Why Property is Better Than Shares

I am not sure if I mentioned this above, but another benefit of property over shares was the deductions for non-cash expenses such as
- Travel
- Depreciation on building works
- depreciation on plant and equity.

Travel is generally no longer deductible
Building work depreciation is added back on sale
Tax Tip 251: CGT and Building Depreciation Tax Tip 251: CGT and Building Depreciation

And plant and equipment is generally no longer deductible unless brand new.
But there can be a benefit in the unclaimed plant and equipment reducing CGT upon sale
Tax Tip 252: CGT and Depreciation of Plant and Equipment Tax Tip 252: CGT and Depreciation of Plant and Equipment

 

Shares....travel to AGM

 

Time to get some US shares!

 

With property you could move into the investment property with the highest capital gains later in life and leave your children 2 CGT free assets potentially wiping out hundreds of thousands in tax.

Not possible with shares as the cost base for the person that inherits them will be the same cost base of that of the deceased.

 

How do you do this? I thought you only can have 1 CGT free property??

 

In this case you’d have to die in the property? No moving into an aged care facility before transferring the property?

 

No, you can use the 6 year rule too - or more if the main residence is not income producing

 

The main residence at the point of death has its cost base reset basically - any previous income production is disregarded.

Tax Tip 241: Leave your children 2 properties CGT free on death Tax Tip 241: Leave your children 2 properties CGT free on death

 

Thanks, got to read your tip

 

This strategy is a goldmine of tax savings, which you cannot get with shares.

 

And is damn lucky their is heaps of this type of government policy support (handouts) for property to overcome its intrinsic inferiority to equity as an investment otherwise there would not be enough investment in property to meet society's housing needs.

 

Just wow

 

Pity my parents don't have IPs.

 

You could help them get one.
Legal Tip 208: Helping an Elderly Parent Buy a new property Legal Tip 208: Helping an Elderly Parent Buy a new property

Strategy: Incorporating Parents into Property Planning Strategy: Incorporating Parents into Property Planning

 

Australia is not a pure capitalist economy there are many social interventions including many around housing.

Two inescapable conclusions at a macro level. Our productivity is poor because there is not enough investment in innovation and production.

Our house prices and hence housing costs are high.

Government policies relied on to make housing investment attractive can and arguably must at some stage change if Australia is going to move forward as a productive country.

The support for established property as an investment needs to be reduced to allow capital to flow to production and innovation. Government should only be subsidising low socio emergency housing as part of its social interventions, not deforming the entire capital allocation spectrum towards one asset class, a largely unproductive one at that.

Things change – investments underpinned by favourable government policy are potentially very risky. Especially if those policy's fall out of sync, because ohhhh say a shock to the economy that requires future productivity growth to pay off gov't debt.

 

I think it comes down to asset selection and timing. Just got shown a property deal yesterday... the vendor got offers of $15-17m 2 year ago, but wanted $18m. It's back on the market and his best offer is $13m, and he'd take $15m. In the meantime 80% of this tenants are not paying rent (the property has 6-7 tenants on it). Commercial of course. Development site.

Similarly, the share market is down heaps over last 2 years. But if you bought say FAANG stock, you'd be flying. If you bought bank stocks, NAB and WBC are now below GFC prices. Worse than buying some pretty mediocre strata townhouse in Syd/Melb with no development potential.

 

Only applies if the children sell those shares though correct?? if say ETF's or LICS passed down and never sold no issue obv...

 

Yes true, CGT will only be triggered once the beneficiaries sell the shares. But it will come at some point - your grandchildren might sell. Hopefully the will inherit in a Testamentary Discretionary Trust so that any sale could be structured to save the maximum amount of tax.

 

well hopefully it acts as a deterrent to sell

 

You could restrict the ability to sell, either by using a bare trust or a TDT. But vesting of the TDT will trigger tax in 80 years or so.