Capital Gains Tax proposed

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#2184977 21-Feb-2019 18:08

Aredwood:
tdgeek:

mattwnz:

There are a lot of older single people who are widowed or split up, who prefer to live by themselves, but a still in full a relationship. For example they may meet later in life, and form a new relationship. It is a lifestyle choice, so I wonder how they are going to police that. It seems very big brother if they were then to force one of those peoples homes to be excluded, and almost seems like the government is dictating how people should be living their lives.

Wee bit of a stretch, but the overall point is a good one. Im not sure you would police that as you would on a benefit fraud issue

If your couple moved it next week, the sold house, if it was sold is the sale of a family home. Same of it was next year. A good point though that does need to be clarified. The other side is that there is actually one family home, the other is not now? Its being kept, as its not needed. For gain.

id like to know how that works, I'm not up with how they decide who is in a relationship. They fail as well. Interesting

Another scenario- A single woman sells her house, then not long after starts a relationship with a man who owns a house. IRD might allege that the relationship was already happening, before the woman sold her house. What if she was previously friends with and or had an occasional sexual fling with that man? How would you prove when the serious relationship started?

Or another one. A single woman buys a house, then a single man enters a relationship with that woman, but he currently rents. They both spend alternate days at each others home, or they may spend days apart from one another. Then the single man buys his own house to move into but is still in the relationship. They have no intention of living in the same home permentally. This is actually quite common especially with people whose children have grown up. It just gets so complex, and despite with governments may think, not everyone lives in a certain way.

In terms of finding out when a relationship started, that would be incredibly creapy if the government started investigating that sort of thing, by looking up people bank statements etc. Best to stay single I think.

MileHighKiwi

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#2184978 21-Feb-2019 18:19

mattwnz:
tdgeek:
MileHighKiwi: Why do we need to raise more tax when the government is in surplus?

I'd rather they focused on cutting costs and creating more efficient public services.

I'm opposed to a CGT.

We're already taxed on our income, pay gst, rates, tax on savings etc...and it's the top 10% of households that pay 2/3 of tax in NZ. As I fall into that category they can go f**** themselves. I pay plenty of tax. fairness? Yeah right! Fairness is subjective.

The govt is NOT raising more tax for themselves
If you don’t feel CGT is fair they can remove ALL CGT, that’s an option
If we all pay income tax, except truck drivers that’s not fair is it? Same thing

NZers are supposedly one of the lowest taxed countries. But I am not sure if this is about increasing the tax collected, rather, lower earning people with few assets paying less tax.

The thing is we do already have CGT, (although not on Kiwisaver) so I think the law is about making everyone pay it and removing the grey areas. For example, shares, if you are a trader and regularly buy and sell shares, you do already have to pay tax on captial gains. Likewise when buying a house, if you live in it and do it up to sell with that intention, you have to pay tax, a;although how many people actually do?

If this was about lower earning people paying less tax why not do something far more simple and adjust tax brackets?

E.g. make the first $15k tax free, 15% 15-25 , 25% 25-60, 30% 60-90, 35% 90+ etc.....I thought of those thresholds off the top of my head, no idea what it would need to look like but taxing me more to reimburse a cleaner on minimum wage doesn't nake sense to me. And anyways that cleaner probably gets an additional 15k-20k per year WFF and tax credits etc.

CGT will have all sorts of loop holes and it will not achieve a 'fairer nz', that's complete bollocks. There's tons of examples of it not working I.e. doesnt stop house prices rising.

mattwnz

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Uber Geek

#2184979 21-Feb-2019 18:23

That would be far to sensible.

mattwnz

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#2184981 21-Feb-2019 18:26

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?

These are sorts of things are where accountants will be making a killing on. Possibly the only guide is what happens in other countries with CGT. But it is opening up a can or worms IMO. I would be surprised if it gets through, but then again Trump got voted in as Precedent.

Handle9

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#2184989 21-Feb-2019 18:54

MileHighKiwi:

If this was about lower earning people paying less tax why not do something far more simple and adjust tax brackets?

E.g. make the first $15k tax free, 15% 15-25 , 25% 25-60, 30% 60-90, 35% 90+ etc.....I thought of those thresholds off the top of my head, no idea what it would need to look like but taxing me more to reimburse a cleaner on minimum wage doesn't nake sense to me. And anyways that cleaner probably gets an additional 15k-20k per year WFF and tax credits etc.

