Australian Politics General...

[Value Collector]

So luutzu is correct, capital gains should not be treated differently to income tax.

Yeah it should, because as I explained above, taxing the full amount causes double taxation, and when you factor in inflation, it's a tax on the original capital, not true earnings.

Eg, you buy a house for $100k, 20 years later inflation has halved the value of money, so every thing now costs twice as much, including houses so your house is now worth $200k, you then decide to move Into an identical house next door you sell your home for $200k, the government take 30% of the inflation induced capital gain leaving you with only $170K, so you wouldn't be able to buy the house, you lost a chunk of your original capital to tax simple because of inflation.

 

[luutzu]

It is different, without the discount there is double taxation.

Alot of the capital gain shareholders make is due to retained earnings, which have already been taxed, taxing the share holder for their "capital gain" which is largely due to the company retaining earnings, means the share holder is being taxed twice.

Eg, XYZ share is $10, it earns $1 per share, pays tax of $0.30, retains the other $0.70 to grow the company, share price grows to $11.40, share holder sells and makes $1.40 capital gain, but half of that $1.40 capital gain is retained earnings, 50% capital gains tax discount prevents the double taxation that would occur if you charged tax on the full gain which included retained earnings.


Also as mcglovin said, part of the capital gain was due solely to inflation,

I thought the double-taxed thing is if you'd have to pay tax on your dividends. So we have that franked credit thing right?

Aren't we assuming that any gain in share price are due to the retained earnings? Or at least half of it?

Sometimes the share price gains because great work [labour] has been put to great use.

But let say that it's just all capital retained, so it shouldn't be taxed in full....

Then why are interests we earn from our after-tax income taxed as additional income, not given that 50% off business?

If we apply the same principle, then couldn't it be argued that a person's wage shouldn't be taxed completely, but only the additional wage increase at the tax bracket while the same wage as previous year at half price since...

say, a person earn $50K last year... that was for their labour. This year they earn $55k, couldn't we argue that the $50K earned was retained labour/skills and that had already been taxed. So only tax half of that $50k.

Anyway, sounds a lot like class warfare to me.

 

[Value Collector]

I thought the double-taxed thing is if you'd have to pay tax on your dividends. So we have that franked credit thing right?

Aren't we assuming that any gain in share price are due to the retained earnings? Or at least half of it?

Sometimes the share price gains because great work [labour] has been put to great use.

But let say that it's just all capital retained, so it shouldn't be taxed in full....

Then why are interests we earn from our after-tax income taxed as additional income, not given that 50% off business?

If we apply the same principle, then couldn't it be argued that a person's wage shouldn't be taxed completely, but only the additional wage increase at the tax bracket while the same wage as previous year at half price since...

say, a person earn $50K last year... that was for their labour. This year they earn $55k, couldn't we argue that the $50K earned was retained labour/skills and that had already been taxed. So only tax half of that $50k.

Anyway, sounds a lot like class warfare to me.

Yes a company's after tax earnings that are paid out receive a franking credit to prevent double taxation, which is totally fair.

However, if you taxed all the capital gain, you would be taxing the retained earnings after they have already been taxed, which wouldn't be fair.

The discount is a recognition that not all of the capital gain is true earnings and some of it is due to capital being retained inside the company that has already been taxed, 50% is just a round number, sometimes 100% of th gain is due to retained earnings, so times less, it would be to hard to judge each individual situation.

I have no idea what you are talking about in your last four paragraphs.

 

[luutzu]

Yes a company's after tax earnings that are paid out receive a franking credit to prevent double taxation, which is totally fair.

However, if you taxed all the capital gain, you would be taxing the retained earnings after they have already been taxed, which wouldn't be fair.

I have no idea what you are talking about in your last four paragraphs.

The franking credit is fair enough. But the capital gains discount is just... you're really pushing the logic on that one dude.

Maybe it's not your logic, it's what the argument is when those with capital came up with it.

