for CG+ and as yet I have to find an expert who can tell me precisely the market peak, troughs and bottoms, no one has a crystal ball. Also, you are up for selling and repurchasing costs into RE, which can be expensive, why do it?
    Holiday cost is 'Bad Debt', and IP generating rent is 'Good Debt'.

    Friends sold IP, so CGT to offset IPO/share losses, to offset gain against a loss?
     
  4. AAA

    AAA Member

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    The current lending restrictions has ruled out getting any equity and the coming storm is a concern - talk of 6?8? IR increases and rolling off I only to P+I... Thinking if I should take the CGT hit, sell and pay off the PPOR + reduce debt.

    i.e. sell IP, pay cgt, reduce debt - smaller overall portfolio and start paying P rather than bank's profit.

    Just feel crap to be paying half my salary to the ATO because i'm having a CGT this year...
     
  5. MWI

    MWI Well-Known Member

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    If you are heavily LVR, and large PPOR debt is a 'Bad Debt' - deductible tax debt, then yes you may need to create a buffer of some sort. Never expose yourself 100% and you need the buffers when the boom turns around.
    I don't plan to convert to P&I, prefer offsets, even with larger IR, however only you can determine your risk and whether the higher IR you can maintain... Taking the necessary step ahead takes guts, so good on you!
     
  6. MWI

    MWI Well-Known Member

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    Sorry I meant non-deductible hence taxable debt for PPOR debt!
     
  7. AAA

    AAA Member

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    I do think there is a possibility that the Regulators may force the banks to remove the I only product or further force the banks to hold even more capital such that the banks either withdraw the product or make IR 200bps above P+I (seems to be already going that way)... 6 IR increases + P+I together!

    Gonna just wind back exposure and wait... Or perhaps even sell my PPOR as well and upgrade - PPOR seems to be the only safe haven from tax laws atm...
     
  8. MWI

    MWI Well-Known Member

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    I tend to react and try to find solutions when they occur, as who knows what they will do?
    My SMSF bank loan has already increased by 1.57% within last year, currently at 7.07%, and yes my friend treasurer of a bank has informed me they may remove IO loans, which I find extreme, as sometimes too much governance can have adverse reactions. So look market is already slowing, in Sydney I was told 20% down on loans from previous QTR, so I would not panic as yet!
    And yes the tendency in variance seems to be growing I would even suggest by 3% apart...
    So we as smart investors should have buffers in place for such unforseen circumstances or perhaps lower LVRs?
    As I mentioned in other blogs I posted today as Warren Buffett said, "wealth is the transfer of money from the impatient to patient" and "only when the tide goes out do you discover who's been swimming naked"?.... So remember property investing is cyclical hence we can expect booms not to last as history shows, and we need to be prepared for the tougher times (regulatory or not!).
    You know I know some people who renovate their PPOR every few years and on sell, as their strategy for investment. There are many ways to invest into property and you really need to find the one that works for you!
     
  9. AAA

    AAA Member

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    I think the govt is canvassing removing SMSF loans for property via legislation or further tightening. Banks have also pretty much pulled the plug on lending to SMSFs. I only loans is being restricted at origination - 30% currently, probably 20% next then 10%, exceptions only. APRA's mandate is to ensure the bank's are safe. Old I only loans probably will go into run-off and they will keep increasing rates to force you off...

    PPOR reno is a good idea... maybe I should look into it! other than constantly having to move...
     
  10. MWI

    MWI Well-Known Member

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    As guess what I did to counter that, I did LRBA borrowing, where I had financed my additional 3 IPs in SMSF myself! The other two IPs with commercial terms I took care of by selling another cash IP in Perth so having the cash in offsets accounts with outstanding 18% debt.
    My contract was based on commercial loans from previous commercial lender by my lawyer, so 5 years IO, and then 10 years to repay the debt! I adjust the IR as of January each year, as set by the bank, so currently my rate is 5.65% (which I pay to myself, the bank's IR is 4.34% fixed for the next 3 years - 2 more years have already passed at IO rate!). I should also point out I own other assets in SMSF in addition too (sophisticated investor type) as well as other cash IPs too and total LVR is low 30% hence will be paid of from recurring passive income in SMSF and CC.
    I know I cannot outsmart the banks nor control what government does as all I can do is try to protect myself! Yes, I do believe there exists only a small window of opportunity before they will close borrowing via SMSF too. It is not for the faint hearted and yes we need to be vigilant when economic circumstances change.
    I suppose it helps being invested into RE for the last 17 years. Not to mention having to pay of our PPOR at 16.5% interest in 5 years.... and having a financial plan for the next 10 years when I can access our SMSF funds (if the rules don't change, although spouse is not too far off).
    So you see property makes ordinary person into a millionaire only when credit is available with compounding growth being the vehicle... If the government eliminates that than we no longer can get ahead, but then I suppose I would just keep upgrading my PPOR to move ahead? Who knows, I will worry then...need to go to sleep it's late, and take care!