Capital Gains Tax proposed

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#2187160 26-Feb-2019 07:14

GV27:

Simplicity has crunched the numbers on Kiwisaver:

http://www.scoop.co.nz/stories/BU1902/S00631/cgt-benefits-low-income-kiwisavers-at-high-earners-expense.htm

Basically if you earn over $68K you will be worse off by tens of thousands of dollars; except the impact is hidden because it's money you don't "miss out on" until you turn 65.

So most police officers, nurses with more than three years experience and probably a bunch of teachers as well.

Fairrrrnesssssssssssss

The fairness was a more suitable distribution of tax, which is the more well off pay more. The lower incomes have no money anyway essentially

BUT Cullen did say he would make Kiwisaver neutral, that's not the case

Can you look at the calculation above? The Herald calculator takes the gain over the life of the property and seems to take the percentage of gain in the post 2021 period, as if the gain was gained equally per year, instead of Valuation Day being day one at $0 gain

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#2187161 26-Feb-2019 07:21

tdgeek:

Can you look at the calculation above? The Herald calculator takes the gain over the life of the property and seems to take the percentage of gain in the post 2021 period, as if the gain was gained equally per year, instead of Valuation Day being day one at $0 gain

Yea, you can make the answer sillier by picking an older date when the date is irrelevant as long as it's after V-Day. That's the actual value and the actual point in time that's going to be the baseline.

There's also a potential median rule to smooth out gains (pick the middle of Cost, V-Day Value and Sale Price)

The median rule determines the deductible cost as the median or middle value of actual cost (including improvement costs), the value on Valuation Day, plus improvement costs, and the sale price.

In 2014 Scott bought a rental property for $500,000. On Valuation Day the property was valued at $450,000. Scott sold the property six years after Valuation Day for $850,000.

Applying the median rule:

      Cost = $500,000
      Valuation Day value = $450,000
      Sale price = $850,000

The median value is $500,000. Therefore, Scott is able to deduct $500,000 from the sale price of $850,000, giving rise to a $350,000 taxable gain.

Without the median rule, Scott would have a taxable gain of $400,000 (i.e. sale price of $850,000 - price on Valuation Day of $450,000) despite only making a gain of $350,000 over the whole period he owned the property.

https://www.interest.co.nz/opinion/98294/terry-baucher-says-minority-report-tax-working-groups-final-report-means-we-could-get

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#2187168 26-Feb-2019 07:35

GV27:

tdgeek:

Can you look at the calculation above? The Herald calculator takes the gain over the life of the property and seems to take the percentage of gain in the post 2021 period, as if the gain was gained equally per year, instead of Valuation Day being day one at $0 gain

Yea, you can make the answer sillier by picking an older date when the date is irrelevant as long as it's after V-Day. That's the actual value and the actual point in time that's going to be the baseline.

There's also a potential median rule to smooth out gains (pick the middle of Cost, V-Day Value and Sale Price)

The median rule determines the deductible cost as the median or middle value of actual cost (including improvement costs), the value on Valuation Day, plus improvement costs, and the sale price.

In 2014 Scott bought a rental property for $500,000. On Valuation Day the property was valued at $450,000. Scott sold the property six years after Valuation Day for $850,000.

Applying the median rule:

      Cost = $500,000
      Valuation Day value = $450,000
      Sale price = $850,000

The median value is $500,000. Therefore, Scott is able to deduct $500,000 from the sale price of $850,000, giving rise to a $350,000 taxable gain.

Without the median rule, Scott would have a taxable gain of $400,000 (i.e. sale price of $850,000 - price on Valuation Day of $450,000) despite only making a gain of $350,000 over the whole period he owned the property.

https://www.interest.co.nz/opinion/98294/terry-baucher-says-minority-report-tax-working-groups-final-report-means-we-could-get

Cheers

So you can use the Straight Line method which is what the Herald uses, or Median ( which accounts for my example when the value dropped at V-Day) and V-day

GV27

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#2187171 26-Feb-2019 07:49

tdgeek:

So you can use the Straight Line method which is what the Herald uses, or Median ( which accounts for my example when the value dropped at V-Day) and V-day

Yup. To be honest, the example of property is probably a moot point - even the minority report says that at the very least, we should extend the Brightline. So one way or the other, it's going to happen.

The real discussion is the treatment of Kiwisaver, rural land, the trade-offs we're making in terms of income tax and the exclusions.

We're now starting to see some more political reactions from Ardern etc so I might move that to the Govt thread.

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#2187183 26-Feb-2019 08:09

GV27:

tdgeek:

So you can use the Straight Line method which is what the Herald uses, or Median ( which accounts for my example when the value dropped at V-Day) and V-day

Yup. To be honest, the example of property is probably a moot point - even the minority report says that at the very least, we should extend the Brightline. So one way or the other, it's going to happen.

The real discussion is the treatment of Kiwisaver, rural land, the trade-offs we're making in terms of income tax and the exclusions.

We're now starting to see some more political reactions from Ardern etc so I might move that to the Govt thread.

