Whether at home with your children, in the classroom, in the sporting arena or in the workplace, one of the most important things for all humans to do is encourage good actions and behaviours.
Good leadership is rewarding little Johnny when he uses good manners, when young Jenny consistently saves some of her pocket money, when Johnny performs a selfless act for his footy team and when Jenny exceeds her KPIs at work.
Later in life, Johnny meets Jenny. While pursuing their respective careers, they get married, save a deposit, buy a home, and raise a family.
Just as their parents, teachers, coaches and employers taught them, Johnny and Jenny continue to set goals.
These role models follow a plan, demonstrate discipline and determination, and they strive towards one day being able to exit the workforce to enjoy a comfortable lifestyle without leaning on the taxpayer for an aged pension.
They invest.
Related story: How to exit the workforce
Instead of encouraging their good actions and behaviour, the government whacks Johnny and Jenny with a 6-figure fee when they crystalise the rewards from their investment/s.
The CGT policy is completely contradictory to the spirit and core values which underpin all good cultures.
Australia’s abhorrent, 30-year-old capital gains tax (CGT) policy completely undermines a (very) important character trait. A genuinely strong leader with core values that include encouraging good behaviour would scrap CGT.
What is ‘Capital Gains Tax’
A capital gains tax (CGT) event is triggered when an income-producing asset is sold.
This includes general businesses, rental accommodation businesses (investment properties) and shares in a business.
The sale of a family home is exempt from CGT.
Financial aspiration and investing in one’s future is a wonderful character trait. It must be encouraged.
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In the 2020/21 financial year alone, the federal government raked in $27 billion revenue through whacking real estate investors with their CGT robbery.
For perspective, $27 billion is more than double the amount of money that the federal government invests each year on infrastructure projects.
Taxing the actions of someone who is admirably trying to avoid becoming reliant on a taxpayer-funded pension is as nonsensical as addressing the impact of rising health costs from society’s poor food choices by taxing those who frequently exhibit sensible nutrition habits.
It’s not a discount, d!ckhead.
Throughout the entire first 84-years of the Federation of Australia, people were not taxed on asset sale proceeds.
Wholly and solely motivated by revenue raising, effective from 20 September 1985, the Hawke government introduced a new tax on gains realised when an income-producing asset is sold, including rental properties.
As expected, many people were opposed to the new tax. Criticism at the time included:
- setting a poor example to society by punishing people for exercising financial discipline,
- creating a shift to inward-looking decisions, such as redirecting money into creating more elaborate family homes as opposed to outward-looking investing into one’s future and assets which other members of the community benefit from (job creating businesses and rental properties),
- the longer-term consequences of fewer people becoming financially independent, and
- the economic opportunity cost from less private sector investment in businesses and real estate.
The original method used to calculate CGT required (first) calculating the cost of inflation from the time an asset was purchased through to the date of sale, and (then) subtracting inflation from the total gain.
It was an extremely messy formula.
In 1999, the Howard government attempted to streamline CGT.
The policy amendments had twin goals of a) tidying up the laborious inflation indexation, and b) discouraging an emerging trend of people participating in short-term property flipping.
The 1999 legislation totally scrapped the adjustment for inflation.
Instead, provided the asset was held for more than 12-months, CGT was charged on 50 percent of the net gain. But short-term owners, such as property flippers, are taxed on the entire gain.
There are some people who choose to spin the spirit of the CGT variation between a short-term flipper and those whose add much needed housing supply to the rental pool.
Only a vicious grub who chooses a life of a ‘leaner’ and will never pay CGT could possibly suggest that an aspirational ‘lifter’ is somehow receiving preferential treatment and / or tax discounts.
Case Study
An everyday Aussie who invests in a ‘typical’ property worth $800,000 today and sells it 20-years later is likely to shell out $344,000 in capital gains tax [read more].
Someone else who purchases an $800,000 property today, lives in it for 20-years, and then sells it will pay zero CGT.
Who really gets the so-called ‘discount’?
A society ‘Leaner’ – someone who neglects to invest in their future and then puts their hand out for a taxpayer-funded pension – ends up costing Australian taxpayers $1.7 million more than the ‘Lifter’ who’s done the very things that everyone should be encouraged to do.
Kick it to the curb
Make no mistake, CGT is a horribly regressive tax.
For the same reasons that CGT was criticised in 1985, serious consideration must be given now to scrapping it (or significantly reducing it).
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Whether investing their savings into a business or a variety of other income-producing assets, including real estate, chasing dreams creates positive energy, produces more opportunities for the community and reduces society’s reliance on taxpayer-funded welfare support.
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