We’ve seen a lot of activity about state and federal government shared equity schemes over the past few weeks, and as we have been discovering, the differences between them are sometimes obvious, and other times far more nuanced.
With this in mind, we’re putting the finishing touches on a flyer that compares them all to help you and your clients better understand what might be best for them.
We will be sending this out to you all next week – stay tuned!
In this week’s newsletter, we take a look at Capital Gains Tax (CGT) which has been back in the spot light this week with some suggesting removing the CGT discount would help solve a bunch of housing supply and affordability related problems.
What Is Capital Gains Tax (CGT)?
CGT generally applies when you sell an asset, such as an investment property, shares or managed funds, for more than you originally paid for it.
If the sale price is higher than the purchase price (after allowable adjustments), you’ve made a capital gain. If it’s lower, you’ve made a capital loss, which can usually be carried forward to offset future gains, but that’s a whole separate topic.
How Is CGT Calculated?
CGT is based on the difference between:
- What you paid for the asset, plus eligible costs such as stamp duty, legal fees and certain improvements
- What you sell it for, minus selling costs like agent fees
The resulting gain is then included in your taxable income for that financial year and taxed at your marginal tax rate.
What Is the CGT Discount?
If the asset is held for more than 12 months, a 50% CGT discount generally applies. This means only half of the capital gain is added to your taxable income.
For example, if you sell an investment property and make a $200,000 capital gain, only $100,000 is added to your taxable income if you qualify for the discount.
Why Is CGT Back in the Spotlight?
The CGT discount has become a hot topic in the housing affordability debate this week amongst economists and policy makers. Some argue it encourages property investment, adds competition for first-home buyers and contributes to higher prices.
Others say it supports long-term investment, helps supply rental housing and provides certainty for Australians building wealth over time.
What Could Change Mean for Property Owners?
Any change to CGT would have wide-ranging effects, not just for investors, but for renters and future buyers as well. Reducing incentives could dampen investment activity, while keeping settings unchanged may continue to attract investor demand.
As with most things in housing policy, CGT isn’t a simple on-off switch, and any reform would need to balance affordability, supply and long-term confidence in the market.
The Takeaway
If housing policy were a dinner party, CGT would be the guest everyone argues about – loudly, confidently, and usually after the second glass of wine. Is it pushing prices higher? Maybe. Is it propping up rental supply? Also maybe. The truth sits somewhere in the middle.
What’s clear is that CGT isn’t a magic lever that can be pulled without consequences.
Tweak it one way and investors rethink their plans; leave it alone and affordability debates roll on. Like most things in property, it’s less about finding a villain and more about understanding the trade-offs.
In short: CGT matters, changes would ripple far and wide, and knee-jerk fixes rarely end well, especially when Australia’s housing shortage is already doing most of the heavy lifting.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