Moot is right. If you can choose the method, that's legal tax avoidance, so that reduces the revenue. Kiwisaver needs adjusting so that reduces the revenue. She stated categorically that she will ensure small businesses and farms are looked at

The tax cuts are minimal at $10+ odd per week, and if the above are backed down somewhat, the more fairer redistribution becomes moot. A few dollars a week max. Perhaps its better to tweak Brightline, and include some other assets within that

Inflation here is low, that hasn't always been the case. Imagine if it was 8%, but from a weekly issue it was "ok" as wages are up, tax creep is adjusted annually, so a higher inflation rate wouldn't be unliveable, almost neutral payday to payday. The CGT would then be massive

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#2187493 26-Feb-2019 12:44

tdgeek:

The tax cuts are minimal at $10+ odd per week, and if the above are backed down somewhat, the more fairer redistribution becomes moot.

How is it fairer? Is there an objective definition of fair or is it all subjective?

If these changes achieve a worthy objective then perhaps it is worth implementing it, but when policy is being framed as creating a "fairer" tax system that's a sure sign there are other motives at play, and the objective is not what it seems.

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#2187514 26-Feb-2019 13:04

wsnz:

tdgeek:

The tax cuts are minimal at $10+ odd per week, and if the above are backed down somewhat, the more fairer redistribution becomes moot.

How is it fairer? Is there an objective definition of fair or is it all subjective?

If these changes achieve a worthy objective then perhaps it is worth implementing it, but when policy is being framed as creating a "fairer" tax system that's a sure sign there are other motives at play, and the objective is not what it seems.

Fairness shouldn't actually be subjective, you could make it factual. If a small % of the populous holds most of the assets, then they should shoulder most of the Govt revenue. They are playing harder financially. But that all breaks down if you vote for one party and another makes a new rule, so you disagree by default, or you are holding assets that will cause you to contribute more tax, and you don't want to pay that tax . In those two scenarios what is fairness? Its the fairness that suits me, not the overall outcome for the Govt that runs this country

What has been stated is that 5% will wear this tax, and everyone will recieve a benefit in terms of a tax cut

The other fairness is we have a part time CGT. Its on this but not on that. It should be on everything or nothing

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#2187521 26-Feb-2019 13:13

I disagree with your all or nothing. In my view, the CGT should be applied to those who make a living/career out of capital gains (Developers etc etc).

From a personal perspective heres how I would do it:

1) Primary Residence, Bach and Business - Excluded. If you own one of each, nothing to pay

2) Everything above and beyond this, rentals, houses you renovate and flip etc, all CGT

3) CGT at 15% (33% is mental in my view) Potentially over 10 years bringing it up to 20%

4) Retirement funds, Kiwisaver, excluded.

5) Home User Expenses for business a reasonable percentage (perhaps lock to less than 5% claimable for example) shouldn't render CGT Payable if it's the primary home.

I personally don't care about the Tax Break, could take it or leave it, some others may feel differently. I'd rather than no tax break and a lower CGT Rate and I stand to gain NOTHING out of that, since under rule 1 I'd have no CGT to pay, so it's not totally bourne out of self interest.

I see CGT as likely to affect the smaller developers. I suspect new housing stock will drop slightly, by the number that small developers build when they realize there isn't enough money in it to bother on a small scale. Tax on thier incomes will drop as well.

Overall, CGT at 15% applied to a smaller group, will likely get support, add additional revenue overall for the Government to spend on other things.

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#2187522 26-Feb-2019 13:14

tdgeek:

What has been stated is that 5% will wear this tax, and everyone will recieve a benefit in terms of a tax cut

The other fairness is we have a part time CGT. Its on this but not on that. It should be on everything or nothing

It's not going to be worn by 5%. It's going to be worn by everyone on over $68K and who has a Kiwisaver. They're going to end up worse off. Anyone who receives a non-cash inheritance is worse off. Anyone who gets caught out with bracket creep is worse off.

But yes, everyone receives a 'benefit' in terms of a tax cut at the lower end; including the boomers who caused all this mess. They get away with it. Again. Tell me how this is fair?

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#2187531 26-Feb-2019 13:20

How did the boomers cause this mess (What is your defintiion of said mess).

If the laws allow for something, and people use that to their advantage, how is that unfair? What's unfair in my view is that the law allowed it in the first place.

It's like getting upset when companies don't pay their "fair share" of income tax. They can only do this because the law allows for it. There is no moral imperative to pay more than you need to. I presume if you go to Countdown and see Cheese for $1 on special, do you think, wow that's too cheap and insist on paying $5?

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#2187539 26-Feb-2019 13:30

networkn:

How did the boomers cause this mess (What is your defintiion of said mess).

If the laws allow for something, and people use that to their advantage, how is that unfair? What's unfair in my view is that the law allowed it in the first place.

It's like getting upset when companies don't pay their "fair share" of income tax. They can only do this because the law allows for it. There is no moral imperative to pay more than you need to. I presume if you go to Countdown and see Cheese for $1 on special, do you think, wow that's too cheap and insist on paying $5?