You clearly haven't read the summary of what the TWG recommended. CGT was one of a number of measures, including changing the income tax thresholds.

Handle9

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#2184995 21-Feb-2019 19:09

I think that some of the reactions to this are hilarious. Almost every country in the world (outside the usual low tax ones) has capital gains taxes. Yes they have loopholes and flaws but some of the reactions on here would seem to suggest that a CGT is totally impractical.

The whole point of capital gains tax is to make investing in businesses at least as attractive as investing in property. New Zealand has woeful wage growth and therefore productivity as it is cheaper to hire another low wage employee rather than train someone to be more productive or give them better tools or infrastructure.

Bernard Hickey has written about this extensively, his article today is pretty nuanced about the issue and the political realities.

https://www.newsroom.co.nz/2019/02/20/454810/the-dirty-little-secrets-of-the-capital-gains-tax-debate

marej

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#2184997 21-Feb-2019 19:16

BlueShift:

The real question is why isn't tax paid on all capital gains already. It is income from owning an asset.

If I work for $100,000 a year for 10 years and earn $1 million, I pay income tax on that.

If I have a business and sell enough to make $1 million in profit, I pay tax on $1 million.

If I buy a house for $500,000, and 10 years later sell it for $1,500,000, why should I not pay tax on that $1 million profit?

The government isn't planning on taking all the capital gains you get from selling your house, just a fair percentage.

The reality is most people most of the time dont sell and make 1mil. Yes we went through a housing boom, and that has distorted the context. Its not all about the ciities.

In the regions, its more you buy for 300K, pay for improvements from your taxed income over 10 years, and you sell for 350K. Is it fair to pay tax on 50K. I actually dont think it is.

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GV27

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#2185000 21-Feb-2019 19:19

There's plenty of question marks in the report.

The revenue from the CGT assumes constant house price growth at a rate of 3%, for a start.

mattwnz

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#2185002 21-Feb-2019 19:24

Handle9:

I think that some of the reactions to this are hilarious. Almost every country in the world (outside the usual low tax ones) has capital gains taxes. Yes they have loopholes and flaws but some of the reactions on here would seem to suggest that a CGT is totally impractical.

The whole point of capital gains tax is to make investing in businesses at least as attractive as investing in property. New Zealand has woeful wage growth and therefore productivity as it is cheaper to hire another low wage employee rather than train someone to be more productive or give them better tools or infrastructure.

Bernard Hickey has written about this extensively, his article today is pretty nuanced about the issue and the political realities.

https://www.newsroom.co.nz/2019/02/20/454810/the-dirty-little-secrets-of-the-capital-gains-tax-debate

NZ also already has a CGT too. For example I understand if you buy a house and then sell it within a few years inside the brightline test thing, you have to pay tax on the capital gain. A lot of the comments though are to do with complexities with things such as how a family home is defined in order to be exempt, and lack of details. Often with new policies there are problems with wording, and things go wrong. Also how kiwisaver is going to be taxed on the capital gains, which is going to basically affect most peoples retirement funds. It is really just a lack of detail.

GV27

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#2185003 21-Feb-2019 19:26

Handle9:

some of the reactions on here would seem to suggest that a CGT is totally impractical.

That's exactly what the minority report says: It's too much work and you could far more effectively target residential property by extending the Brightline and other measures.

"Group members BusinessNZ Chief Executive Kirk Hope, former Bell Gully tax partner Joanne Hodge and former Inland Revenue Deputy Commissioner (Policy) Robin Oliver do not recommend that the Tax Working Group’s proposed capital gains rules should be implemented."

On balance
The Group was asked to consider a system for taxing capital gains that would improve the
tax system. In order to evaluate whether such a system would be an improvement or cause
damage to New Zealand’s current tax system, the rules needed to be devised and then
evaluated within the time available.

We agree that the taxation of capital gains could be expanded, on an asset class by asset
class basis, until the costs of doing so exceed the benefits. However, in our view, and
having regard to the significance of many of the outstanding issues, we do not believe that
the costs of such an extension will exceed the benefits for asset classes other than
residential rental property.

