Well, sooner or later, someone has to pay CGT (unless the law changes). Even when you die, your benefeciaries will have to pay the CGT if they sell the property.
Not true. If they inherit from you, they get it at a cost base equal to the value as at the date of death. All capital gains racked up during your lifetime are in effect tax free. If you inherit from someone and sell immediately (at about the same value as at the time of death) CG is minimal. Beneficiaries only pay CGT on the CG that occurs between inheritence and THEIR death. During which they can use all the equity the previous person built up.
When you're young, 6 years is a long time. A lot can happen in that time, I might decide to start a business requiring a lot of extra capital, might move overseas, etc.
True. My own experience (I'm 29 and it is now more than 6 years since I bought my first IP) as a young investor is that PRECISELY because things change you want to get some good assets under your belt early. Time is the investors friend and the younger you are, the more % of your salary you can save because you have fewer necessities. I've been working overseas for the last 6 years and I've also been investing in IPs. Now that I'm at the stage when I'm thinking about buying my own place, starting a family, etc (I'm staring down the gullet of 30) I'm REALLY glad I have those IPs.
If you start a business requiring a lot of capital, wouldn't you prefer to have a lot of IPs happily appreciating to give you the capital you need? Many of my friends are wondering how they're going to get a deposit for their PPOR, and in the past they've asked me why I was putting myself on the hook for such big mortgages. I now have no concerns about getting together a deposit to buy my own PPOR AND continue investing.
You actually save $20k in CGT on that example. CGT will hit mostly on the top bracket (40% odd), so $100K CG * 40% tax * 50% discount = $20k. There'd be a few things that will raise the cost base (agent fees, stamp duty, etc), but there's also depreciation deductions which will lower the cost base. If in 6 years I'm still staying with IPs, it'd be unlikely that I'd sell the property and buy another one. I can just revalue the property at that point start the CG clock, right ? (or move back in and reset the 6 year exemption clock).
I got my figures wrong.
Depreciation is deducted at your full marginal rate (say 40%) and you pay it back at half 20%, so you're ahead there. As you say, if you're going to stick with IPs after 6 years, you're unlikely to sell. In 6 years, if the CG is bad the CGT exemption rule doesn't help much. If it's good CG, believe me you're not going to give up IPs. If you hit anything LIKE the cycle we've had in the last 6 years (and I've only averaged 7-8% a year) you're going to be hooked.
You could move back in, but you've said things change. I didn't want a house when I was 23 but I do now. Thinking 'I can always move back into it' limits your thinking to 'I'm only going to own one property'. Not the best attitude if you want to build a big portfolio.
Trust structures looks very interesting to consider. But since it'd be a few years at least before I can start seeing the benefits, the complexity and costs of setting up one from the start is probably not worthwhile. Its much more worthwhile when you have lot of IPs though, but it'd be quite a long while yet until I get there.
Two main benefits to trusts: asset protection and income streaming. While it's -ve geared you could get the same effect holding property in your own name, so there is no immediate benefit. Asset protection is more of an insurance policy: I may not claim insurance every year but I happily pay the premium because I want the protection.
As for income streaming, if you get to the point where you use the benefit of, say, CG distribution to the lowest tax payer (when you sell), it's too late to change entities. You can't move ownership to a trust later without incurring stamp duty (based on the market value when you sell, which hopefully will be much higher than the cost now). Entity selection should be done FIRST.
Re lots of IPs.... you'd be surprised. After your first couple of IPs (which will be very hard to accumulate) the CG really takes over and it jumps exponentially. If you build it diligently, you'll have lots of IPs before you know it. That's why IPs are so attractive: fairly safe leverage.
Alex