What The Changes To CGT Discount Means For Investors

What The Changes To CGT Discount Means For Investors

[lwptoc]

As we begin 2019, we also enter a federal election year and with it a variety of considerations for investors.

The proposed withdrawal of negative gearing is dominating headlines for property investors, as well as the loss of 25% of the Capital Gains Tax (CGT) discount. With experts predicting a change of government, these Labor policies may be legislated sooner rather than later.

Negative gearing has dominated the discussion; however, the removal of 25% of the CGT discount will have major implications for investors in the withdrawal (or profit taking) stage and should be considered as a key part of their tax strategy.

In the top tax bracket under the status quo, investors pay $164k in tax on $350k profits, after the discount is applied. Under the new rules, investors will pay $245k on $525k, after the discount is applied. This means an extra $81k in tax that would have previously been in your hands.

In 2018, I personally sold a property which had appreciated by $700k (or 33%) in just over 5 years. With the 50% discount rule, the CGT is applied to $350k (or 50%) of the gains, if held longer than one year. But under Labor’s proposed new policy, the CGT would have been applied to $525k (or 75%) of the profits – meaning I would have had to pay CGT on $175k more than the current CGT discount.

Taxes are the cost of a civilised society, but I think we can all agree that the politicians do not spend our money wisely. These proposed changes will not be retrospectively applied but needs consideration. The loss of 25% of the CGT discount – no matter if the market is moving forward or sideways – may leave you with less in your pocket.

In the lead up to the election, I predict a spike in the purchase of existing properties that can be negatively geared, as the policy will not be retrospectively applied. Now that the banking royal commission is over the property market might have some clear air to do its thing.

My name is Shannon Davis, Husband Father and Property Investor. My day job is CEO of Image Property since 2010. If you have any property queries or concerns, please feel free to contact me on s.davis@imageproperty.com.au or 0400 179 605.