The risks involved in extending capital gains tax beyond residential properties include:

• Fiscal risks to the government
• Compliance costs
• Damage to equity markets
• Inconsistency in the tax treatment of investors

https://taxworkinggroup.govt.nz/sites/default/files/2019-02/twg-bg-4050912-extending-the-taxation-of-capital-gains-minority-view.pdf

Also, I note other countries tax capital gains at lower rates and usually have 0% threshold (e.g. $500,000 etc).

mattwnz

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#2185006 21-Feb-2019 19:32

I had read that quite a few of the tax working group were also against this form of CGT. I think it is ironic that CGT also has another more funny meaning.

tdgeek

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#2185011 21-Feb-2019 19:46

Bluntj:

Accountants and Valuers!!!

If this Govt over complicated it, possibly. Tax is not hard, there is plenty of info at the IRD website.

Kyanar

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#2185012 21-Feb-2019 19:46

marej:

The reality is most people most of the time dont sell and make 1mil. Yes we went through a housing boom, and that has distorted the context. Its not all about the ciities.

In the regions, its more you buy for 300K, pay for improvements from your taxed income over 10 years, and you sell for 350K. Is it fair to pay tax on 50K. I actually dont think it is.

Then you have been conned by the detractors, because that's not how it works. Using the almighty Australian definitions, you'd have these concessions available (ignoring the obvious 50% CGT concession on long-term held capital assets, and the total exemption for your principal place of residence):

Increase cost base by the cost of any capital works, rates, taxes, interest, and insurances you couldn't otherwise deduct because you weren't using the property to produce an income
Reduce capital gain by the cost of any marketing or sales involved in moving the property
Increase cost base by CPI

Your chances of paying CGT on a property you bought for $300k and sold for $350k when it was over 10 years is about nil.

tdgeek

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#2185013 21-Feb-2019 19:49

mattwnz:

tdgeek:
MileHighKiwi: Why do we need to raise more tax when the government is in surplus?

I'd rather they focused on cutting costs and creating more efficient public services.

I'm opposed to a CGT.

We're already taxed on our income, pay gst, rates, tax on savings etc...and it's the top 10% of households that pay 2/3 of tax in NZ. As I fall into that category they can go f**** themselves. I pay plenty of tax. fairness? Yeah right! Fairness is subjective.

The govt is NOT raising more tax for themselves
If you don’t feel CGT is fair they can remove ALL CGT, that’s an option
If we all pay income tax, except truck drivers that’s not fair is it? Same thing

NZers are supposedly one of the lowest taxed countries. But I am not sure if this is about increasing the tax collected, rather, lower earning people with few assets paying less tax.

The thing is we do already have CGT, (although not on Kiwisaver) so I think the law is about making everyone pay it and removing the grey areas. For example, shares, if you are a trader and regularly buy and sell shares, you do already have to pay tax on captial gains. Likewise when buying a house, if you live in it and do it up to sell with that intention, you have to pay tax, a;although how many people actually do?

You are 100% correct. CGT is alive and well, like GST and the Amazon argument. Some however don't pay income tax, i.e. income tax on their income that is derived from income from capital gain.

surfisup1000

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#2185014 21-Feb-2019 19:53

MileHighKiwi: If this was about lower earning people paying less tax why not do something far more simple and adjust tax brackets?

E.g. make the first $15k tax free, 15% 15-25 , 25% 25-60, 30% 60-90, 35% 90+ etc.....I thought of those thresholds off the top of my head, no idea what it would need to look like but taxing me more to reimburse a cleaner on minimum wage doesn't nake sense to me. And anyways that cleaner probably gets an additional 15k-20k per year WFF and tax credits etc.

CGT will have all sorts of loop holes and it will not achieve a 'fairer nz', that's complete bollocks. There's tons of examples of it not working I.e. doesnt stop house prices rising.

Because if you reduce income tax, you then need to raise extra revenue to make up the shortfall. Thats where a CGT kicks in.

All taxes have loopholes, not sure that is a reason to get rid of all taxes.

I don't see how you think it is fair that someone can make a fortune from capital gain yet pay no tax, yet gets to use the same government services as those who actually pay income taxes.

House prices always rise over time... it would be naive to think a CGT would stop them rising. However, it may make prices rise more slowly than otherwise, as people consider the taxation aspect of investing in property. I would put money on house prices falling if they introduce a CGT... as investors dump properties now that they are more expensive.

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