Capital Gains And The Floozies After Your Money

“This is just one of a new range of measures that’s been introduced on the income generated on inheritance.”

To ensure assets are distributed only to intended loved ones, discretionary testamentary trusts are often used to safeguard a beneficiary of an estate from having a gold-digging, estranged spouse challenge them in court over a will.

“It protects against the floozy who might come along and try and steal the money,” Ms Rofe said.

Excerpt From “How Labor is introducing a death tax by stealth”

The West Australian

Of all the things I’ve read about the capital gains tax changes, this may be the most disturbing. I thought the days of “floozies” stealing one’s money would have been gone thanks to the feminist movement and the idea that women could work and build their own wealth but no, it’s still the men holding all the money and women trying to pry it off them by waiting until some gold-digging…

Hang on a minute…

Don’t the media in the West support gold-digging? What have they got against mining? Where would Australia be without people prepare to dig precious metals from the ground… Ok, in this case, they may be digging it from an estranged spouse but the point remains that they’ve worked hard for it and they should be entitled to something…

In any case, I would have thought that Labor’s plan to tax some of these trusts would mean that these “floozies” would get less and so Ms Rofe should be happy that – even if the beneficiary has to pay more tax, it should please the person setting up the trust that the alleged floozy gets less thanks to Dr Chalmers taking more.

Yes, it’s all very confusing and so many people are determined to make it even more so…

Why just today I read this tale of a man with more investment properties than he can count on his fingers and toes… and given his understanding of how things work, he’d need use his fingers and toes because he was asserting that young people wouldn’t be able to do what he’d done in order to save for a home because it just wouldn’t be worth it when the government is going to take half.

Perhaps I’m missing something but given the rate of tax on the capital gains is 30%, I don’t know why he thinks that the government is taking half unless his numerous skills were poor.

Of course there are lots of misleading things being presented by people on social media. In some cases, you can put it down to ignorance like the person who confidently told people: “Imagine if you were a young person. You’re saving up for a house. A rich uncle dies and leaves you a 100 thousand dollar share portfolio. Under the new CGT arrangements ,the government will get at least 30 thousand dollars.”  Apart from the fact that very few people are going to have the terrible problem of having to pay tax on a large inheritance from a rich uncle, the proposed changes don’t work that way at all. For a start, you’re not taxed on the inheritance, you’d only be taxed on the part that was a capital gain, so unless the rich uncle had been a very successful investor, you’d still get more than the paltry $70,000 this person thinks… mm, paltry $70,000? Where’s my dead rich uncle?

Ok, we can assume that the writer is just one of those people on social media who thinks that what they imagine to be the case is actually the way things work, but when wealth managers and Shadow Treasurers and the like tell us similar things, you have to wonder whether you should trust their advice. I mean, they’re either dishonest or not really on top of things, so either way…

Many of the figures being quoted lately overlook the basic idea that it’s not just the amount of money you receive for the sale of an asset but the capital gain. When capital gains tax was introduced under the Hawke/Keating government, it was understood that there needed to be some allowance for the fact that the value of a dollar today isn’t the same as the value it was ten, twenty or thirty years ago, which is why they indexed the figures so that you were being taxed in real terms. Then only came Peter Costello who said that this was too hard to calculate so let’s just give everyone a discount of 50% on the profit.

To put this into some sort of current perspective: If I’d bought some shares in 2015 for $100,000 and sold them recently for $200,000, I’d have made a profit of $100,000. However for taxation purposes, I’d have received a discount of 50% meaning that I was taxed on a capital gain of $50,000. Under the indexation scheme, Australia has had approximately 30% inflation over that period so I’d be taxed on $70,000 because 30% of the gain would be considered due to inflation and not an actual profit.

If you’ve glazed over because of all the numbers, I suspect that’s what certain critics of the new system are hoping. For most people, there’ll be little or no difference to the tax they pay so they won’t actually notice. After all, most people don’t have a string of investment properties or a large share portfolio. But when you’re dealing with large sums of money there’s a big difference between a fifty percent discount and a figure adjusted for inflation.

Still with all the misinformation, surely that makes the case for a Government Information Campaign… Yes, all right, it’s practically just political ads paid for by the taxpayer. Unfortunately, it’s the misinformation that enables the Labor Party to justify it.

And I guess that’s the big difference between now and 2019 when Bill Shorten proposed similar measures. It’s easier to do a scare campaign when you can talk about what will happen IF… It’s a lot harder to scare people after something’s happened and they haven’t noticed that the sky is falling in spite of you telling them that’s because the roof hasn’t caved in… which was another part of the scare campaign!