Cars Market Depreciating

[Not_An_Abba_Fan]

Exactly. It can be viewed as an investment, but I don't class it as an asset.

 

[Reaper]

<Good definition deleted>

The economic use of an asset need not have anything to do with its sale price though. So if you sold the car for $18,000, it has depreciated by $5,000 but you've made a gain of $2000 (which is subject to capital gains tax).

Wouldn't the gain for CGT purposes be $3k in this case? ($20K buy, $5k Dep, $18k sale)

Reaper

 

[Reaper]

So your home is a liability as you have to service the repayments (interest, utilities, rates, taxes).. Your primary domicile will (in most cases), cost a lot and not earn you any passive income.

I would argue it does (indirectly) thru capital appreciation of the land. Buildings can appreciate but that is the exception to the rule and most often depreciate as time goes on.

Reaper

 

[Not_An_Abba_Fan]

Capital appreciation only affects you when you sell the house, hence my reason for it being an investment. While you live in it, it isn't earning you any income.

 

[Reaper]

Capital appreciation only affects you when you sell the house, hence my reason for it being an investment. While you live in it, it isn't earning you any income.

In cash terms it isn't. As a capital gain it is all tax free though.

Reaper

 

[Shounak]

Wouldn't the gain for CGT purposes be $3k in this case? ($20K buy, $5k Dep, $18k sale)

Reaper

DUHHHH.. Yep..

 

[Shounak]

I would argue it does (indirectly) thru capital appreciation of the land. Buildings can appreciate but that is the exception to the rule and most often depreciate as time goes on.

Reaper

Agreed. But I would say through the opportunity cost, rather than the capital gain. By owning a home, you're not having to pay rent, so it's saving you a couple of hundred per week.

If you rented out your family home (earned passive income) and rented in a similar home (area, size, etc), you would most likely be down by a bit. Earning that little bit extra through owning a home is what is the passive income takes the form of.

That's the reason I would classify a family home as an asset. I do agree on a basic level with Robert Kiyosaki's definition of an asset though. I'm guessing you're basing your decision on "Rich Dad, Poor Dad", which is an excellent read.

 

[Not_An_Abba_Fan]

This hasn't gone off topic much hey....but I am using this example for my definition of an asset. I know that accounting and tax definitions are different.

Yes, that book is excellent.

 

[Reaper]

Agreed. But I would say through the opportunity cost, rather than the capital gain. By owning a home, you're not having to pay rent, so it's saving you a couple of hundred per week.

If you rented out your family home (earned passive income) and rented in a similar home (area, size, etc), you would most likely be down by a bit. Earning that little bit extra through owning a home is what is the passive income takes the form of.

That's the reason I would classify a family home as an asset. I do agree on a basic level with Robert Kiyosaki's definition of an asset though. I'm guessing you're basing your decision on "Rich Dad, Poor Dad", which is an excellent read.

I haven't done the numbers lately but 10 years ago when the income tax scales were not as generous renting out your own home and renting your self was way in front (financially) than owner occupying. These days you are probably right unless the person is on a very high income and can take full advantage of the deductions.

The Rich Dad series are excellent books and everybody should be encouraged to read them. Just keep in mind that some of the specific concepts are not relevant to Aus as our tax system is quite different to America. Most of the underlying themes are very sound though.

Reaper