Its not even that. Its not about laws. The argument is that boomers bought houses at a 3X multiplier of income to house. And that they may have a rental(s) and that as inflation was high (as they paid the 19% mortgage interest rate), inflation diluted the pain of the mortgage. So they have cash to spare and buy rentals

They didnt do anything dodgy, or break or avoid any laws. I fail to see how this is all a boomer caused mess? Or what the mess is or was. Then prices were cheaper, interest was higher, no idea how they caused all this

Replied to you re laws, but asking @GV27

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#2187561 26-Feb-2019 13:48

networkn:

I disagree with your all or nothing. In my view, the CGT should be applied to those who make a living/career out of capital gains (Developers etc etc).

From a personal perspective heres how I would do it:

1) Primary Residence, Bach and Business - Excluded. If you own one of each, nothing to pay

2) Everything above and beyond this, rentals, houses you renovate and flip etc, all CGT

3) CGT at 15% (33% is mental in my view) Potentially over 10 years bringing it up to 20%

4) Retirement funds, Kiwisaver, excluded.

5) Home User Expenses for business a reasonable percentage (perhaps lock to less than 5% claimable for example) shouldn't render CGT Payable if it's the primary home.

I personally don't care about the Tax Break, could take it or leave it, some others may feel differently. I'd rather than no tax break and a lower CGT Rate and I stand to gain NOTHING out of that, since under rule 1 I'd have no CGT to pay, so it's not totally bourne out of self interest.

I see CGT as likely to affect the smaller developers. I suspect new housing stock will drop slightly, by the number that small developers build when they realize there isn't enough money in it to bother on a small scale. Tax on thier incomes will drop as well.

Overall, CGT at 15% applied to a smaller group, will likely get support, add additional revenue overall for the Government to spend on other things.

Firstly, if you make and earning or living its not relevant, that is income tax. Digging ditches for a wage or buying and selling houses is the same, its just earnings as both are trading and earning a taxable income.This is why small developers are by default not a CGT sector. A small develeoper is like Briscoes, buying and selling for profit, its not CGT

Also if you renovate and flip too many, and its probably not many, that may also be caught, even if you live in them. If CGT applies, its income and should be at Income Tax rates IMO. When you flip a house you do that for one reason. Money. When you have a rental its only about capital gain, so I dont see a reason to under tax these.

I could favour a low rate at the lesser end of activity. We just flipped one house we just have one rental, etc

TBH I'm losing interest in CGT. It can add a fairer spread of tax revenue, it would remove the fact that I paid tax on 100k and you didnt, but its only going to give everyone a couple of lattes a week after some new and fair exclusions come in from NZF. Its not going to rewrite fairness to any great degree or the Consolidated Fund. And inflation is my BIG issue. My house/asset increased at the CPI rate for 10 years and I pay tax. yes, that same issue already applies to tax, but we are talking about numbers with lots of zeros

Your exclusions, I generally agree

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#2187601 26-Feb-2019 14:53

networkn:

How did the boomers cause this mess (What is your defintiion of said mess).

If the laws allow for something, and people use that to their advantage, how is that unfair? What's unfair in my view is that the law allowed it in the first place.

It's like getting upset when companies don't pay their "fair share" of income tax. They can only do this because the law allows for it. There is no moral imperative to pay more than you need to. I presume if you go to Countdown and see Cheese for $1 on special, do you think, wow that's too cheap and insist on paying $5?

I might be more upset if I relied on cheese for shelter or needed a stable cheese before I did things like start a family, otherwise I'd be constantly moving from brie to cheddar to haloumi and possibly moving my kids from school to school as well.

The problem is the generation who had the most sway took the opportunity to enrich themselves, both at the expense of their parents and their children. They also, as a voting bloc, had more combined power than other group. Turkeys don't tend to vote for Christmas after all.

If you can point me to the millennials who presided over the parliament that rewrote our tax law from 1999 to 2007 when the Income Tax Act was previously updated without due consideration given to the house price rises happening at the time, I will gladly withdraw my point.

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#2187605 26-Feb-2019 15:01

GV27:

networkn:

How did the boomers cause this mess (What is your defintiion of said mess).

I might be more upset if I relied on cheese for shelter or needed a stable cheese before I did things like start a family, otherwise I'd be constantly moving from brie to cheddar to haloumi and possibly moving my kids from school to school as well.

The problem is the generation who had the most sway took the opportunity to enrich themselves, both at the expense of their parents and their children. They also, as a voting bloc, had more combined power than other group. Turkeys don't tend to vote for Christmas after all.

If you can point me to the millennials who presided over the parliament that rewrote our tax law from 1999 to 2007 when the Income Tax Act was previously updated without due consideration given to the house price rises happening at the time, I will gladly withdraw my point.

Can you clarify what you mean with the bolded?

If the birth boost created a larger block of voters, how are they to blame?

What did the boomers do in rewriting tax law 1999-2007?

Genuinely interested

GV27

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#2187611 26-Feb-2019 15:08

tdgeek:

Can you clarify what you mean with the bolded?

If the birth boost created a larger block of voters, how are they to blame?

What did the boomers do in rewriting tax law 1999-2007?

Genuinely interested

Not include a comprehensive capital gains tax then?

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