Australian Politics General...

[Value Collector]

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

Investors have their earnings affected by that to.

 

[luutzu]

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.



No, read my example of the bank account again.

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



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.

The $100 is the retained earning.

The $50 earned in interest is additional income earned from the retained earning.

So how would considering the entire $50 in interest income be double taxing? It's new income.

 

[Value Collector]

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

I know they aren't taxed like that, no one would accept that, but thats exactly how investors are taxed when they get taxed on capital gains.

Depreciation of assets is a real cost, and claiming depreciation on a property increases the capital gain charge later, it doesn't reduce it.

e.g., buy house for $200k, claim $50K depreciation, reduces cost base to $150K, sell it for $300K = $150K capital gain, when before it would have only been $100K

 

[luutzu]

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.

I'll believe this one day... when my portfolio ballooned and it all just make sense why I shouldn't pay much tax on it.

 

[Value Collector]

The $100 is the retained earning.

The $50 earned in interest is additional income earned from the retained earning.

So how would considering the entire $50 in interest income be double taxing? It's new income.

No the $100 is the starting capital in the bank account, your original deposit.

you then earn interest and pay tax, and after a few years have $150 ($50 retained after tax interest/earnings)

when you withdraw the $150, the government calls the $50 of retained interest/earnings a "Capital Gain" and taxes you, when really its just retained capital you have already been taxed on.

 

[SirRumpole]

I know they aren't taxed like that, no one would accept that, but thats exactly how investors are taxed when they get taxed on capital gains.

Depreciation of assets is a real cost, and claiming depreciation on a property increases the capital gain charge later, it doesn't reduce it.

e.g., buy house for $200k, claim $50K depreciation, reduces cost base to $150K, sell it for $300K = $150K capital gain, when before it would have only been $100K

So you get a deduction off your income through depreciation and negative gearing and make it up later with capital gain and you still expect a discount on your tax through "inflation".

Suck it up matey, everyone else has to.

 

[Value Collector]

I'll believe this one day... when my portfolio ballooned and it all just make sense why I shouldn't pay much tax on it.

Ok, take Berkshire Hathaway as an example.

in the 60's it was $9 / share

Today its $254,900 / share

Thats a huge Capital Gain, Is it all that capital gain fresh untaxed earnings? No.

The only reason Berkshire's shares has been able to get that capital gain is because it has never paid a dividend.

Each year Berkshire earns money, then pays company tax and then retains that profit in the business increasing its asset base, So that big capital gain is actually largely just an accumulation of shareholders funds which have already been taxed, its not "free money" or "New earnings"

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I would be happy to pay tax on 100% of my dividends and 100% of capital gains if the company tax didn't exist, but as long as the money company is being taxed at 30% before I get my dividends or capital gains, then I deserve franking credits on dividends and capital gains discount on capital gains.

 

[Value Collector]

So you get a deduction off your income through depreciation and negative gearing and make it up later with capital gain and you still expect a discount on your tax through "inflation".

Suck it up matey, everyone else has to.

Depreciation is a recognition that the building is wearing out, and the capital is eroding offsetting income.

If I spend $10,000 replacing a roof on my property, I can't write that off against income in one year, I have to depreciated it over 20 years, so I have to spend the cash today and they get to claim back $500 per year against income for the next 20 years.

How is that an unfair advantage to me?

 

[luutzu]

Depreciation is a recognition that the building is wearing out, and the capital is eroding offsetting income.

If I spend $10,000 replacing a roof on my property, I can't write that off against income in one year, I have to depreciated it over 20 years, so I have to spend the cash today and they get to claim back $500 per year against income for the next 20 years.

How is that an unfair advantage to me?

Can a labourer claim depreciation, wear and tear on their physical body?

How come a hard, in-organic object get that generous deduction but a worker can't?

Or you're saying that if a self-employed, or blue collar work were to go and get a knee replacement, they can deduct that as wear and tear?


Come on man, the system is rigged. And since capitalists rigged it, of course it's fair.

 

[SirRumpole]

How is that an unfair advantage to me?

You can claim a $10,000 deduction for repairs in the year you spend it, but I as an owner occupier get no deduction at all for repairs.

 

[luutzu]

Ok, take Berkshire Hathaway as an example.

in the 60's it was $9 / share

Today its $254,900 / share

Thats a huge Capital Gain, Is it all that capital gain fresh untaxed earnings? No.

The only reason Berkshire's shares has been able to get that capital gain is because it has never paid a dividend.

Each year Berkshire earns money, then pays company tax and then retains that profit in the business increasing its asset base, So that big capital gain is actually largely just an accumulation of shareholders funds which have already been taxed, its not "free money" or "New earnings"

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I would be happy to pay tax on 100% of my dividends and 100% of capital gains if the company tax didn't exist, but as long as the money company is being taxed at 30% before I get my dividends or capital gains, then I deserve franking credits on dividends and capital gains discount on capital gains.

So you're saying that Buffett does nothing with the retained earning? He just store it there and they adds up?

