# Should we have some CGT on the family home?



## Brendan Burgess (5 Aug 2022)

Purple said:


> If you don’t have wealth you have to buy access to it from after tax income. If you have wealth you are not taxed on it at all. If our objective is to have a fair and equitable taxation system then we need to significantly increase property tax on PPR’s while at the same time reintroduce mortgage interest relief for PPR’s.



Purple made the above point in another thread about how we tax income and don't tax wealth. 

I support the Local Property Tax. 

But I wonder should we review the CGT exemption on the PPR. 

I don't think we should treat it in exactly the same way as any other investment, but I don't think it should be entirely exempt either. 

Those of us who were able to afford homes have accumulated a fair bit of wealth. Some research suggests that many more people will never be able to afford their own home. 

Could something be done to balance the two out a bit? 

I certainly don't see why someone living in a €5m home should get full exemption from CGT. 

Some options 
1) Charge CGT on the market value of the property on the death of the owner. This would be essential as most people stay in their family home for life.  Without this, there would be no benefit in introducing a CGT on the PPR. 
2) Limit the PPR exemption to a lifetime figure of €200k. That is still a huge exemption. 
3) Roll over any CGT liability on the PPR if the seller buys a new property.  This would be necessary to avoid any disincentive to trade-up or trade down.   The CGT would be a charge on the new home and payable on death. 
4) Maybe introduce an incentive for people to  encourage people to trade down. 

Indexation should be introduced, so only real gains above the normal level of inflation would be subject to tax.

5) Would there be some way of ringfencing the tax generated by this measure to help younger people get on the housing ladder?  For example,  abolish VAT on starter homes bought by FTBs?  And fund this through the CGT measures. 

Brendan


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## Bluefin (5 Aug 2022)

Another consideration will be the cost of nursing home charges into the future. Society is changing extremely rapidly in relation who cares for older people....the main carer's in the past where women but they have been subsumed into the workforce with nothing substantial put in place.... This will only increase substantial in the future which will limit the amount that will be generated from cgt..


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## Purple (5 Aug 2022)

In principle I like the idea of taxing people on unearned capital gains. It's like a windfall tax. On balance I'd rather just see higher rates of property tax with no exemptions but the option of means tested deferrals or partial deferral. That makes receipts less volatile.

I like the idea of using the receipts to help first time buyers and/or existing mortgage holders.


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## Brendan Burgess (5 Aug 2022)

Bluefin said:


> Another consideration will be the cost of nursing home charges into the future.



Good point. I will make a submission on that.
It's crazy that the state pays for them for people with substantial assets.

Brendan


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## Purple (5 Aug 2022)

Brendan Burgess said:


> Good point. I will make a submission on that.
> It's crazy that the state pays for them for people with substantial assets.
> 
> Brendan


Yep, I could never understand leftie politicians being in favour of the State spending so much money protecting the assets of rich people.


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## T McGibney (5 Aug 2022)

Purple said:


> Yep, I could never understand leftie politicians being in favour of the State spending so much money protecting the assets of rich people.


Because, er, that's where the votes are?


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## Bow tie (5 Aug 2022)

One PPR, for social and stability purposes should never be treated via CGT. 
A person shouldn't be forced down specific pathways by policy, and out of their PPR if it has become too valuable over a lifetime.


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## Brendan Burgess (5 Aug 2022)

Bow tie said:


> A person shouldn't be forced down specific pathways by policy, and out of their PPR



I am not suggesting that anyone should be forced out of their PPR by charging CGT on it when it is sold.


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## Brendan Burgess (5 Aug 2022)

Purple said:


> On balance I'd rather just see higher rates of property tax



Hi Purple 

I felt it was very tough on people who had recently bought a home and were struggling with mortgages and negative equity to pay property tax.   I would prefer them to pay if they sold the house at a profit. 

Brendan


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## Purple (5 Aug 2022)

Brendan Burgess said:


> Hi Purple
> 
> I felt it was very tough on people who had recently bought a home and were struggling with mortgages and negative equity to pay property tax.   I would prefer them to pay if they sold the house at a profit.
> 
> Brendan


That's why I proposed revenues from such a tax be used to make mortgage interest payments tax deductible in another thread. That said all taxes can be unfair to someone. I find taxing someone who is trying to save to buy a house at a rate of 52% more unfair.


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## NoRegretsCoyote (5 Aug 2022)

Bow tie said:


> One PPR, for social and stability purposes should never be treated via CGT.


