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. Guest

    Guest Guest

    Oh, so you only read the first half of sentences before responding then? o_O
     
  2. Trainee

    Trainee Well-Known Member

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    One general principle is that rules should not apply retroactively. When CGT was introduced, pre-1985 assets were grandfathered. Tax rate changes usually apply from the following tax year.
     
  3. Gockie

    Gockie Life is good ☺️ Premium Member

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    Agree. I take certain action partly due to current tax rules. If they retroactively changed the rules, the decisions I made might have been completely different. Thus, for these reasons, decisions shouldn't be retroactive. I would lose my confidence in the Australian political system if they backdated rulings on investment decisions already made. And you'll get all investors in this boat. So, it would be really unfair and terrible government decision making to not grandfather.
     
  4. Sackie

    Sackie Well-Known Member

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    All this talk of grandfathers....poor lil old grannies all left out..
     
  5. Gockie

    Gockie Life is good ☺️ Premium Member

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    Good point Leo...
    How about we go with grandparent? :cool:
     
  6. Sackie

    Sackie Well-Known Member

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    Gender neutral....seems to be the way of the world these days...quite disturbing to be honest..
     
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  7. kierank

    kierank Well-Known Member

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    In my investing career, I have been impacted by two “unfair and terrible governments” who have changed the rules and made them retrospective.

    Really peeved me off.

    Given how many unfair and terrible governments we have had at all three levels of government, I suppose I should be happy it was only two :D.
     
  8. Angel

    Angel Well-Known Member

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    This is my issue. I DONT want the majority to be treated unfairly in order to capture any gains made by the minority. I understand (I may be wrong here) the issue which started the whole debate in the first place, which includes demonising landlords and investors, is more of an issue in Sydney and to a lesser degree, Melbourne.

    (Continued on the NG thread)
     
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  9. Journeyman

    Journeyman Well-Known Member

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    Spare a thought for the rentvestor with one IP. Maybe they Cant afford a PPOR that is CGT free.
    The one property asset they own will trigger a CGT event if they sell.

    I like some of the points made in this thread, I do think applying a test for the pension that uses the value of the PPOR will cause short term pain, but maybe longer term benefits.
     
  10. Gockie

    Gockie Life is good ☺️ Premium Member

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    I like both your points here. And the value of the ppor for the pension assets test should come into it. Why should older people be able to own in 2 million dollar homes and still be eligible for a pension? Perhaps a PPOR of 800k should be allowed and unassessed and any value above that should count as an asset for assessment purposes. of course, your home value will change over time, this is where it gets trickier, so it should be assessed like the land value does - an average over 3 years - there's no shocks.
     
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  11. hash_investor

    hash_investor Well-Known Member

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    This is my problem with oz tax and welfare system. It is always a double dip for the workers. You work hard, you pay more tax AND you get nothing.

    If you paid more tax you have paid your dues. The system should treat you fairly now and you should be given the benefits and pension everyone deserves. Its like taking your medicare away because you have money you can buy private insurance.
     
  12. Big Will

    Big Will Well-Known Member

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    I am not going to source/reference information but typically a family will buy 3-4 homes (who can buy homes) in their lifetime if average. This is typically for upgrading.

    They might buy a unit or home far away but then as they get more money or life changes they will buy a home (from unit) or might buy closer in or select an area based on school catchments. These would be there majority as most people do not buy one home and live in it until they die. Once they get older they might consider downsizing or moving for better lifestyle (water views, gated community etc).

    All of these are benefit and further what about PPOR owners who are renovators that buy renovate and sell.. they are clearly in it for the money.

    The house I bought the vendors were doing good this, the person that works next to me is doing this. They are looking at selling this year and only owned for about 18 months.

    Again these could all be minority but I don’t believe this is the case and if you feel that people typically only buy one PPOR in their lives you family, friends and work colleagues are very different to mine.
     
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  13. kierank

    kierank Well-Known Member

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    Centrelink does this for Aged Care assessment. That is, include the PPOR in the Assets Test, with a threshold of around $170K.

    So one can own a $2M PPOR but they will count it as $170K.

    If one sells the PPOR, then the $2M will count and one’s Aged Care costs will go up. End result:- families don’t sell.

    One way Governments encourage empty houses in Australia, keeping downwards pressure on supply and upwards pressure on prices.

    I can see this getting worse as more and more people go into Aged Care.
     
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  14. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    from worker perspective - yes, from global perspective - the huge gap in wealth is bad and dangerous thing, so the goverments always try to introduce more taxes for the rich people to balance it. Every time when a small number of people control majority of resources and wealth, it leads to the wars and revolutions.

    Increased taxation of the rich helps make income more equal. With the increased revenue the government creates public works to increase employment and to fuel the economy.

