Capital Gains Tax proposed

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#2185788 23-Feb-2019 12:13

Also for those that don't know. I started a thread back in July 2016, where I proposed that a broad base capital gains tax be introduced. Including on the family home.

https://www.geekzone.co.nz/forums.asp?ForumId=48&TopicId=198862

So in effect, I was way ahead of the current government and the tax working group by proposing it back then. And yes, I still stand behind what I said in that thread. (I might propose some small technical changes though).

The intent of what I have been saying (both in this thread and my old thread). Is that yes, a broad CGT is needed. But it needs to be designed so it won't cause distortions to investment decisions or indirectly add extra costs elsewhere.

GV27

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#2185790 23-Feb-2019 12:16

Aredwood: Problem is, that most of the increase in house prices have been due to artificial scarcity caused by the Resource Management Act. Before the RMA, an average house was worth around 3x the average yearly wage. House prices still increased quickly at times, but that was only because the rest of the economy also had large price increases (inflation). Meaning that there wasn't much scope to make money on property, solely by buying and later selling (without also doing other things to add value).

What incentive does a Govt who has a revenue stream being reliant on property prices forever increasing to actually make houses cheaper? They seem to struggle to do that even when they want to do.

Aredwood

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#2185802 23-Feb-2019 12:45

Fred99:

Aredwood:

Problem is, that most of the increase in house prices have been due to artificial scarcity caused by the Resource Management Act.

That's a stretch - how did the NZ RMA create simultaneous property price bubbles in Sydney, Vancouver, Hong Kong?

Because the RMA makes land (that is suitable for housing) artificially scarce. And it is the artificial scarcity that causes the price increase. (law of supply and demand. If you restrict the supply of something, it goes up in value).

Hong Kong has a large population on a small land area. So of course land and therefore houses will be expensive there.

My understanding, is that Sydney and Vancouver have had (or are having) large falls in house prices. Meaning that their price booms might have been due to the bubble effect. (No different to price bubbles that previously have happened in everything from tulip bulbs to bitcoin). And there is the effect (or not) of Chinese people buying property outside of china for whatever reasons. (depending on which side of that argument to want to pick).

Meanwhile back in NZ, The RMA hasn't been reformed. And the population is still increasing. So no increase in supply or reduction in demand.

Fred99

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#2185889 23-Feb-2019 15:20

Aredwood:

Fred99:

Aredwood:

Problem is, that most of the increase in house prices have been due to artificial scarcity caused by the Resource Management Act.

That's a stretch - how did the NZ RMA create simultaneous property price bubbles in Sydney, Vancouver, Hong Kong?

Because the RMA makes land (that is suitable for housing) artificially scarce. And it is the artificial scarcity that causes the price increase. (law of supply and demand. If you restrict the supply of something, it goes up in value).

Hong Kong has a large population on a small land area. So of course land and therefore houses will be expensive there.

My understanding, is that Sydney and Vancouver have had (or are having) large falls in house prices. Meaning that their price booms might have been due to the bubble effect. (No different to price bubbles that previously have happened in everything from tulip bulbs to bitcoin). And there is the effect (or not) of Chinese people buying property outside of china for whatever reasons. (depending on which side of that argument to want to pick).

Meanwhile back in NZ, The RMA hasn't been reformed. And the population is still increasing. So no increase in supply or reduction in demand.

In my opinion, you're shouting at the moon. Not denying that the RMA has some effect, but it's one of many factors, just a few off the top of my head:

Favourable tax status for holding bare land - encouraging land-banking.
NZ's huge average house sizes - amongst the largest average M2 per new dwelling in the world.
Building material supply monopolies / lack of real competition.
A decade of artificial, abnormally low interest rates.
NZ lack of effective regional development policies.
NZ immigration policies - using immigration to increase GDP while per capita GDP stalled, causing bottlenecks in infrastructure, including housing.
Lack of confidence for investment or owner-occupied homes in multi-unit developments/apartments.
Crappy forward planning of labour resources for decades, leading to massive shortages of essential trades.
Disastrous experiment in self-regulation leading to leaky homes saga etc, and knee-jerk response to regulate *at any cost*.
NZ requirements for seismic design.
etc...

networkn

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#2185928 23-Feb-2019 16:48

What happens if you inherit a property and sell it?

How is it's capital "gain" calculated?

rugrat

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#2185930 23-Feb-2019 17:09

Just from roughly looking around it looks like the start value is the value of the house when the person died.

So if sell house for same value no CGT.