I agree. Big social advantages from owner occupancy.

The problem is the very generous CAT threshold for inheritances.


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## Brendan Burgess (5 Aug 2022)

NoRegretsCoyote said:


> I agree. Big social advantages from owner occupancy.



Hi Coyote

Agree with the societal advantages. My proposal would boost owner occupancy by funnelling the money back to help people get on the housing ladder.

Are you fully opposed to CGT on the PPR?  On all PPRs?  Even homes worth over €2m? 

Brendan


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## PMU (5 Aug 2022)

You are essentially advocating an additional tax on people who are ‘asset comfortable but income poor’, i.e. people who have purchased a house from saving the deposit, and subsequently  through mortgage payments. Later in life, assuming they have paid off their mortgage, they have secured home ownership and can live in their home mortgage free. Unfortunately, by this time and in retirement, most households have few, if any, other income generating assets, and are reliant on pensions for their income. So you are not talking of taxing rich people – just ordinary folk on pensions.

For the average family in Ireland, when you own a family home you are not wealthy. You have used your savings and a fair share of your post-tax income to buy on margin and with high transaction costs, a one-trick pony – a risky illiquid indivisible non-income generating asset, that produces one ‘service’ (i.e. shelter), and requires continued expenditure on insurance and maintenance. You can’t calculate the total return on home ownership in the way you can on income generating assets. And except for insured perils you can’t hedge the financial risk of owning a family home, it’s just not like other assets. It’s not ‘wealth’ in the same way as owning equities or bonds.


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## noproblem (5 Aug 2022)

Interesting topic this. There's no doubt some people are (what I would term) experts at accumulating a large amount of money from no taxes being payable on their PPR when selling. How many houses can someone buy and sell and take profits from as a PPR before the authorities take action, or should they at all? I do know of quite a few people in 2 major cities who have bought and sold (moved) 3 and more times in the last 20 years while making one hell of a lot of money from doing so. Yes, they seem to have done nothing wrong, some would say they played the system as it stands and were substantially rewarded. How many times can someone buy and sell like this before the revenue/goverment opens their eyes to what I see as a flaw in the system? In instances like I mention a substantial tax should indeed accumulate to the state from the sales, but how does one go about not discriminating against others who buy/sell? Tricky subject and no doubt will rise some people.


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## Purple (5 Aug 2022)

PMU said:


> You are essentially advocating an additional tax on people who are ‘asset comfortable but income poor’, i.e. people who have purchased a house from saving the deposit, and subsequently  through mortgage payments. Later in life, assuming they have paid off their mortgage, they have secured home ownership and can live in their home mortgage free. Unfortunately, by this time and in retirement, most households have few, if any, other income generating assets, and are reliant on pensions for their income. So you are not talking of taxing rich people – just ordinary folk on pensions.


People with low incomes can be rich. Income and wealth are not the same thing.


PMU said:


> For the average family in Ireland, when you own a family home you are not wealthy.


You are in many cases if you own your own home.


PMU said:


> You have used your savings and a fair share of your post-tax income to buy on margin and with high transaction costs, a one-trick pony – a risky illiquid indivisible non-income generating asset, that produces one ‘service’ (i.e. shelter), and requires continued expenditure on insurance and maintenance. You can’t calculate the total return on home ownership in the way you can on income generating assets. And except for insured perils you can’t hedge the financial risk of owning a family home, it’s just not like other assets. It’s not ‘wealth’ in the same way as owning equities or bonds.


The point is that when you own your home you have much lower ongoing costs. If you are renting you or paying a mortgage you are doing so out of after tax income. People in that position, especially if they are buying now, have a very high cost to essentially use someone else's capital. That's where conflating income and wealth is a problem.


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## T McGibney (5 Aug 2022)

Purple said:


> *The point is that when you own your home you have much lower ongoing costs.* If you are renting you or paying a mortgage you are doing so out of after tax income. People in that position, especially if they are buying now, have a very high cost to essentially use someone else's capital. That's where conflating income and wealth is a problem.


Apples and oranges analysis. 

If you're renting, you don't have to worry about the cost of ever replacing the roof, or the windows, or the boiler, or the insulation or a hundred other things.

If you're in social housing, your housing costs can almost approximate to nil. There seems to be plenty of high earners enjoying this benefit, including at least one currently serving TD.

And if you buy a new build, you're not using someone else's capital, whatever that means.


