Capital Gains Tax proposed

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#2185036 21-Feb-2019 20:23

mattwnz:

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.

I have two accounting degrees. If I was back in that industry little will change. Businesses already pay tax on CGT. Bought a company car for 40k, amortised it back to 5k, sell for 8k, that's a gain on a sale of an asset, its in the P+L Account, it's taxed. For those little people that mess around with property or shares, IRD covers that in layman's terms, your accountant can confirm. Its just confirming real income.

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#2185037 21-Feb-2019 20:24

TwoSeven:
BlueShift:
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?

This is the bit that I am not sure about.

If one buys a house cash up front for $500k, and sells it a year later for $550k - the 50k may be taxed as income.

My view, its pay as you earn.

However, I am not sure how one calculates profit on a house - if one buys a 500k house for 20% down with a 25 year mortgage, by the time one factors in interest, rates, insurance, maintenance and inflation etc. how does one work out the bit that is the capital gain.

Also, in your example, what if you had to spend $30,000 on repairs and improvements to get the increase in value?

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#2185038 21-Feb-2019 20:25

Handle9:

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.

aka, gathering income tax which was tax free and redistributing it, to ALL taxpayers.

GV27

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#2185040 21-Feb-2019 20:29

tdgeek:

I have two accounting degrees. If I was back in that industry little will change. Businesses already pay tax on CGT. Bought a company car for 40k, amortised it back to 5k, sell for 8k, that's a gain on a sale of an asset, its in the P+L Account, it's taxed.

That's not technically a capital gain, that's recovered depreciation that's already been through the P&L 😜 A capital gain would be selling it for $45K - you pay $35K back in depreciation recovery and the 5k balance is tax-free capital gain on disposal of an asset.

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#2185041 21-Feb-2019 20:30

Dingbatt: It's a shame cars are excluded. But for some rare collectors items, the value of cars only heads in one direction. I would love to be able to claim the loss of value in the non-familly car against my tax burden.

I can only assume there is no money in it for the Govt so that's why it's excluded despite generally being people's second biggest asset.

Cars and art are also excluded from means testing, should one find oneself needing rest home care in one's dotage and not wanting to pay for it.

One of my friends is a tax lawyer by profession, exotic car collector and supporter of the arts in his free time.

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#2185042 21-Feb-2019 20:31

marej:

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.

That wont happen. Resident family homes do not make any gains, so no need for any tax. If you buy beyond a family home you will be a business, claim expenses, pay tax on the profit, like any business in NZ. Some do that, under the radar and dont pay tax. While this TWG has said that the gains from CGT will go back as tax cuts as its not about extra revenue, they should also include smaller businesses. Off the top of my head, and wage and salary earners and small business up to say 20 employees.

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#2185044 21-Feb-2019 20:39

GV27:

That's exactly what the minority report says:

That covers it.

1 votes Labour, 1 votes Greens, the rest vote National. On party lines it should be 2-8 and it fails. Its 7-3 and the 3 are National while of the 7, it seems 5 are Natonal.

Is it fair? Is it fair for all of us to pay tax but truck drivers dont? No. Same thing

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#2185046 21-Feb-2019 20:42

tdgeek:

GV27:

That's exactly what the minority report says:

That covers it.

1 votes Labour, 1 votes Greens, the rest vote National. On party lines it should be 2-8 and it fails. Its 7-3 and the 3 are National while of the 7, it seems 5 are Natonal.

Is it fair? Is it fair for all of us to pay tax but truck drivers dont? No. Same thing

Of the three, one is a former Bell Gully partner and the other is an Ex-Deputy Commissioner of the IRD. I kind of trust them to know what they're talking about.

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#2185047 21-Feb-2019 20:43

mattwnz:

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.

