Mastering the Right Strategy

In today's landscape, access to capital is advantageous, especially considering rising borrowing costs and banks' reduced serviceability. For investors with substantial residential portfolios but restricted borrowing capacity, restructuring may be beneficial. Exploring options like divesting underperforming assets to unlock equity or redirecting focus towards larger commercial properties with robust yield could prove strategic.

While the prospect of resetting a portfolio or exploring new avenues may seem daunting, staying informed about opportunities is crucial to avoid missing out on potential upside and making more informed decisions.

The fix-and-flip strategy has long been a traditional avenue for wealth accumulation in Australia, especially for those skilled in home improvements. However, recent talks regarding potential changes to capital gains tax (CGT) are raising concerns. Property renovators and flippers may now face taxation at their highest marginal rate, potentially reaching up to 47%,on profits from house sales. Furthermore, even properties held for 12 months or more could lose the 50% CGT discount.

This ruling carries broader implications, potentially impacting any transaction categorised as a commercial venture. Currently under review by the Australian Taxation Office (ATO), it has the potential to significantly affect the renovation industry, known for its reliance on rapid property turnovers.

If the proposed changes to CGT are enacted, it prompts us to consider the potential shifts in Australia's property landscape. Will we witness a trend towards longer-term property ownership? Could property turn over decrease, and what might be the impact on prices?

One thing is certain: regardless of the outcome, Australians will persist in their engagement with real estate. However, overlooking the potential effects of these changes on our property portfolios could lead to costly missteps. It's crucial to recognise the significance of factors like the family home, equity, and transaction value when making decisions in any market scenario.

Staying informed about the specifics, including potential legislative changes, is paramount. Regularly reviewing your strategy ensures alignment with current market conditions and investment goals. How often do you reassess your strategy?

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To read more about this topic hit the link below to explore the Australian Financial Review's article on the big tax bite for property investors and homeowners:

https://www.afr.com/wealth/personal-finance/ruling-could-mean-big-tax-bite-for-property-investors-and-homeowners-20231114-p5ejve

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