Would Labor's proposed reduction in the CGT discount change your investing behaviour?

Labor is proposing to halve the CGT discount from 50% to 25%.

Curious to know.. will this change how you invest (in property)?

Assumptions to use (for the purpose of voting in the poll):

• Labor wins this weekend.
• They get their legislation through (including proposed changes to negative gearing).

p.s. Let's not turn this into another debate on the pros/cons for the change

 

Yeah. Don't sell.

 

Hold onto the grandfathered benefits.. good point, but what would you do with future cash flow that was available to invest?

 

I think a couple of the options for property investors may be:

1. shift property investments towards yield focus...or (not impacted by negative gearing and less impacted by capital value gain taxes)
2. buy new properties only

The changes incentivise both of the above options for those looking to stick to property

 

I use capital gains to supplement income and debt recycle because it is taxed at held of income but if this changes it will mean selling less I giess

 

Depends on personal circumstances but I would probably start paying down debt with excess cashflow.

 

Invest via a company. Company then owned by trust. Land tax benefits and company tax at 30% which is potentially lower than the personal tax you would pay based on your tax situation.

 

Both NG removal and CGT discount reduction will make property investment far less attractive for post 2019 investors, this new reality will be reflected in price from then on.
For those now sitting on huge CGs (eg syd/mel),
Is not selling before new rules kicks in, a sound strategy?

 

Zero plans to do anything radical.

All of the proposals pass
None of the proposals pass
Some may pass
Some may not pass

Lots of Cassandras shouting at each other

The one who shouts the loudest and gets it most right wins a coconut.

At the moment, I'm not inclined to jump at shadows.

 

We are B+H investors and most of our IPs are owned via trusts.

We are retired and in pension phase. So, we are not accumulating any more assets, including property.

So grandfathering of NG and CGT changes won’t affect us. We will well and truly “gone” by the time our trusts vest.

So the ALP changes (if the are still in place) will impact our grandkids (currently all less than 5 year old).

So, no change and we will keep spending the money.

 

OP is brain storming a very specific 'what if' scenario assuming 'All of the proposals pass'

 

We don't have the details of what proposals will be in the legislation, as it is still a work in progress, as @Redom has pointed out there are other options.

The devil is always in the detail.

 

Not just property, shares will suck too. Will mean more risk for less return.

 

To shake things up a bit they should retain higher CGT discounts (the 50% discount) if investing in small/microcap companies (companies below the ASX300). However this should be limited to investments associated with Intellectual Property or Manufacturing retained in Australia or resources developed in Australia.

Encourage investment in businesses that grow local employment and hence the economy.

 

The sky is not falling.

Way back when, cgt discount was intended to prevent being taxed on gains caused by inflation. Each year the inflation rate to be used in calculations was was declared.

So if you sold after 1 year, you discounted the gain by the declared rate of inflation, say 6%. Taxed on the rest. Even after 5 years the discount may be 28% or so.

And so on. Calculations became complex. So the extremely generous 50% discount after one year was introduced. For some time you could choose which method you used, inflation figures or the 50%.

Winding it back is based on the same thinking that refunding excess franking credits is too generous.
Marg

 

Would I change my strategy? Combined with negative gearing changes - quite possibly yes.

My current strategy of ‘rentvesting’ (developing and purchasing investment properties to hold whilst renting where I live) is predicated on the tax advantages of owning investment properties (read: debt) over PPOR. If this changes I will probably have to do some modeling on whether this is still an advantageous strategy for future acquisitions. Ie the benefits of owning a PPOR may significantly outweigh the (soon to be largely non-existent) benefits of owning an IP.

It has also given me pause for thought in that at some stage in the future I was probably going to sell down some of my existing IPs to purchase a PPOR; however if my current portfolio has better tax treatment than any new investments (assuming NG and CGT discount are grandfathered) then it seems crazy to sell them.

In terms of negative gearing (not the original question I know) you could potentially keep a stock of existing IPs and constantly refinance these at the max rate, benefiting from NG on the high dept in perpetuity.

 

Why would you want to pay down debt on existing property that still benefitted from the current tax settings? My thoughts are to keep these investments as negatively geared as possible pay down everything else (new investments, PPOR) - though of course this totally depends on your overall strategy.

 

The holy grail is to continually stay on IO to maximise NG benefits (and refinance if IO isn't an option anymore after 5/10 yrs at your current bank/s).

 

True. I have been weighing up the benefits of purchasing more shares before the changes to benefit from the grandfathered CGT discount status (I’m not full-bottle on this though, is that how it would work); vs any negative impacts on shares as a long term investment class.

 

Another though is the impacts on development as a strategy.

My current model is doing small developments where I retain the existing dwelling and produce 1+ new dwellings to hold. I am assuming under the new tax settings that the existing dwelling would have no tax advantage, whilst the new dwelling would? Is this how others understand it? Or would both properties be considered ‘new’ given the 2x new titles issued?

If it is about the newness of the dwelling rather than the title, the strategy may shift to demolish and develop projects. Or simply retaining the new dwelling and selling the old one each time.

Thoughts?