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## Brendan Burgess (5 Aug 2022)

PMU said:


> So you are not talking of taxing rich people – just ordinary folk on pensions.



Hi PMU

I am proposing to tax the gains from selling a house.  I would like to see people paying tax on their gains rather than as at the moment, ordinary people paying Local Property Tax on on ongoing basis.

Brendan


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## Sarenco (5 Aug 2022)

In the US, if you realise a capital gain on the sale of your main home, you can only exclude $250,000 of that gain (or $500,000 if married and filing jointly) for tax purposes.   This exemption is only available once every two years.

I always thought it odd that our PPR Relief is completely unlimited.


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## Purple (5 Aug 2022)

T McGibney said:


> If you're renting, you don't have to worry about the cost of ever replacing the roof, or the windows, or the boiler, or the insulation or a hundred other things.


Rents are higher than the cost of ownership. 


T McGibney said:


> If you're in social housing, your housing costs can almost approximate to nil. There seems to be plenty of high earners enjoying this benefit, including at least one currently serving TD.


Yes, that should certainly be addressed as well. Social housing should be subject to a needs assessment every 5 years. If there's one person in a 3 bed house they should be moved, it doesn't matter if they've lived there for 30 years. Income should also be taken into account much more. 


T McGibney said:


> And if you buy a new build, you're not using someone else's capital, whatever that means.


You're using the banks capital. That's what a mortgage is.


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## Brendan Burgess (5 Aug 2022)

noproblem said:


> I do know of quite a few people in 2 major cities who have bought and sold (moved) 3 and more times in the last 20 years while making one hell of a lot of money from doing so.



But did they make the lot of money from buying and selling?  They made the money from owning property. 

One big drawback of the proposal is that it might discourage people from trading up or down.  And in a healthy market, people should trade up and down. 

Brendan


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## Purple (5 Aug 2022)

Brendan Burgess said:


> But did they make the lot of money from buying and selling?  They made the money from owning property.
> 
> One big drawback of the proposal is that it might discourage people from trading up or down.  And in a healthy market, people should trade up and down.
> 
> Brendan


The other drawback is the position of a family who have moved in with a parent. When the parent dies they may well have to sell up. That could be avoided if the same rules that are currently in place for inheritance are applied.


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## Brendan Burgess (5 Aug 2022)

Sarenco said:


> In the US, if you realise a capital gain on the sale of your main home, you can only exclude $250,000 of that gain (or $500,000 if married and filing jointly) for tax purposes. This exemption is only available once every two years.



Very interesting. 

Not sure about the two years limit.   Very few people would trade up again within 2 years. And if they did, they probably wouldn't have much of a gain. 

And sometimes people have to trade up again quickly. They have bad neighbours. They can't afford their mortgage. They move job. 

But I like the principle of a limit of some sort.

Brendan


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## Brendan Burgess (5 Aug 2022)

Purple said:


> When the parent dies they may well have to sell up. That could be avoided if the same rules that are currently in place for inheritance are applied.



Well they would be subject to CGT on the gain between when the parent bought the house and when they died. 

So if they got a €500k house, which was bought for €200k, they would be paying €100k CGT.  

I would  be happy to inherit a €500k house if I had to pay €100k CGT.

And mechanisms could be put in place to defer the payment or to get a mortgage for it.

Most people can't afford to buy a house at all. 

Brendan


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## NoRegretsCoyote (5 Aug 2022)

Brendan Burgess said:


> Are you fully opposed to CGT on the PPR? On all PPRs? Even homes worth over €2m?


In my anecdotal experience people rarely crystallise these gains, staying in overly large properties until death.

My grandmother is sitting on a 10000% nominal gain in her PPR which she will never exercise!

I'm in favour of a higher LPT overall, and a lower CAT threshold overall for inheritances. I think that's fairer and introduces less incentives to sell or not sell at certain times that CGT does.


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## fistophobia (5 Aug 2022)

I am thinking about the millenial generation, people under 40.
In general these people cant get on the property ladder.
We all know the reasons why.
Your proposal would really screw a lot of people.
The goal should be to enable people to buy and own their own property.
If parental help is needed via inheritance or gift, that is their business.
I am seeing RED here, and I dont think Ireland needs any more socialism.


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## Brendan Burgess (5 Aug 2022)

fistophobia said:


> I am thinking about the millenial generation, people under 40.
> In general these people cant get on the property ladder.
> We all know the reasons why.



