Stephen Knight

Now, under the new rules, let's say that you bought a property, again, for 500K, you sold it five years later for 700K, but over those five years, there'd been an average of 2.5% inflation per year.

So the way the new rules will work is the tax department would say if the property went up in value with inflation, it would be worth $566,000.

So the real increase, the increase above inflation is $700,000 minus the $567,000 and that gets you to $134,000.

And they would then say, okay, you are going to pay tax in this example at 47% on that $134,000 gain, which is about 63 grand.

So your effective tax rate has gone from 23% to 32%.

So it's gone up by about 50% in this example.

Yes, so you pay more tax because your whole gain is taxable.

So rather than half your gain not being taxable, they're saying the small proportion of any gain that is based off inflation, that's not taxable.

It's quite funny when politicians change the rules like this, and it does obscure what's really happening because there's a lot of moving parts in terms of how much comes from inflation.

But in this example, the investor would pay about an extra...

eight to nine percentage points worth of tax.

Yeah, the inflation rate from when you bought to when you sold.

Now, the other thing that we were just talking off air about is the capital gains changes is not just for property.

This isn't just targeted towards investment properties.

This is businesses, this is shares, this is holiday homes, right?

The other thing is that in some cases, this rule could actually be beneficial and mean that you pay less tax.

So let's say you bought an asset, and this is a property podcast, so you bought a property, you held it for five years, and let's say inflation averaged at 5% and your property went up in value by 5%, you could then sell it

and not pay any capital gains tax at all because house prices didn't outpace inflation in that example.

But you would still get the benefit of having leverage on your property.

So there is a scenario where you could theoretically make some good gains and pay less tax.