Understanding capital gains tax
Lets talk about investing and capital gains tax
The number one reason I hear for not investing in property is “I don’t want to pay capital gains tax”, makes me want to scream.
So lets understand a bit more about capital gains tax, and I want you to understand that the more you pay, the more you earn, ok?
So very simply,
If you buy an investment property and some years later you sell it and make a profit – lets say you make $200,000 AFTER all of the costs (legal fees, agents fees etc) just to use round numbers, which was easily done in the last couple of years in Sydney.
So, you made $200k
And if you’ve held the place for more than 12m then currently (March 2016), in Australia, you get a 50% discount on your gain.
So half of that is tax free $100000 tax free
Then the other $100k is added to your current annual income so even if this puts you in the top tax bracket for that $100k, and you pay 48 cents in the dollar tax, then you’re paying $48,000 tax to keep $152,000 that you didn’t have to go out and earn.
Happy to pay $48k to keep $152k? uh huh.
Now see how its actually no big deal at all?
I say pay MORE because you’ve kept MORE
Imagine taking a cheque in and paying $152,000 off of your home loan in one go – how does that feel? Beats working for it right?
There are no guarantees that you will make money, or that you will make this kind of money – but you can, and you certainly wont if you don’t give it a try, so if it fits your goals then please don’t use capital gains tax as a reason not to invest.