Hi fisto

My intention is to help these people get on the housing ladder! 



Brendan Burgess said:


> 5) Would there be some way of ringfencing the tax generated by this measure to help younger people get on the housing ladder? For example, abolish VAT on starter homes bought by FTBs? And fund this through the CGT measures.


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## noproblem (5 Aug 2022)

Brendan Burgess said:


> But did they make the lot of money from buying and selling?  They made the money from owning property.
> 
> One big drawback of the proposal is that it might discourage people from trading up or down.  And in a healthy market, people should trade up and down.
> 
> Brendan


In every instance the property increased very substantially in value. To me, they made the money by buying and selling, and one could say, by also owning the property.


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## Bow tie (5 Aug 2022)

Brendan Burgess said:


> Hi fisto
> 
> My intention is to help these people get on the housing ladder!


Just talking about CGT on disposal at death....why is charity not allowed start at home, and the person leaving the house decide fully on the distribution of funds to the next generation?
We are going too far with removing personal decision making if this were to change.


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## noproblem (5 Aug 2022)

Bow tie said:


> Just talking about CGT on disposal at death....why is charity not allowed start at home, and the person leaving the house decide fully on the distribution of funds to the next generation?
> We are going too far with removing personal decision making if this were to change.


Good point, also a very important one.


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## PMU (5 Aug 2022)

Brendan Burgess said:


> Hi PMU
> 
> I am proposing to tax the gains from selling a house.  I would like to see people paying tax on their gains rather than as at the moment, ordinary people paying Local Property Tax on on ongoing basis.
> 
> Brendan


I understand that, but domestic property is unique. Purchasing a domestic property entails the purchase of (a) a service, i.e. the provision of shelter and (b) a fixed asset i.e. the walls, roof, foundations, etc. In practical terms these are indivisible. You can’t efficiently separate out the what the family has paid for its family-specific shelter needs from any increase in value of the fixed asset component.

And consumers understand this. Families buy domestic property primarily to meet their shelter needs and associated family-specific intangibles (i.e. is the property close to work, schools, other family members, etc.). Asset appreciation is not the primary consideration on purchase, if at all.  (Without wishing to go off topic, when purchasers add asset appreciation potential above their shelter needs, they may, i.e. almost certainly will, overpay for a property.  And they are buying on margin.  So when property prices or interest rates fluctuate, which they do,  such purchasers may well be in negative equity / can't continue their mortgage payments /  attempt strategic default, etc.  Of course, in this country, such purchasers don't lose their property.  They are bailed-out.).

As properties tend to increase in value in tandem, you’ve no real gain when you sell when your shelter needs change as any gain will be swallowed up due to property price inflation. It’s unreasonable to tax such interim gains.


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## Brendan Burgess (5 Aug 2022)

PMU said:


> As properties tend to increase in value in tandem, you’ve no real gain when you sell when your shelter needs change as any gain will be swallowed up due to property price inflation. It’s unreasonable to tax such interim gains.



That is easily dealt with by having roll-over relief.  The CGT is refundable if the person buys another house.  So, for most people, the CGT liability will hit on death.

Brendan


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## T McGibney (5 Aug 2022)

Brendan Burgess said:


> That is easily dealt with by having roll-over relief.  The CGT is refundable if the person buys another house.  So, for most people, the CGT liability will hit on death.
> 
> Brendan


Hi Brendan

How you do propose quantifying historic enhancement expenditure in relation to a PPR CGT case post-death? And also for self-builds?


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## Brendan Burgess (5 Aug 2022)

How would I deal with property valuation for Local Property Tax? Self-assessment which is not perfect, but works generally. 

One of the arguments against charging CGT on shares on death is that it would be difficult to establish the base cost.  That should not stop an otherwise good policy.   

Likewise, if I had to work out the base cost for someone dying today who bought their house 20 years ago, I could do a good stab at it.  If they added a kitchen 10 years ago, it's probably not reflected in the value today. 

Brendan


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## Itchy (5 Aug 2022)

T McGibney said:


> Hi Brendan
> 
> How you do propose quantifying historic enhancement expenditure in relation to a PPR CGT case post-death? And also for self-builds?



Not an issue going forward. Can be reported in real time (say within 2 years of completion) and invoice can be uploaded to revenue directly for automatic calculation when the time comes.


