How unfair is our current tax system, which exempts capital income? This unfair:
According to our model, a $600,000 investment property with a $200,000 deposit would pay around 12.1 per cent in taxes and rates over 25 years. If we only include taxes, this falls to 5.7 per cent.
Why is it so low? The property in our example would earn $694,000 in capital gains and $670,000 in rent (after expenses) over its lifetime, while costing $456,000 in mortgage interest. In principle, the property has earned $908,000. But capital gains are not taxed at present, so the mortgage interest is deducted entirely against the rental income, leaving a taxable income of $156,000.
The total tax bill is $51,000 over 25 years, or 5.7 per cent of the $908,000 earned.
Landleeches are rorting us, and laughing all the way to the bank while doing so. Its time they paid their fair share.
