Everybody is complaining about CGT changes, but id reckon abolishing negative gearing is going to affect the market and Henrys more.
As an example under current regime.
lets say an investment property purchase for $ 1 mill
tack on another $50k for stamp duties et all.
Interest costs on that amount is approx $72k/year assuming interest only ( yes i know people might borrow less, but then at the end of the day even if you borrow 80%, the remaining funds are coming out of either another offset or if held in cash, there is the opportunity cost) .
Assuming $700/week rental , that is around $27k net rental ( assuming occupancy for full 52 weeks, almost a holy grail)
Assuming general upkeep as another $5k, thats $50k/year as holding costs .
With negative gearing , and with the aid of a dep schedule, that holding costs for a 47% tax bracket would be $26,500p.a .
So say after holding for 5 years and you sell it for $ 1.3 mill, you are still looking at a loss , as these last 5 years has a holding cost of $250k in total, so that measly $50k is going to be eaten up in selling costs.
With neg gearing the holding costs would have been $132k, so a much more palatable $168k profit
If you sell for $1.5 mill, or after a 50% gain, that would be $500k gain, assuming inflation at 5%, that would be 25% CGT rebate or a taxable profit of $400k, net profit of $220k or thereabouts after tax , still a loss as the last 5 years holding costs were $250k.
With negative gearing and current 50% cgt discount, the profit would have been much higher , around $120k tax , and a net gain of $380k.
Am i on the right track, anything Im missing here?