    Oz goverment is quite good compared to many other countries.
     
  15. Guest

    Guest Guest

    You are clearly not understanding my point and misrepresenting my view. I am not saying people live in the same PPOR forever. Only those who downgrade or sell to rent receive a material benefit, which is the minority group I was referring to.

    The process of upgrading does not create a material benefit (at least not unless they downgrade or sell to rent), so there is no justification for taking CGT out of the "profit".

    Let's use an example...

    Suburb A: House price is $300k in 2010, $600k in 2020
    Suburb B: House price is $300k in 2010, $600k in 2020
    Suburb C: House price is $450k in 2010, $900k in 2020

    Couple A buys in Suburb A in 2010, sells it in 2020 realising a $300k profit, they buy in Suburb B (which is an equivalent property, they just move closer to work). You are suggesting they should pay tax on the $300k, which means on top of the stamp duty and other costs they are going to have a $100k+ tax bill, just to move into an equivalent home. This is reasonable to you?

    Couple B buys in Suburb A in 2010, sells it in 2020 realising a $300k profit, they buy in Suburb C (which is an upgrade to a nicer suburb/home). They also need to take an additional $300k mortgage to buy the $900k home. You are suggesting they should pay tax on the $300k, which means on top of the stamp duty, larger loan and other costs they are going to have a $100k+ tax bill. This is reasonable to you?

    Effectively this sort of backwards thinking would reduce worker mobility as people may be forced to downgrade their home or stay where they are because they can't afford the tax bill even to move into a like for like suburb and home.

    I think you need to read through the above a couple of times and think more about the implications of taxing CGT on a PPOR.
     
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  16. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    Intresting to see the rules in other countries...
    In US they have CGT exclusion for PPOR up to 250K for a single and up to 500K for a couple, once per 2 years. So that tax is mostly paid by wealthy people.

    So in your case, that couple won't pay any CGT
     
    Last edited by a moderator: 10th Oct, 2021
  17. Sticky

    Sticky Well-Known Member

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    They should make PPOR loan interest tax deductible like in the US. Even if CGT was introduced on sale, this would be offset by lower holding cost during ownership.
    The tax deductible PPOR loans would also remove the need for IO loans for tax effectiveness, keeping APRA happy.
     
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  18. AlexV_Sydney

    AlexV_Sydney Well-Known Member

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    and that reduction is only for the first $1M debt. It's going to be reviewed to be reduced to $500K. So again - that tax is still paid by rich. Also there are rules when a borrower refinances to take out equity to spend money other than buy another one, or renovate, or build.
     
  19. Big Will

    Big Will Well-Known Member

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    Let's use an example...

    Suburb A: House price is $300k in 2010, $600k in 2020
    Suburb B: House price is $300k in 2010, $600k in 2020
    Suburb C: House price is $450k in 2010, $900k in 2020

    2030 prices are 1.2M for Suburb A & B and 1.8M for Suburb C (keeping the same consistency here).


    Every couple is getting some benefit Couple A is living closer to work, Couple B is getting a nicer house - upgrading. Couple B then in 2030 decide to downgrade back into Suburb A (or B) they sell for 1.8M and buy in Suburb A for 1.2M getting back 600k profit (less costs) from a capital base of 900k (PPOR suburb C 2020) - you saying they shouldn't pay tax this? Why not?

    Couple B end position is PPOR worth 1.2M with 600k cash (less cost, no CGT) and enjoyed a better lifestyle with the upgraded home.

    Couple C - Buys in Suburb A (like couple A) but in 2020 decide to draw the equity out of the home and buy another house in Suburb B (or A). In 2030 their assets are now worth 1.2M and they decide to sell the IP so from a 900k total capital (300k Suburb A 2010 + 600k Suburb B 2020) they walk away with 600k which they have to pay CGT on it.

    Couple C on this route end position is PPOR worth 1.2M with 600k cash (less CGT & costs), they could of enjoyed NG (since this is being debated) but unlikely it would last the whole 10 years but NG means their lifestyle was actually worst (losing money) and didn't have the benefit of an upgraded lifestyle (bigger home/closer to work).

    Couple B has done better from a growth perspective and with both working from the same capital base they both end up with the same amount of cash but one has to pay CGT where as the other one doesn't.
     
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  20. Guest

    Guest Guest

    Ok so the bottom line is that you think it's reasonable someone should have to pay $100k tax (and this is probably the lower end considering $300k was still cheap end of the market in 2010) just to move house (closer to work) or upgrade their home. I know where you stand now and vehemently disagree with your position, so doubt it's worth discussing further. I doubt many others would agree with your position either, but you are entitled to an opinion.