Let's take your typical corporate raiders... they use capital as their tools, raid a company, work very hard firing people and cutting costs... flock it off to friendly fund managers who's looking after other people's money and is not afraid to lose it.

The corporate raider make a big massive profit on their work... why is that not considered their or their company's income, but are considered a capital gain and only half of that profit is taxed?

Or take your typical property investor... they're in it to make money, right? Interests they paid are deductible expenses... then when they flock the property off, make a profit... and this is their day job... why is that profit consider "capital gains" and only half is taxed?

I mean I know why... it's just not fair isn't it? Not for people who work and labour.

A fairer system would be to tax labour less but tax capital gains more. Why? Because labour is hard work; you got to sweat and ache earning that income.

Income earn through simple capital, an invented entity... that's just extra cream on top; that's easy money; bonuses. Nobody sweats any extra to earn that capital gain... nobody's being hurt in the making of that gain... well, except the labourer and third world countries...

Be more fair to tax that higher just so the poor working folks can get a break.

 

[Value Collector]

The franking credit is fair enough. But the capital gains discount is just... you're really pushing the logic on that one dude.
.

recognising that when a $1 dividend is paid to a shareholder from a companys after tax earnings, the shareholder deserves tax/franking credit on to prevent him pay tax twice on the same $1.

Is no different to.

Recognising that if that same after tax $1 earnings is retained by the company and not paid as a dividend, then when the shareholder sells his share and takes that $1 as a capital gain rather than a dividend, there should also be some device to prevent him being taxed on it again.

There is also the inflation angle.

The 50% capital gain discount isn't perfect, there will be cases where only a small portion of the gain is related to retained earnings, but there will also be cases where 100% of the gain is related to retained, so investors will win some and lose some, but there needs to be some device to try and prevent double taxation system.

 

[sptrawler]

The franking credit is fair enough. But the capital gains discount is just... you're really pushing the logic on that one dude.

Maybe it's not your logic, it's what the argument is when those with capital came up with it.

Let's take your typical corporate raiders... they use capital as their tools, raid a company, work very hard firing people and cutting costs... flock it off to friendly fund managers who's looking after other people's money and is not afraid to lose it.

The corporate raider make a big massive profit on their work... why is that not considered their or their company's income, but are considered a capital gain and only half of that profit is taxed?

Or take your typical property investor... they're in it to make money, right? Interests they paid are deductible expenses... then when they flock the property off, make a profit... and this is their day job... why is that profit consider "capital gains" and only half is taxed?

I mean I know why... it's just not fair isn't it? Not for people who work and labour.

A fairer system would be to tax labour less but tax capital gains more. Why? Because labour is hard work; you got to sweat and ache earning that income.

Income earn through simple capital, an invented entity... that's just extra cream on top; that's easy money; bonuses. Nobody sweats any extra to earn that capital gain... nobody's being hurt in the making of that gain... well, except the labourer and third world countries...

Be more fair to tax that higher just so the poor working folks can get a break.

I see what you're saying and to a degree it is true.
The current system, was put in place because the old system of cost base indexing was cumbersome and very inefficient.
Also property has boomed in the last 20 years, prior to that it moved very slowly, maybe a time based discount should be introduced.
Something like 50% discount after 10 years, 25% after 5 years, then 5% reductions per year held until 0 if held for less than 1year.
The problem at the moment no body is prepared to reduce any tax breaks, it is the weirdest political period I've seen in my life.
Blind Freddy can see we are on a runaway train, but nobody has the balls to stop it, there will be a crash.IMO

 

[SirRumpole]

Yeah it should, because as I explained above, taxing the full amount causes double taxation, and when you factor in inflation, it's a tax on the original capital, not true earnings.

Are you seriously suggesting that there should be a 50% CGT discount on property held for one year when inflation has been around 2%pa for decades ?

