If NG was to be removed what to do about CGT

Discussion in 'Property Market Economics' started by Big Will, 8th Jan, 2018.

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Choice

  1. Keep CGT for IPs

  2. Remove CGT for IPs

  3. Add CGT for PPORs

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  1. Big Will

    Big Will Well-Known Member

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    From this thread - Negative Gearing charade continues in 2018 Which was looking at NG benefits being removed (another thread on NG).

    Two people wanted a separate thread - Guest @Angel

    To put it simply -
    PPOR get CGT benefits (exempted) IPs don't

    IPs get NG benefits PPOR don't

    One can choose how they to use their purchase, no one says you need to live in your home.

    If you remove NG benefits from IPs then you would need to include the exemption of CGT for them to keep it 'level'.

    Lets debate the CGT and if it should be included as the field would be uneven with one having no CGT and the other having to pay CGT.
     
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  2. D.T.

    D.T. Specialist Property Manager Business Member

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    Include PPOR in CGT calcs and in aged pension assessment and then it'll be even.
     
  3. Big Will

    Big Will Well-Known Member

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    Very true forgot about that part but knew of it.
     
  4. Angel

    Angel Well-Known Member

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    Given those calling for NG to be removed from IPs, tend to also want the CGT discount of 50% (after one year) to be reduced to mean that CGT payable would become higher than it is currently.

    Give me a break! Do they want our firstborn too? My wedding ring?

    Even funnier than a person who owns no property spruiking this, is the concept being sprouted by those who own two or three IPs, typically OTP apartments that are costing them an arm and a leg. Sorry for my cynicism, but several times in the last three years when I go away for the weekend, some big fat public servant from Logan Centrelink, with a Get Up sticker on his laptop and quoting the Gratton Institute, waddles over and proceeds to ruin my afternoon.
     
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  5. Guest

    Guest Guest

    I think there are reasonable grounds for treating assets differently in some circumstances (usually dependent on purpose), when I used 'even the playing field', it was more so a figure of speech (not that I think all rules should be the same between all buyers).

    A scenario I gave in the other thread was:

    Government controls all rules surrounding the investment in water supply.
    For a long time a vast majority of people can afford clean drinking water.
    However, over time, investors use the rules in place to increase their share of the clean drinking water, forcing up prices and more people on lower incomes resort to drinking dirty water.


    Should investors and drinkers have equal access to clean drinking water (when the investor is only there to make profit/provide for their future), no matter what the outcome to the drinkers who may be unable to afford it? If there is nothing to consider other than complete equality of rules between all buyers of any asset, then you would have no problem with the investors out bidding those who need the clean drinking water. If that is someone's line of thought then we are unlikely to agree.

    I agree with @D.T. that a PPOR should be included in the pension asset test.

    And here is why CGT for a PPOR doesn't really work when it is used to live in (copy and paste from a comment I made on MacroBusiness in 2013):

    If someone buys a $300k property in Suburb A and a few years down the house is worth $400k, they wish to move to Suburb B which is also $400k and seen similar growth as Suburb A. They have to pay tax on the $100k “profit” (circa $30k, depending on income) simply to move. How is that fair?

    Something else to consider is that negative gearing is only removing the ability to claim deductions against other income, not the ability to claim deductions at all. So if someone is of the deranged view (in my opinion) that all rules should be the same for all buyers (regardless of purpose), then all deductions need to be removed from investment properties, not just negative gearing.
     
  6. Ran Gus

    Ran Gus Well-Known Member

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    IMO, the solution to NG is very simple:

    Make it so investment losses can only be applied against investment income, with any excess losses carried forward (similar system as with Capital Losses).

    This stops people offsetting their wages with investment losses, which IMO is the major gripe people have with NG.

    The incentive to NG is thus reduced, but investors still receive some form of benefit for incurring a loss, more in line with other tax systems (Capital losses, Trust losses, COY losses).

    No need to adjust CGT rules based on the above - although I would prefer a switch back to indexation for calculating gains in place of the 50% discount.
     
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  7. Guest

    Guest Guest

    To expand on this a little further...

    When a home owner sells one home and buys another (this isn't always the case, but is for many), there isn't necessarily a material gain as they are buying in the same market and it is for the same purpose (i.e. living in), they could be replacing like for like.

    When an investor sells a property and there is a profit, a material gain has been made.

    Treating two different types of buyers (separated by purpose) make sense, don't you think @Big Will?
     
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  8. kierank

    kierank Well-Known Member

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    Why not bring in NG for PPORs and remove the CGT exemption while they are at it :D?

    That is, treat PPORs like IPs.

    Please wait until I sell my PPOR later this year as I hope to make a motza and I wouldn’t want to pay a stack in tax to help out all those “unfortunate surfers” out there ;).
     
  9. Big Will

    Big Will Well-Known Member

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    The field isn't level at the moment as one gets NG benefits whilst the other gets CGT exemptions and also not included in their asset test.

    Why should a PPOR owner upgrade their property and get the benefit of CGT exemption plus asset testing? For me half my property value is spilt between IP & PPOI choose to take the 'less' riskier path to buy an IP rather than upgrade my PPOR as there would be additional income stream to help service the additional debt (we can afford the debt without the rental income). In doing so i now have to pay CGT compared to upgrading the PPOR.

    Upgrading PPOR would allow me to live closer to work, provide better accommodation to my family, not pay CGT and not be part of asset test. I had a choice and so does a person selling/buying call me greedy but the person upgrading their home is just as greedy.