I thought money makes money. Money don't just sit around, right? Not at Berkshire.

So how is it that the retained money that is put to making more money... that new money is just retained money.

Fair enough. That's why I decided to go into investing... for the fairness of it.

 

[Value Collector]

So you're saying that Buffett does nothing with the retained earning? He just store it there and they adds up?

I thought money makes money. Money don't just sit around, right? Not at Berkshire.

So how is it that the retained money that is put to making more money... that new money is just retained money.

Fair enough. That's why I decided to go into investing... for the fairness of it.

It doesn't matter what buffet does with the money, any earnings it generates in the mean time will be charged company tax, but eventually that money has to get back to the investor, and because its already had tax paid on it, it shouldn't be taxed on the full capital gain.

I can't believe you can't understand the concept of retained earnings being part of shareholders capital, and are not genuine fresh earnings.

you understand that you should only be charged tax on your "Gain" not the initial capital you put in, retained earnings are exactly the same, it's share holders capital that has already been taxed.

 

[Value Collector]

You can claim a $10,000 deduction for repairs in the year you spend it.

Any major capital works, can't be deducted, they are added to the capital base and get depreciated over time.

but I as an owner occupier get no deduction at all for repairs.

Thats because its personal consumption, you also pay no capital gains tax at all.

Come on man, the system is rigged. And since capitalists rigged it, of course it's fair.

Thats just you being cynical again.

 

[luutzu]

Any major capital works, can't be deducted, they are added to the capital base and get depreciated over time.



Thats because its personal consumption, you also pay no capital gains tax at all.




Thats just you being cynical again.

Didn't Buffett also say there's been class warfare. And his class has been winning.

Then another quote where he said it's good to have friends in high places.

What might be seen as cynicism might just be facts man.

I mean, I see a fair number of good honest people and that's a great thing to see. No cynicism from me at all. Like how I think you're quite an alright guy... a bit too much in love with capitalism but yea, might read a few honest books later and get cynical

 

[luutzu]

It doesn't matter what buffet does with the money, any earnings it generates in the mean time will be charged company tax, but eventually that money has to get back to the investor, and because its already had tax paid on it, it shouldn't be taxed on the full capital gain.

I can't believe you can't understand the concept of retained earnings being part of shareholders capital, and are not genuine fresh earnings.

you understand that you should only be charged tax on your "Gain" not the initial capital you put in, retained earnings are exactly the same, it's share holders capital that has already been taxed.

Yea I get that part.

But like I said before, you're assuming that in that situation, any capital gained from sell of shares are just all book value gain. That's rarely ever the case is it?

So OK, it's too onerous to calculate which portion is the already taxed/retained earning and which... no it's pretty easy. Just get the accountant to work out what's the book value recorded and what's the selling price.

The difference are additional income not yet taxed. True?

 

[SirRumpole]

Any major capital works, can't be deducted, they are added to the capital base and get depreciated over time.

You are shifting the goalposts again, you started off with repairs and when I pointed out your obvious error you go back to capital works.

You can't expect the tax system to be fair to everyone, it certainly isn't to wage and salary earners so what makes investors a protected species ?

 

[luutzu]

You are shifting the goalposts again, you started off with repairs and when I pointed out your obvious error you go back to capital works.

You can't expect the tax system to be fair to everyone, it certainly isn't to wage and salary earners so what makes investors a protected species ?

Because they're job creators and not welfare recipients, that's why.

Inflation eating at your "gain"? Don't worry about it, let's not tax half of those gains. Feel better?

Inflation mean your wage increase is not a real increase? Say what? How do you prove that inflation was 2% last year and your wage increase being 2% isn't a real increase? You might have spend on Woolies Select and make your dollar work harder... whatever, just pay up your fair share or call a lawyer.

 

[bellenuit]

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

Looks like you don't understand depreciation either SirRumpole.

 

[SirRumpole]

Looks like you don't understand depreciation either SirRumpole.

Reduction in the book value of assets over time.
Deduction to the PL account, therefore reduction in tax payable over the life of the asset.

What else ?

 

[Value Collector]

you're assuming that in that situation, any capital gained from sell of shares are just all book value gain.

No I am not, I am just saying part of it is, I am noting calling for a 100% capital gains tax discount, I am just saying the current method of only taxing half the gain is much fairer than taxing the whole gain, when you take into consideration retained earnings and inflation.

no it's pretty easy. Just get the accountant to work out what's the book value recorded and what's the selling price.

The difference are additional income not yet taxed. True?

its much harder than that, and the winner there would be the accountants, the 50% discount is a pretty good rule of thumb.

You are shifting the goalposts again, you started off with repairs and when I pointed out your obvious error you go back to capital works.

?

replacing a roof, renovation of kitchen bathroom etc etc are not considered repairs, these are the the types of things that are depreciated.

You can't expect the tax system to be fair to everyone,

why not? but all I am talking about its adding a degree of fairness, not capital gains discount would be a total rip off.

it certainly isn't to wage and salary earners so what makes investors a protected species ?

how so?