Why not adjust to real inflation which would be 50% CGT after 25 years, and to be fair adjust tax on wages for inflation as well so people on average earnings don't get pushed into higher tax brackets ?

This is just another example of how LNP governments favour their capital holding mates at the expense of the majority.

 

[Value Collector]

I see what you're saying and to a degree it is true.
The current system, was put in place because the old system of cost base indexing was cumbersome and very inefficient.
Also property has boomed in the last 20 years, prior to that it moved very slowly, maybe a time based discount should be introduced.
Something like 50% discount after 10 years, 25% after 5 years, then 5% reductions per year held until 0 if held for less than 1year.
The problem at the moment no body is prepared to reduce any tax breaks, it is the weirdest political period I've seen in my life.
Blind Freddy can see we are on a runaway train, but nobody has the balls to stop it, there will be a crash.IMO

A time based system would be just as arbitrary, because it's still possible that even after only 1 year, 100% of the capital gain is either retained earnings or inflation based.

Are you seriously suggesting that there should be a 50% CGT discount on property held for one year when inflation has been around 2%pa for decades ?

Why not adjust to real inflation which would be 50% CGT after 25 years, and to be fair adjust tax on wages for inflation as well so people on average earnings don't get pushed into higher tax brackets ?

This is just another example of how LNP governments favour their capital holding mates at the expense of the majority.

You know it's only a 50% discount of the capital gain you make? Your second paragraph makes me think you don't understand how the tax discount operates.

So if you by a house for $100k and after a year it goes up 6% to $106k, you will only pay tax on half that gain, so $3k will be added to your taxable income.

Now inflation is pretty close to 3%, so that capital gains tax discount has made it so the investor is not being charged tax on the inflation component.

It's not perfect, but it is a pretty good rule of thumb, and far fairer than no discount.

 

[SirRumpole]

It's not perfect, but it is a pretty good rule of thumb, and far fairer than no discount.

Maybe the discount should be deleted altogether and then investors will have to live with the effects of inflation, just like everyone else.

 

[Value Collector]

Maybe the discount should be deleted altogether and then investors will have to live with the effects of inflation, just like everyone else.

Investors already get hit more than every one else, non investor home owners get a 100% capital gains discount, they don't pay Tax on their capital gains at all, if an investor owns the same house, we get taxed.

Also, when it comes to shares, there is the whole retained earnings problem you haven't dealt with. Pretty much no company's pay out 100% of their earnings, they all retain some of their profit, so any future capital gain is going to be be partly due to an accumulation of this retained funds.

 

[SirRumpole]

if an investor owns the same house, we get taxed.

You can reduce your income and your tax liability via negative gearing.

In any case, residential property is for people to live in , not for making making money for landlords.

 

[Value Collector]

You can reduce your income and your tax liability via negative gearing.

In any case, residential property is for people to live in , not for making making money for landlords.

capital gains tax affects people that aren't negative geared, not all investors have other income to reduce, and interest losses are real losses, people that are negative geared are actually losing real money.

Capital gains tax affects more than just residential property, and anyway there will always be people that either need or want to rent, so there will be a need for investors to provide rental homes.

How exactly would you compensate capital gains that are due to retained earnings?

 

[Value Collector]

Imagine putting $100 in an interest earning bank account, you pay tax on the interest each year, but let the remaining "after tax" interest build up.

After 10 years you have $150 in the account and decide to withdraw it, the government then says, "Thats a nice capital gain you have there, we want to tax that"

So even though you already paid tax on the interest, and the $50 "capital gain" is really just your after tax dollars that have accumulated, the government want to tax you again just for withdrawing the funds from the investment.

This is what it's like when you are taxed on capital gains that are due to a company retaining its earnings.

Hence why a 50% capital gain discount is fair, it's simply recognising that some of the "capital gain" is actually just returning capital to you that you contributed via retained earnings.

