Capital Gains tax in a nutshell - and why it's not all bad news

The number one reason I hear for not investing in property is “I don’t want to pay capital gains tax”, so I want to explain a little more about how capital gains tax works in Australia right now.

I want you to understand that the more tax you pay, the more you’ve kept, ok? Keep this in mind.

So very simply, lets have a rough example – and by no means is this conclusive or tax or personal advice

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.

Rest easy, capital gains tax is not as bad as it sounds...

So, you made $200,000

And if you’ve held the place for more than 12 months then currently (AUG

2016), in Australia, you get a 50% discount on your profit before capital gains tax is applied.

So half of that profit is tax free, that’s $100,000 tax free

Then the other $100,000 is added to your current annual income.

Even if this puts you in the top tax bracket for that $100,000, and you pay 48 cents in the dollar tax, then you’re essentially paying $48,000 tax to keep $152,000 that you didn’t have to go out and earn.

Are you happy to pay $48,000 in tax in order to keep $152,000?

Now see how its actually no big deal at all?

I say pay MORE because you’ve kept MORE

Imagine yourself 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? What does that mean in terms of interest savings? What does it do to your monthly expenses? What does this mean you can now afford for your family?

Of course this is simplification for the purposes of our exercise, and there are no guarantees you will make this kind of profit from your property but I hope it has changed your opinion on capital gains tax as it relates to your ambitions in property investing.