PE> Let me simplify it.

RS> You could have tried saying it carefully in the first place.

I thought it was pretty clear.

PE> I earn $25k per year.

RS> Uh oh, he's changed the numbers, presumably NOW he realises that
RS> what *I* said initially about the first scheme is right, its fucked.

Not at all.

PE> I normally pay $5k per year tax. I borrow $250k, and pay
PE> $25k per year interest.  I make $25k per year in capital gain.

RS> Again, this is a totally different scenario to the one
RS> you first tried. On the capital gain per year alone

No it isn't, I just made it stare out like dogs balls a bit more.

PE> Income = $25k - $25k = 0.
PE> Capital gain = $25k
PE> Tax payable = $25k/5 = $5k = 0 = 0 * 5 = 0.  I pay no tax.

RS> Pity thats nothing remotely like the first example where
RS> the result would have been completely different. Dishonest.

Yeah Rod, I've got a real history of dishonesty in email, don't I.

RS> You original scheme produced a capital gain of $250K pa, giving $50K
RS> under the 1/5 rule, giving a tax rate of 47c, which would have produced
RS> a HIGHER total tax paid than on a $50K normal income. And THATS why I
RS> said it cant work. Thats not to say that NO example has a favorable
RS> tax effect when the income is capital gain.

Here Rod, I'll work through the figures slowly on the $50k, try to
keep up.

Do you remember the scenario?  $50k earnings, $250k capital gain,
$500k borrowing, $50k interest.

Tax on $250k as normal income would be $111,000, which I abbreviated
to "1/2" (actually 45%).

Tax on $250k capital gain = tax on $50k = $14802 * 5 = $74k, which I
abbreviated to "1/3" (actually 30%).

PE> Divide capital gain by 5, find out how much extra tax you pay, then
PE> multiply by 5.

RS> Pity that doing that with your numbers produces the SAME tax rate.

Nope, 30% cf 45%.

PE> Nope.  Same marginal tax rate, not same rate.

RS> In fact with your original example the result is WORSE, essentially
RS> because you end up using the highest possible tax rate for all your income.

Nope, not at all.

PE> This way, you pay 1/3 tax on $250k instead of 1/2 on $250k.

PE> Like I said.

Like I said again.

RS> Like you have now faked away like mad fudging
RS> the figures from your original which was fucked.

Nope.

RS> Still cant see how you actually benefit significantly give
RS> the risk you are taking and the chance of you actually being
RS> able to achieve that capital gain every single year.

PE> The ability to achieve the capital gain is a different story.

RS> Its also crucial if its unachievable. That means that your original
RS> example was totally fucking useless coz it was impossible anyway.

Like I said, a separate issue.

RS> The most that rule does is ensure that capital gains are a
RS> bit more favorably treated tax wise than other income, but

PE> A lot more favourably if you do it right.

RS> Depends on the circumstances. Your latest example is rather unusual
RS> in that you produce a tax rate of zero. I'm not even convinced its

That's right.  To make it stick out like dogs balls.

RS> right on that bit anyway, I dont think the threshold actually applys
RS> to the calculation of the capital gains tax rate anyway. Coz that would

Fraid it does.

RS> essentially mean that the first $25K of any capital gains tax income
RS> would be tax exempt, whatever your income was. That cant be right,

Nope, only if you have 0 income, THEN the $25k capital gain is 
tax-free.

RS> but I cant put my hand on the tax depts capital gains tax book.

RS> Certainly the 1/5 rule is right, and that can in some circumstances
RS> mean that capital gains are more favorably treated in the income tax
RS> law than other income. Thats no news, the same applys to inflation
RS> too. Capital gains get a better treatment than say interest there too.

What gave you the impression that $25k CGT would be tax free regardless
of income?  It's only like that if your income is ZERO.  You will see
that in my original example, I FORCED my income to zero by taking out
a $500k loan against income of $50k.

PE> You seriously reckon that it would make sense for AMP to
PE> buy say Sabre Resources, when the entire trading on Sabre
PE> for a year is probably equal to 0.001% of their income?

RS> Yes, there are significant tax advantages in capital
RS> gains, quite apart from that effect thats due to the
RS> calculation of the tax rate you were waving around.

PE> It's irrelevant to them, Rod.  They have
PE> to buy big stuff like Pacific Dunlop.

RS> You are having another massive brain fart there too, and its completely
RS> fucking irrelevant to that scheme you were raving about anyway.

RS> You are just faking your way out of your blooper.

Rod, the reason AMP don't buy small mining stocks is because it is
to them, the equivalent of me going and filling out a whole lot of
paperwork to get a great deal with Bob, so that I give him 1c and he
gives me 2c.  It's not even worth getting out of bed in order to get
a deal like that, nevermind all the manpower involved in keeping track
of an irrelevant deal, which even if the price were to triple, it 
wouldn't even register as 0.01% of their profit.  BFN.  Paul.
@EOT:

---