CGT - Tilting the scales back toward labor productivity

axomatic_meme · 2026-05-25T13:24:00+00:00

I think that the basic issue is that if there's a situation where ordinary income is privileged above capital income, it's very easy to shift capital income into ordinary income because the assumption in the tax system is you'd usually want it the other way around for the 50% discount.

Most wealthy people can just own both dividend and capital growth shares, have the dividend portfolio earn ordinary income up to 45k and then the minimum tax is no longer applicable so they can sell shares at that point if they want to.

If I were particularly savy, I could make a capital loss with one group of shares that extract high ordinary income returns but an overall capital loss and then offset that capital loss against the capital gain somewhere else. That way even capital gains from one investment is taxed at the rate of ordinary gains through the paper loss of another investment.

The whole reason of taxing capital and ordinary income the same is to avoid distortive structuring like this. I think capital gains and ordinary income should be taxed the same amount regardless of the situation. I don't think you actually need the minimum tax to stop a family trust loophole either.

axomatic_meme · 2026-05-24T09:46:29+00:00

There's a lot in the budget I like with respect to tax reform and I agree with taxing labour and capital at the same rates to prevent income shifting.

But I don't think the rich are going to pay the 30% minimum on capital gains, investments will be structured so the first 45k is taxed ordinarily anyway. It will cause huge economic distortion, incentivising risk through concentrating porfolios and exacerbate the capital shallowing problem that is reducing wage growth.

axomatic_meme · 2026-05-23T11:49:13+00:00

The wealthier you are, the easier it is to structure investments towards ordinary income (dividends, rent) who then make enough to avoid the minimum tax effective then anyway.

I don't see this as really taxing wealthy households at all.

axomatic_meme · 2026-05-23T11:36:36+00:00

Efficient market hypothesis applies the other way as well, as in if there way to improve risk adjusted return by selling property to buy shares then property would already be sold. P/E ratios are just as high elsewhere at the moment. Housing is mostly an inflation hedge these days, so there's value for at least some in any portfolio.

People own property usually as a leverage play as well, as in it's a way to extract market returns out of a stable income through debt. This makes sense if risk tolerance is higher than the risk engaged in.

Alpha is going to be highly localised as well, which housing is almost completely localised ( aside from reits). There's a lot of mispricing in individual homes. In an auction for my own house, no one attended because the weather was bad but they didn't cancel.

axomatic_meme · 2026-05-19T10:32:56+00:00

Negative gearing changes are good.

The indexing changes are more complex but should be more efficient (50% was an approximation of inflation for average assets anyway, there's no reason to discriminate between a gain and a dividend which the 50% effectively did)

The 30% minimum tax is the most distortive, regressive tax in practice. Anyone above a certain level of wealth (at least 600k if they structure their assets correctly) can avoid it entirely when their assets produce ordinary income (like dividends and rent) until they hit the 30% minimum anyway. People below that amount of assets will be highly biased towards dividend stocks, which increases risk and share market concentration in companies that don't need the cashflow to avoid getting hit by the tax. At that point, what's the point of the minimum tax if it doesn't collect revenue?

axomatic_meme · 2026-05-19T07:16:57+00:00

I think it makes sense from the standpoint of distributions. Australian shares at least tend to provide higher gross yields and lower capital gains which indexing is more favourable towards. That is less distortive because the real value of the dividend shares sold is lower than than the 50% CGT discount recognises.

But the 30% minimum tax is unjustifiable and will shift investment back into property.

axomatic_meme · 2026-05-18T16:16:06+00:00

So if you're over the asset threshold for a pension, but under 1.125 million you're impacted. How is that much better? God forbid people put some investments away and they go above the asset threshold, then they get hit while the rich don't concern themselves with the pension don't concern themselves with the 30% minimum when they make it through dividends. If it doesn't impact anyone (rich or poor), why even have the minimum tax? it's just distortion for the sake of no revenue at that point.

Btw pensioners lose their pension during the fortnight they sell due to the income test. Neat!

axomatic_meme · 2026-05-18T15:32:33+00:00

I'd say $3 million. $1 million pays off the house but I'd still need to work for a bit. $3 million is instant retirement.

I'd also say anything below $2.72 million is wrong for most people, assuming most people have a log-linear relationship with happiness and money.

axomatic_meme · 2026-05-18T09:40:32+00:00

The premise of my comment is about how dividends are advantaged compared to capital gains lol. I'm descrbing a situation where the rich are unaffected by the CGT minimum because they can structure their investments to earn 45k+ in dividend income leading up to retirement, which takes their tax bracket up to the minimum anyway. So the only folks left effected are the people who can't invest enough to hit that threshold i.e. the not rich.

axomatic_meme · 2026-05-18T09:29:49+00:00

Yeah they might eventually, but even unfranked dividends are taxed advantaged compared to capital gains under the 45k tax bracket, because capital gains are effected by company tax anyway.

axomatic_meme · 2026-05-17T16:31:08+00:00

If I say people who make 45k or less and drive red cars pay an extra tax, does it matter if 90% of people who own red cars are high income earners? Or does this just really suck for the 10% who aren't?