 

[luutzu]

A time based system would be just as arbitrary, because it's still possible that even after only 1 year, 100% of the capital gain is either retained earnings or inflation based.


You know it's only a 50% discount of the capital gain you make? Your second paragraph makes me think you don't understand how the tax discount operates.

So if you by a house for $100k and after a year it goes up 6% to $106k, you will only pay tax on half that gain, so $3k will be added to your taxable income.

Now inflation is pretty close to 3%, so that capital gains tax discount has made it so the investor is not being charged tax on the inflation component.

It's not perfect, but it is a pretty good rule of thumb, and far fairer than no discount.

Why aren't we doing that for income earners?

Most average wage earners have their pay "increase" at or below the year's inflation, and those in "low skill" having it review maybe once ever two years, with maybe an increase that's maybe 3%.

These laws are designed to protect those with assets, pure and simple.

So all these rules to fight inflation, to not have it take and tax people's capital. Maybe half the country doesn't have assets or much capital; but they do have a lot of debt.

 

[SirRumpole]

Why aren't we doing that for income earners?

The government makes money out of income earners and inflation by bracket creep.

If wage and salary earners have to be ripped off by the government then I don't see why investors should be exempt.

 

[luutzu]

Imagine putting $100 in an interest earning bank account, you pay tax on the interest each year, but let the remaining "after tax" interest build up.

After 10 years you have $150 in the account and decide to withdraw it, the government then says, "Thats a nice capital gain you have there, we want to tax that"

So even though you already paid tax on the interest, and the $50 "capital gain" is really just your after tax dollars that have accumulated, the government want to tax you again just for withdrawing the funds from the investment.

This is what it's like when you are taxed on capital gains that are due to a company retaining its earnings.

Hence why a 50% capital gain discount is fair, it's simply recognising that some of the "capital gain" is actually just returning capital to you that you contributed via retained earnings.

No it's not.

It wouldn't be fair only if they want to tax the entire $150. But here, they're only taxing half of that gain. Why?

Aren't the $50 new profit you've earned, or your capital earn? And what's more, you've had the benefit of that capital not being tax on an annual basis even though it's earning all through those years.

 

[luutzu]

The government makes money out of income earners and inflation by bracket creep.

If wage and salary earners have to be ripped off by the government then I don't see why investors should be exempt.

Picking soft targets.

You don't go pick fights with those who, like you, have money and can influence your career progression.

Pick on the poor, tell them a good story that time's tough and everyone [like them] have to make do with less.

 

[Value Collector]

No it's not.

It wouldn't be fair only if they want to tax the entire $150. But here, they're only taxing half of that gain. Why?

They will tax the $50, because it would be considered a capital gain.

However, because the $50 is really just an accumulation of retained earning which have already had tax paid on it, its unfair.

Aren't the $50 new profit you've earned, or your capital earn?

No it's not.

It wouldn't be fair only if they want to tax the entire $150. But here, they're only taxing half of that gain. Why?

And what's more, you've had the benefit of that capital not being tax on an annual basis even though it's earning all through those years.

.

No, read my example of the bank account again.

The $50 is just retained earnings which have already been taxed each year.

And what's more, you've had the benefit of that capital not being tax on an annual basis even though it's earning all through those years.

No, every year company's pay company tax on their earnings, Then some of those earnings are retained and will make up part of the future capital gain the investor will get, he will then be charged capital gains tax, if he doesn't get the 50% capital gains tax discount, then its double taxation.

 

[Value Collector]

Why aren't we doing that for income earners?
.

Everyone pays tax on their earnings, company's pay company tax.

The capital gains discount is to prevent the investor being double charged.

e.g.. paying the company tax when the company reports a profit, and then paying tax again when he accesses those profits by selling his shares.

 

[SirRumpole]

The $50 is just retained earnings which have already been taxed each year.

Bank accounts are never taxed that way and businesses have depreciation deduction on assets which makes up for any discount on capital gain.