16 – The home
Of course, the CGT free asset par excellence is the home.
The concept of the home as a CGT free investment (and as a Centrelink free investment) is central to Australian financial planning theory.
In early 2016 the median Sydney housing price had moved above $1,000,000 and the median Melbourne housing price had moved above $700,000. Some other cities have not done so well, and Perth home values have dropped in recent years.
Over the last 20 years Australian property has averaged more than 9.5% return a year, including both rents and capital gains. It’s even more when gearing is involved.
This means most Australians are living in tax-free investment machines.
If you are in the 45% tax bracket and you own a $1,000,000 property and it goes up in value by 10%, or $100,000, that’s the equivalent of earning an extra $185,000 a year in pre-tax salary. Nice work if you can get it. And a great reason why you should own as much home as the bank will lend you, and encourage your clients to do the same.
The Dover Way includes an extensive explanation of why we believe the family home is so important. You can read our thoughts here: Investing in your home. We observe that the 20 year average return on Australian homes is above 9.5% (nothing has changed in the three years since then), and likely to stay that way for a long time yet due to rising demand relative to supply. This is in turn caused by a rising population, rising incomes and rising social aspirations. The home as a measure of social status should not be discounted. Downsizers usually spend more than their old home was worth.
Sustained record low interest rates have pushed the cart along nicely. And there is no doubt the homes’ CGT free status has added to demand too.
The Australian obsession with home ownership is likely to continue. It makes sense to invest heavily in the home. Dover strongly encourages home ownership strategies, and their close cousin, debt management strategies, in client SOAs. Not just homes for clients, but also home for the children of clients and the grandchildren of clients.
This encouragement means homes feature in Dover’s strategies based CPD program. You can visit the training section of our website to learn more about how CGT free homes can feature in your SOAs and your clients’ financial plans.
The CPD materials can be accessed at Dover On Line CPD.