Quite few of them? 8 of them are National, 1 is Labour 1 is Green, but its 7-3

Its a bit like the Polytech restructure. National bags it. ITO bags it, Everyone else including businesses and manufacturers, and the rest of the Polytechs are in favour

Its fine and expected that party lines will be dominant, but sometimes sensibiilty needs to rule

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#2185048 21-Feb-2019 20:47

tdgeek:

Its fine and expected that party lines will be dominant, but sometimes sensibiilty needs to rule

Are you going to engage with any of the actual objections they raised or their qualifications to make those statements, or are you just going to insist that political affiliation somehow trumps all that?

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#2185049 21-Feb-2019 20:52

GV27:

tdgeek:

GV27:

That's exactly what the minority report says:

That covers it.

1 votes Labour, 1 votes Greens, the rest vote National. On party lines it should be 2-8 and it fails. Its 7-3 and the 3 are National while of the 7, it seems 5 are Natonal.

Is it fair? Is it fair for all of us to pay tax but truck drivers dont? No. Same thing

Of the three, one is a former Bell Gully partner and the other is an Ex-Deputy Commissioner of the IRD. I kind of trust them to know what they're talking about.

Maybe. thats fair. Did you read the article the CGT assets that many hold? One thing I like about this coalition is they embrace business, the polytechnic issue as one example shows that. The TWG is not dominated by Labour rednecks. To me, it has crediibility as 8 of the 10 are Blue based. As I said, party lines matter, but sometimes its about being sensible. If this TWG, was all red and a couple of blue boys to make it "ok" Id be super p!ssed. But its the other way round.

Plus its not law tomorrow. It wont be law until after the next election, Judith Collins can repeal it. Its pretty transparent, and not forced. They could make it law after the readings beforehand, but thats not the case.

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#2185052 21-Feb-2019 20:57

tdgeek:

Maybe. thats fair. Did you read the article the CGT assets that many hold? One thing I like about this coalition is they embrace business, the polytechnic issue as one example shows that. The TWG is not dominated by Labour rednecks. To me, it has crediibility as 8 of the 10 are Blue based. As I said, party lines matter, but sometimes its about being sensible. If this TWG, was all red and a couple of blue boys to make it "ok" Id be super p!ssed. But its the other way round.

I did, and I noted the misleading graphs showing asset ownership by decile; funny how that argument doesn't work with GST. Just because the poor have less stuff doesn't mean they aren't less reliant on inheritances or Kiwisaver or businesses to get ahead or fund retirements; while the wealthy may have more things, taking 30% of it away from people who don't have that much to begin with isn't the same taking it from someone who can already live comfortably.

Bluntj

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#2185054 21-Feb-2019 20:59

Geektastic:
TwoSeven:
BlueShift:

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?

This is the bit that I am not sure about.

If one buys a house cash up front for $500k, and sells it a year later for $550k - the 50k may be taxed as income.

My view, its pay as you earn.

However, I am not sure how one calculates profit on a house - if one buys a 500k house for 20% down with a 25 year mortgage, by the time one factors in interest, rates, insurance, maintenance and inflation etc. how does one work out the bit that is the capital gain.

Also, in your example, what if you had to spend $30,000 on repairs and improvements to get the increase in value?

Expenditure to repair or enhance value is taken into account in the profit statement.

Geektastic

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#2185056 21-Feb-2019 21:02

tdgeek:
marej:

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.

That wont happen. Resident family homes do not make any gains, so no need for any tax. If you buy beyond a family home you will be a business, claim expenses, pay tax on the profit, like any business in NZ. Some do that, under the radar and dont pay tax. While this TWG has said that the gains from CGT will go back as tax cuts as its not about extra revenue, they should also include smaller businesses. Off the top of my head, and wage and salary earners and small business up to say 20 employees.

Above, someone said that if your house happens to have over 4500 sq m then you aren't exempt.

Seems both random and unreasonable. Every lifestyle block in NZ would be included.

GV27

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#2185057 21-Feb-2019 21:04

Geektastic:

Above, someone said that if your house happens to have over 4500 sq m then you aren't exempt.

Seems both random and unreasonable. Every lifestyle block in NZ would be included.

Or if you've ever claimed a home office expense for your business.

Or if you've ever had flatmates.

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