I’m wondering at start of tax introduction and the above case who’s going to be going around valuing all these houses, council rates value is not accurate, only done from outside.

tdgeek

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#2185978 23-Feb-2019 17:49

networkn:

Fred99:

tdgeek:
networkn:

If they do indeed disagree with it, then it should be clearly communicated as why. Using phrases like "attacking our way of life" looks like hysterical babble, even if they believe it. It would do them the world of good to come up with a different tax structure that is better if such a thing exists, and campaign on this in opposition to a CGT. That is how I'd like to see them win the next election. It's doable in my view, but they need to move quickly.

Constructively that is indeed the key. No one likes whingers, everyone likes constructive meaningful dialogue. They do need to do that

Can't see that *ever* happening with Bridges/Collins/Bennett still there.

To be fair, even if they were doing it, your objectivity when it comes to these people is such IMO, you wouldn't give them a mm of credit.

Never mind that Labour opposed the same way.

Being in opposition is incredibly hard I imagine. Every man and his dog loves the phrase opposing for the sake of it, barking at cars blah blah. Doesn't matter if they have a point, it's automatically minimized, disregarded, or viewed as inferior as a result of being in opposition.

That wrong, you are criticising someone who posted along a party line, you are doing the same. All politicians act out. But the National trio are at the top end of wishy washy, SB, loud and aggressive, JC, and a sap, PB. If anything costs them the next election its those three. I watched Simons speech once parliament started, it was embarrassing. He is quiet, but he came out yelling, that's not him its fake. He is not the 2019 Robert Muldoon

Sharesies kids

Free kids accounts - trade shares and funds (NZ, US) with Sharesies (affiliate link).

tdgeek

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#2185982 23-Feb-2019 17:55

Aredwood:
tdgeek:

Aredwood: And how would sales for the purpose of reinvesting be treated? As profits from sales are only income, when they are not reinvested.

What if someone owns a company, and that company then owns shares, property etc? Say the company sells a house, then uses the money from the sale to buy another house. At the end of the tax year, the company still has the exact same amount of money in its bank account, that it did at the beginning of the year. Will the company or the owner of the company have to pay a CGT?

Thats cashflow not income, two very different things. You dont pay any tax on cashflow or what's in the bank, or more correctly, liquid assets. You pay it on income.

You can earn income and be taxed on it, and have a negative cashflow. You can run at a loss, and have positive cashflow. Its about income

Except that from my understanding, there is only limited rollover relief available. So if I sell a house, and use the money to buy shares. I will still have to pay the CGT. What about if there is a gap between selling the first house and buying the second one? Will the rollover relief still apply?

So actually there will be lots of situations where you will be forced to pay tax on cashflow.

It is also a fail in that the government wants people to invest in things other than property. But if someone does that, they will have to pay extra tax. Compared to if they leave their money in property.

Property and shares are not productive. Property is a free gain. Shares, once the IPO has completed has raised the finds for productive business, there after its speculative behaviour. Ive owned lots of shares. It doesn't help the company anymore. They already have the capital.

tdgeek

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#2185989 23-Feb-2019 18:09

Aredwood:
tdgeek:
rugrat: Are people going to have to keep records longer then 7 years now, ie to prove how much they spent doing up Bach , and it could be nine or more years before sold?

Also are all costs able to be claimed, rates, insurance, costs involved with sale and purchase, new carpet, plumbers, electricians etc, as these are costs that someone wouldn’t have if didn’t own asset.

I’d say you would need to keep those records yes. One folder of stuff it won’t be much. When I buy your Bach for 400k I might pay 300k and I give you a car. I save a it you evade tax lol . Humans will find a way

Rates repairs etc you can’t claim just capex

Not being able to claim OPEX is a major departure from the current rules.

If I buy a house, batch, car, whatever. For the purpose on onselling for a profit. Currently, both Capex and OPEX are 100% tax deductible. Only that Capex spending on items over $500 needs to be depreciated, instead of being fully written off at once. This means that incorrectly declaring Capex as Opex or vice versa. Only changes which tax year the tax gets paid in. Not the total amount of tax paid. So at most, you get an interest free loan from the IRD. But if you instead had to get a loan from a bank, the interest and fees charged on the loan are tax deductible anyway.

As soon as you make just 1 and not the other tax deductible out of Capex and OPEX. You have just opened up massive holes in existing tax rules. Especially as it is often difficult to accurately apportion costs between Capex and OPEX. Eg, I buy a house with the intention to renovate it and sell for a profit. The wiring is a mixture of old stuff with unsafe insulation, dodgy DIY wiring. It all has to be rewired to current electrical rules. The electrician send me a bill for the job, yet the job has an unknown ratio of capex and OPEX. So you can see the can of worms that would be opened.