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## Itchy (5 Aug 2022)

With people living longer, from a societal point of view, it seems like an ineffective way for capital to be recycled in that people in their 50's, 60's and 70's receive large windfalls when they are established and preparing for retirement themselves. The money will just be re-invested or kept in cash or whatever. 

It would seem far more beneficial if the wealth was distributed when their children are proposing to get on the housing ladder themselves or taxed as is proposed in the thread.


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## T McGibney (5 Aug 2022)

Brendan Burgess said:


> How would I deal with property valuation for Local Property Tax? Self-assessment which is not perfect, but works generally.
> 
> One of the arguments against charging CGT on shares on death is that it would be difficult to establish the base cost.  That should not stop an otherwise good policy.
> 
> Likewise, if I had to work out the base cost for someone dying today who bought their house 20 years ago, I could do a good stab at it.


And if they bought it 30, 40 or 50 years ago, Brendan? Comparatively few people die within 20 years of buying their home.

Your analogy of valuations for LPT purposes is inappropriate. For starters, Revenue provide indicative LPT valuation estimates, which the owner can either use or discard. In most cases, the amounts at issue will only be a few hundred euro either way.

In the case of CGT, the owner is dead and was not within their lifetime mandated or even recommended to keep a permanent record of home improvements, conversions, extensions etc. So nobody surviving them is after their death going to have the first clue of what enhancement expenditure was made on the place during the period of ownership.

Unlike as with LPT, if anything is missed, the consequences in relation to tax overcharge could be significant. For example, a £10,000 improvement in the mid 1970s would with pre-2004 indexation and euro conversion translate into a deduction for CGT purposes of approx €100,000.

But if nobody, including the Revenue Commissioners, knows or could reasonably know whether or not such expenditure was made almost 50 years ago, how could a valid CGT assessment be raised on such a flimsy basis? And how would executors be expected to manage a risk of that magnitude?

The whole effort would most likely end in a Kafkaesque fiasco with significant reputational risk for both the Revenue and the government.

For that reason it'll never see the light of day.


Brendan Burgess said:


> If they added a kitchen 10 years ago, it's probably not reflected in the value today.


They'd still be entitled to enhancement expenditure relief even if the added kitchen had been demolished in the meantime.


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## T McGibney (5 Aug 2022)

Itchy said:


> Not an issue going forward. Can be reported in real time (say within 2 years of completion) and invoice can be uploaded to revenue directly for automatic calculation when the time comes.


It would be a huge issue for the next 50 to 60 years.  There are young people currently not long settled down in their new homes who will die in old age while still living there.

And the idea that a compulsory reporting system (as if it would ever work, it frankly sounds like something the CCP would dream up) could in half a century's time be reliably relied upon to guide the CGT treatment of those homes at that point is fanciful to put it mildly. When data is held that long, the risks of its corruption, misinterpretation or eventual redundancy is strong.


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## PMU (6 Aug 2022)

Brendan Burgess said:


> That is easily dealt with by having roll-over relief.  The CGT is refundable if the person buys another house.
> 
> Brendan


If you are offering 100% enduring roll-over relief you might as well not charge CGT at all, as all you are doing is introducing additional bureaucratic friction in housing transactions. It’s also unreasonable to refund CGT where a person buys another family home but to charge it without refund where someone of necessity cannot buy another property because they must enter a care home or otherwise rent sheltered accommodation.

It also would contribute to slowing down of property transactions. Why sell and incur CGT, when you can just continue to live in your family home and leave it as a bequest? The beneficiaries may have to pay CAT, where the property is valued above the relevant CAT group threshold. If it isn’t they have no tax liability.  So if the owner sells they pay CGT, but a beneficiary may not have any tax liability.


Brendan Burgess said:


> So, for most people, the CGT liability will hit on death.
> 
> Brendan


But there is no CGT liability on shares transferred on death. Why introduce one on property?


Brendan Burgess said:


> Hi PMU
> 
> I am proposing to tax the gains from selling a house.  I would like to see people paying tax on their gains rather than as at the moment, ordinary people paying Local Property Tax on on ongoing basis.
> 
> Brendan


The solution here lies more in introducing spending limits on local authorities; the elimination of vanity projects; strict control of project costs, etc.


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## Brendan Burgess (6 Aug 2022)

PMU said:


> But there is no CGT liability on shares transferred on death. Why introduce one on property?



Hi PMU

I have covered this elsewhere. 

I would remove the exemption from CGT on death.



			Why are Capital Gains taxed at a lower rate than Income?
		


Brendan


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