Australian Housing Affordability Discussion

[JohnK]

John, are you saying that you don't want to pay any tax at all, ever​?

That is the ultimate goal. Retire and don't pay any tax whilst living off the fruits of my labour. Almost there.

 

[junbugging]

That is the ultimate goal. Retire and don't pay any tax whilst living off the fruits of my labour. Almost there.

"Capital gains earned via a housing bubble" = "fruits of my labour" = delusional.

 

[travelislife]

People seem to be forgetting you can't negative gear your income to negative. You could take it down to zero but you would be pretty stuffed! No long term serious investor holds property that loses money as it actually limits the ability to invest further.

 

[cove]

If you had a choice you probably would not gain much reducing your taxable income below $37,000 as the all up marginal tax rate is 21% up to that level. So if you run up tax losses on residential property 79% of the loss would be yours and 21% ATO.

 

[ComeFlyWithMe]

"Capital gains earned via a housing bubble" = "fruits of my labour" = delusional.

Existence of a housing bubble in an under supplied market with no signs of significant new supply and people who only want to live in major cities = delusional.

Good on those who took risks, made sacrifices, saved and enjoy good capital gains.

 

[levelnine]

That is the ultimate goal. Retire and don't pay any tax whilst living off the fruits of my labour. Almost there.

"Capital gains earned via a housing bubble" = "fruits of my labour" = delusional.

Exactly. JohnK benefited from a host of government policies (e.g. not to release land to buoy house prices, generous negative gearing, capital gains tax discount) at the expense of others (e.g. first home buyers). It's perfectly acceptable for the winds to change and favour those other groups at the expense of JohnK.

 

[dajop]

People seem to be forgetting you can't negative gear your income to negative. You could take it down to zero but you would be pretty stuffed! No long term serious investor holds property that loses money as it actually limits the ability to invest further.

Of course not. But many serious investors would hold property that annually operates on a loss in terms of incoming revenue and outgoing costs, of course in the hope that the increase in value of the property will outweigh those losses in the long term. This strategy is of course made more viable by government allowing those losses to offset other income, thus reducing overall tax payment, thus making this a more attractive strategy, and more viable for properties that will only see modest gains vs situation where negative gearing is not possible.

 

[JohnK]

Existence of a housing bubble in an under supplied market with no signs of significant new supply and people who only want to live in major cities = delusional.

Good on those who took risks, made sacrifices, saved and enjoy good capital gains.

One thing people don't consider is how much you repay on a $175,000 loan over 30 years. Upwards of $500,000 and that unit is now worth $450,000 possibly less as property prices are falling. The concessions gained from negative gearing during the life of the loan are minimal.

And then to suggest that one should pay capital gain tax on full profit is ludicrous. As it is the capital gain tax would be ~$75,000 and if that increases to ~$150,000 I have achieved very little in those 30 years.

Quite sad when people enter discussions to bring others down.

 

[junbugging]

Good on those who took risks, made sacrifices, saved and enjoy good capital gains.

That's fine, as long as they're also willing to take the risk of the taxation landscape becoming less favourable. There is no god-given right to the status quo.

 

[ComeFlyWithMe]

Exactly. JohnK benefited from a host of government policies (e.g. not to release land to buoy house prices, generous negative gearing, capital gains tax discount) at the expense of others (e.g. first home buyers). It's perfectly acceptable for the winds to change and favour those other groups at the expense of JohnK.

While some of that may be true, the last part questionable, why blame JohnK (or anyone else for that matter) for taking advantage of the situation presented? It's not his fault he maximised the benefit in a perfectly legal manner, so why should he be punished?

Last time I checked, first home buyers can take advantage of negative gearing too, by purchasing an investment property as their first step into the market, prior to building some equity and purchasing a home to live in. They still receive a number of concessions also.

First home buyers could also buy new property, if not for the very loose FIRB restrictions and new developments being almost exclusively marketed to foreigners. So there are more factors than negative gearing at play here.

 

[junbugging]

I can assure you I was not going to risk paying off $175,000 over 20 years without being allowed to deduct all expenses on the loan and I definitely wasn't going to risk it if I had to pay marginal tax rate on 100% capital gain. No way.

What I would have done is spent my money everywhere and anywhere and then expected the government to take care of me in retirement. Isn't this what the bludgers do?

A perfect summary of how the taxation landscape distorted investment decisions in favour of property. It's about time some of those distortions were addressed.

 

[JohnK]

Exactly. JohnK benefited from a host of government policies (e.g. not to release land to buoy house prices, generous negative gearing, capital gains tax discount) at the expense of others (e.g. first home buyers). It's perfectly acceptable for the winds to change and favour those other groups at the expense of JohnK.

I think you are mistaken.

Why would you punish me? I have done nothing wrong. I took all the risks. I made all the sacrifices and I made a lot of sacrifices. There were rules in play at the time and I abided by every one of them. I didn't cheat anyone out of their entitlements. I worked hard.