I don t follow that. if you "If I buy a house, batch, car, whatever. For the purpose on onselling for a profit." you are running a business. CGT doesn't apply. You claim expenses (OPEX) in the year that were borne if that expense is consumed in the same year ($20 worth of pens). You claim CAPEX the same, except CAPEX recognises that the expenditure today needs to be spread over more than one tax year. car that will be consumed over a few years, so you "expense" it over few years, depreciation.

"This means that incorrectly declaring Capex as Opex" Thats fraud. As you say it only affects what year or years to clan that expense back, so I am unsure how this related to CGT

tdgeek

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#2185999 23-Feb-2019 18:28

rugrat: Just from roughly looking around it looks like the start value is the value of the house when the person died.

So if sell house for same value no CGT.

I’m wondering at start of tax introduction and the above case who’s going to be going around valuing all these houses, council rates value is not accurate, only done from outside.

I thought the CGT applies from the V Day. Valuation Day, circa 2021. House worth 800k on V Day. Owner dies and estate distributed by way of sale 2023 for say 900k. 100k CG, so taxed on 100k.

I believe all income should be taxed so that it is spread more evenly. My negative is its not inflation adjusted, the argument is all tax is not inflation adjusted. its not hard to inflation adjust CGT. A set CPI basis (not perfect) says that for 2022, 23,24 etc have these CPI values. Its easy to take that 100k CGT and gross it back.Its a lot like marginal tax rates. A person on the average wages pays more tax every year even though their average status is unchanged. Then a Govt says yay here is a tax break, but its no,t its a catchup, and we gladly banked the over taxation from the past. But its what Govts do, as each such correct and fair adjustment saves them money. And they hate keeping up as that "keepup" lasts forever.

wsnz

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#2186015 23-Feb-2019 19:16

tdgeek:

Property and shares are not productive. Property is a free gain. Shares, once the IPO has completed has raised the finds for productive business, there after its speculative behaviour. Ive owned lots of shares. It doesn't help the company anymore. They already have the capital.

Companies may have capital but often need more for expansion or to purchase new equipment, and can borrow more based on the valuation of the business, which to a degree, is what the share price represents. Some investors may behave as speculators, but most do not. Those that do are already captured by IRD's regulations surrounding "traders".

Shares and property can most certainly both be productive.

wsnz

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#2186016 23-Feb-2019 19:19

tdgeek:

That wrong, you are criticising someone who posted along a party line, you are doing the same. All politicians act out. But the National trio are at the top end of wishy washy, SB, loud and aggressive, JC, and a sap, PB. If anything costs them the next election its those three. I watched Simons speech once parliament started, it was embarrassing. He is quiet, but he came out yelling, that's not him its fake. He is not the 2019 Robert Muldoon

That is a very subjective opinion, not an objective fact.

GV27

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#2186043 23-Feb-2019 20:31

I feel like some people are conflating items held as part of capital and items held on revenue account (like stock/inventory).

For a car dealer, vehicles are inventory. A consulting business that owns one car is pretty clearly buying an asset and it can't be washed through the P&L in one go.

GV27

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#2186044 23-Feb-2019 20:33

tdgeek:

I believe all income should be taxed so that it is spread more evenly. My negative is its not inflation adjusted, the argument is all tax is not inflation adjusted. its not hard to inflation adjust CGT. A set CPI basis (not perfect) says that for 2022, 23,24 etc have these CPI values. Its easy to take that 100k CGT and gross it back.Its a lot like marginal tax rates. A person on the average wages pays more tax every year even though their average status is unchanged. Then a Govt says yay here is a tax break, but its no,t its a catchup, and we gladly banked the over taxation from the past. But its what Govts do, as each such correct and fair adjustment saves them money. And they hate keeping up as that "keepup" lasts forever.

This to me is the problem especially with housing. In a CGT situation where the family home is captured but the gains are not indexed for inflation, you could very well go backwards in real terms once you've paid an aggressive CGT on the nominal gain.

tdgeek

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#2186220 24-Feb-2019 10:47

wsnz:

tdgeek:

That wrong, you are criticising someone who posted along a party line, you are doing the same. All politicians act out. But the National trio are at the top end of wishy washy, SB, loud and aggressive, JC, and a sap, PB. If anything costs them the next election its those three. I watched Simons speech once parliament started, it was embarrassing. He is quiet, but he came out yelling, that's not him its fake. He is not the 2019 Robert Muldoon

That is a very subjective opinion, not an objective fact.

A subjective opinion but darn hard to argue against

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