    To me a person that accumulates their PPOR to the value of 2M (not hard in Sydney) through upgrading should be painted with the same brush as someone with 1M PPOR and 1M IP (2M total value) but likely with the additional income would be 1M PPOR and 2M IP (1M after selling IP).

    Maybe make your first ever property purchase CGT free (with FHOG requirements) but included with asset test because after that it isn't about basic living any more.

    My parents invested in properties their portfolio was heavily geared towards IPs and we pretty much lived in the worst house of all the properties. It wasn't until we left home did the demolish the old home and built a good home. So whilst they could of upgraded their home far earlier and move closer to the city they wouldn't of been self sufficient (or as self sufficient) compared to if they 'upgraded' their PPOR.

    Delayed gratification is a magical thing.. sadly it is missing from the majority of people.
     
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  10. Angel

    Angel Well-Known Member

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    To be honest, I see the capital gains tax as being a tax grab affecting a soft target. If we take the 80/20 rule, for example, we have 80% of the population wanting everyone else, ie the 20% who are investors or business owners, paying the majority of the taxes and them paying the least. In my 50ish years of observing what goes on around me, I have seen western civilisation go from a system of rewarding those who work hard and improve their lives, to one that penalises those who work hard and improve their lives.

    The 80/20 ratio might be a bit inaccurate, but I trust it demontrates my theory. Studying Economics, I learned about various economic systems in the 20th century. I understand that there are good characteristics about each, including socialism. There is a lot about socialism that I agree with. There is plenty in the free-enterprise system that I agrere with too. In my Utopia, we would take the best of every system rather than a simplistic "either-or" scenario. Generally I think Australia does this - attempts to offer the best of both worlds.
     
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  11. Angel

    Angel Well-Known Member

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    The playing field ceases to be level when those who can afford to sell their original PPOR, usually for a profit, then buy another one, and later again, repeating several times and never having to pay any tax on the "profit". It gets very unlevel when the same owners get to pension age, sitting in a $2.5m Sydney or Melbourne "home" and collect the full pension. Perhaps they collected the dole on their journey :eek:, that would be legal and plenty of people would even think it is morally acceptable. After all, its not their fault that their property value is now 4 or 5 times what someone who lives in Darwin, Perth, Hobart, Brisbane or Adelaide's is.

    Meanwhile the rest of the country's homeowners are scratching their heads going: "Where did I go wrong?"
     
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  12. Guest

    Guest Guest

    I don't know what asset test you are referring to.

    A home buyer may simply be trading like for like (in a different suburb) & have made a profit (despite being no better off), how would taxing those 'gains' be in any way reasonable?

    If they are upgrading to property B, then they are putting in more cash or taking a bigger loan, that has not been a material benefit from the sale of property A.
     
  13. MTR

    MTR Well-Known Member

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    Forget CGT, get rid of the rort... called Stamp Duty
     
    Last edited: 8th Jan, 2018
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  14. Big Will

    Big Will Well-Known Member

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    Asset test referring to the pension with PPOR not being included or not level.

    It has been a benefit upgrading to B they got a better lifestyle and will get a larger dollars tax free gains when they decide to downgrade to C (or if they upgrade another 2-3 times could be downgrade to property e) they are cashing out to give themselves some extra $$ tax free. They had benefit of luxury and have 'gained' more money by taking on additional risk (increasing their quality of their investment)

    Compared to someone that buys a PPOR and instead of upgrading their PPOR buys an IP when which doesn't give them a benefit of a better lifestyle typically and the review on NG means they are actually losing money so have a worse lifestyle compared to not doing anything. When they choose to release some funds to have a better life they are hit for CGT and once the property turns a profit they are also hit for income tax.
     
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  15. Big Will

    Big Will Well-Known Member

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    No thanks then there would be a 'land tax' of some sort.

    I would rather pay one large up sum money than pay a smaller amount each year but then I am more in the buy and hold. I can understand from a develop/sell off your preference would be to have a land tax sort of method as it would likely make development more lucrative.
     
  16. Guest

    Guest Guest

    I agree with the home being included in the asset test as per above comment, perhaps with some provision for a claw back from the estate / reverse mortgage with low rates to allow someone to live in their home, receive the pension & have gains taken on their death.

    I would also not be adverse to CGT on all PPOR's on death. Not sure why the CGT exemption should be passed onto beneficiaries of the estate.
    These are very specific scenarios and I doubt they makeup the bulk of property transactions. You are suggesting we treat the majority in an unfair way to ensure we capture any gains made by the minority?
     
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  17. Gockie

    Gockie Life is good ☺️ Premium Member

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    Whatever is done... if it's retrospective it will screw up the plans of many people who took action based on the tax laws of the time of making the purchase. Yes, I have friends who built the grandest of homes in Sydney as it forms part if their retirement strategy along with the rest of their portfolio of assets. They already had built an amazing PPOR but decided to upgrade again - and to get right all the little things they didn't feel they nailed the last time.

    So with whatever happens, they should either not make it affect already owned properties, or concessional rules need to be applied.
     
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  18. MTR

    MTR Well-Known Member

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    I buy and hold and dont pay stamp duty, US tax system works much better for investors. govt in Oz takes too many bites off the cherry, investors are screwed
     
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  19. hobartchic

    hobartchic Well-Known Member

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    By all means, include the family home in the asset test. It would completely decimate property prices though as the flood of retirees look to move into cheaper houses to keep their pension.
     
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  20. hobartchic

    hobartchic Well-Known Member

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    Surely good government needs to be for every generation. This idea that young people get one rule and older people continually have benefits grandfathered is an administrative nightmare and would mean policy does not do what it intended. Good policy for all makes more sense.
     

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