Now people who have no idea what they are talking about are proposing that I pay more capital gain. Why? Makes no sense.

Oh and what if my $165,000 purchase was worth $82,000 today? Tough luck? Oh you can transfer the capital loss to your next investment and possible capital gain. Woopdidoo.

Let's hope sanity prevails and any new silly laws mentioned are only applied to new purchases where people know what they buying into.

 

[levelnine]

why should he be punished?

Why would you punish me?

Where did I say anyone should be punished? I haven't accused anyone of committing a crime.

I have said that JohnK (and many other property investors) have benefited from certain 'rules in play at the time' (to quote JohnK). Those rules favoured some people at the expense of others. That's totally fine. But it is also totally fine to change those rules to favour other previously disadvantaged groups. That's completely fair.

 

[JohnK]

Where did I say anyone should be punished? I haven't accused anyone of committing a crime.

I have said that JohnK (and many other property investors) have benefited from certain 'rules in play at the time' (to quote JohnK). Those rules favoured some people at the expense of others. That's totally fine. But it is also totally fine to change those rules to favour other previously disadvantaged groups. That's completely fair.

No it's not totally fine to change those rules.

People took risks based on rules in play at the time. If you changed those rules now without grandfathering the changes you are punishing those people.

And by the way I didn't take advantage of anything. I am the one that has taken all the risks. Government has done nothing.

 

[andye]

Given what has happened to the housing market (and stockmarket largely), it would be a craven tax grab of any government who didn't grandfather or phase any changes to CGT

 

[dajop]

And then to suggest that one should pay capital gain tax on full profit is ludicrous. As it is the capital gain tax would be ~$75,000 and if that increases to ~$150,000 I have achieved very little in those 30 years..

Whilst there is suggestion that capital gains tax is paid fully on profit, it is also suggested in this scenario that the base is adjusted for CPI. Forgetting capital improvements, stamp duty, agent fees etc to make it simple, today - capital gains tax payable on 50% of (Selling Price - Purchase Price). Under the old (and I think proposed) scheme - capital gains tax payable on (selling price - purchase price adjusted for CPI increase).

So for a property bought 30 years ago for $175k, worth $450K today:
- Under current capital gains tax regime, Capital gain = $275K, discounted capital gain = $137.5K. Tax payable (at top rate of tax) = 0.49 x $137.5K = $67k
- If we returned to cost base indexation (adjustment for inflation), $175k in 1986 is now worth $457K = capital loss = no tax payable!

JohnK, if you've held a property for 30 years and it's only increase in value by 2.6x, you would be definitely better off if we returned to the old system of capital gains tax, which favours long term investors over short-medium term speculators.

 

[JohnK]

JohnK, if you've held a property for 30 years and it's only increase in value by 2.6x, you would be definitely better off if we returned to the old system of capital gains tax, which favours long term investors over short-medium term speculators.

Not quite 30 years yet. The investments range from 17 years to 27 years.

It's time to move out of property as some people think it's a free ride. Amazing that some haven't yet suggested that anyone owning more than one investment property can keep one and donate the others to the government. :shock:

Time to sell up and then gift the proceeds of the sale to the kids.

 

[drron]

My goodness I didn't realise JohnK was responsible for the rise in house prices and housing now beyond the reach of many.
First JohnK played by the rules.
Second there was no guarantee that house prices would rise.
Third negative gearing by itself is not the major factor in land price rises.Low interest rates,foreign buying,developers land banking and probably also our media for pushing recognition of the money to be made from housing.
Fourth even if there wasn't negative gearing all the costs would be deductible from the capital gains that have been made over the years.So the thing that really reduces the tax take over the years is the CGT exemptions.

Besides all that JohnK has only a relatively trivial bit of the negative gearing pie.

Personally I am in favour of abolishing negative gearing with a possible exemption for new builds.However those that have made long term investment decisions that are fully compliant with the laws at the time of buying should be grandfathered.


Unfortunately the politics of envy is predominant at present.

 

[dajop]

Not quite 30 years yet. The investments range from 17 years to 27 years.

Without looking at median housing price stats, for the 27 year investment, if it was as an apartment outside the inner ring of the major cities, I'd probably guess you could even be better off under the old indexation method than today's method. If it was house or land, my gut feel the Peter Costello method we currently have would be better for you.

In either case, if you've held a long term investment the effect that of changing removing the 50% discount on capital gains (even if not grandfathered) would be nowhere near as dramatic as many make it (it certainly not going to double the tax payable). If you've held shares for a year and they've doubled in value, or held a property for four years that has doubled in value, the change would be far more dramatic and signficant. I think investors over timeframes in the order of 20+ years, have very little to worry about.

 

[Moody]

Unfortunately the politics of envy is predominant at present.

Actually I would have said the politics of greed and self interest were predominant, but hopefully that will change.