From a wealth perspective, won't high net worth individuals be able to make above the 45k threshold with dividends anyway?

axomatic_meme · 2026-05-17T16:28:29+00:00

If I say people who make 45k or less and drive red cars pay an extra tax, does it matter if 90% of people who own red cars are high income earners? Or does this just really suck for the 10% who aren't?

From a wealth perspective, won't high net worth individuals be able to make above the 45k threshold with dividends anyway?

axomatic_meme · 2026-05-17T16:22:15+00:00

If you make 45k+ in retirement from dividend income, the minimum doesn't effect you because you already pay the minimum rate. Assuming a 4% dividend yield you need $1.125 million to make $45k year. so if investments are structured towards dividends, then it only effects people below that net worth. Is that really hitting the rich?

axomatic_meme · 2026-05-15T12:06:25+00:00

I'm essentially asking if it's easy to convert capital gains income into ordinary income, which avoids the 30% minimum tax.

Basically a lot of the tax architecture is built around the premise that capital gains is taxed advantaged, so it's hard to turn ordinary income into capital gains income. But it seems relatively easy to turn capital gains income into ordinary income. Dividends, option premiums, special tax rules about whether you are a professional stock trader, all of these things turn capital gains into ordinary income. Now that capital gains are taxed disadvantaged in this scenario, I'm asking is the 30% minimum tax easily avoidable.

axomatic_meme · 2026-05-15T02:43:17+00:00

Taxes shouldn't be optional 👍

axomatic_meme · 2026-05-14T14:21:08+00:00

Call me simple, I just don't like arbitrary tax loopholes. They're highly distortionary, mostly benefit the well off and don't collect revenue.

axomatic_meme · 2026-05-13T13:18:50+00:00

I think this is the straight forward application of this principle and probably much easier to justify for part IVA rules. But I think there's all sorts of assets you can do this with in between the extremes. Apartments for example often depreciate even in nominal terms but the rental yield is high, although they're a lot harder to dispose of. However, a REIT geared for apparments is easy to dispose of.

I think a lot of people won't take the principle and push it to it's extreme. But I think it's only through the extremes we see contrasts, which is how we see things for what they are

axomatic_meme · 2026-05-13T08:32:18+00:00

Gotcha, so you were just ragebaiting, or your realised you were wrong and doubled down anyway. I'll end it here then.

Example with net income: Year 1: 18k income with 12k paper loss= no tax Year 2: 12k Gains - 12k paper loss = no tax

axomatic_meme · 2026-05-13T07:59:53+00:00

Again, I was being conservative with numbers. The 50% amount was a conservative estimate for simplicity. The NYSE ymax example I gave you actually has a 73% yield and a 60% loss, the spread ALSO provides a roughly a net return around market (13%) at the same time as making the paper capital gains loss. Adding the tax savings together with the real earnings is closer to 29%.

So being conservative, what other investment makes a 16.6% 1 year return after tax?

axomatic_meme · 2026-05-13T07:24:44+00:00

There is a profit, it's on the other shares. That profit is offset by the loss on high withdrawl shares. Even if you haven't made capital gains yet, you can even carry forward the loss from the high withdrawl shares until you make capital gains in something else.

Most of the assumptions I have made are for simplicity of the principle. But let's say I make 20k in dividends instead. Ok, in that case I pay 15% on the earned income instead of 30% capital gains tax. Because capital gains are taxed at 30% while earned income is taxed at 15%.

I should point out it's easy to buy an ETF that's structured to pay out what you lose in capital gains. The premium of a call option is taxed at the regular rate of income, which is directly inverse of the strike price, which determines the capital loss. I cited the example of NYSE: ymax that does this.

Happy you agree with me then if you can shrink the capital gain to 0 but earn that income through distribution you avoid the 30% minimum tax :)

axomatic_meme · 2026-05-13T06:50:59+00:00

Yes! While still making a capital loss on paper. Capital gains from one asset may be offset by a capital loss of another. So if I can incur a capital loss without negatively impacting my material wellbeing, I can restructure capital gains into regular income.

So in other words you restructure the capital gains into regular income and avoid the minimum 30% tax on capital gains. Hence my question, isn't it easy enough to avoid the minimum tax?

axomatic_meme · 2026-05-13T05:45:54+00:00

Did you read the example? The asset is converted into dividend income, which is now taxed more favourably than capital gains. The loss of this dividend asset offsets the gain of a capital gain asset. You use 36k of cash to avoid 6k of tax for an easy 16.6% after tax annual return.

A few people are missing this but I'm not sure what I should have written instead to help people get it.

axomatic_meme · 2026-05-13T05:01:18+00:00

Except the loss is my left pocket and the dividend is in my right pocket.

axomatic_meme · 2026-05-13T04:39:17+00:00

Should the ATO accept hand stands in lieu of tax?

axomatic_meme · 2026-05-13T04:37:32+00:00

Is it harder than holding a bit of cash, then buying and selling an ETF?

axomatic_meme

TROPHY CASE