Capital Gains Tax proposed

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#2185087 21-Feb-2019 21:43

GV27:

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.

Yes, its not described as a Capital Gain, its described as a Profit on Sale of Fixed Asset or similar. After recovering deprecation, there is a profit on the asset. If you have an asset as a Land and Building. Say a building on land :-) [you with me so far? 😎] You don't amortise land, the building, the deprecation is low. You sell it, and like property does, its gone up. You write off the deprecation you have Profit on Sale of an Asset, (after writing back depreciation.)

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#2185090 21-Feb-2019 21:49

GV27:

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?

All 10 are qualified. 3 disagree. Yes , thats relevant, but when others who are Opposition based, agree, thats also very relevant IMHO. The problem with politics is that it involves politics. People are swayed by their party or alignment, less by reality. This 7-3 shows opposite to that as did the polytechnic issue. Thats good to see from whatever side it happens on. What we usually see is one party puts through an obvious bipartisan issue and all agree, these issues are not that, so yes, I do add weight to what many National people agreed with.

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#2185092 21-Feb-2019 21:53

GV27:

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.

The article I refered to was the long list of MPs; who have major assets, liable for CGT. Including Peters.

30% isn't being taken away from wealthy people. 30% of tax free earnings is. I except the poor people, already paid their tax, low as it was.

"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." What is that exactly? If 30% is being taken away that is because of income?

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#2185093 21-Feb-2019 21:56

Bluntj:

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.

No. Its a home, not an investment I assume, going by a 25 year mortgage. There wont be a profit statement, as its not a business or a rental I expect.

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#2185094 21-Feb-2019 22:00

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.

I dont think that the 10 involved made random decisions. I want there, but I doubt dice were involved.

House over 4500 sqm?Im not up to speed on that. That a slightly large house. For a family home. Couple. 2.1 kids and a dog. Even 2 dogs! :-)

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#2185098 21-Feb-2019 22:12

KrazyKid:

The working group have got back and the report has been published.

Interested in the views here, especially as several here own their own business.

In short it seems to be:

excluding Family Home and assets like cars
Including sale of investment and holiday houses
Including sale of shares
Including sales of a business/company
Assets are valued at time of implementation of the tax and any gains are taxed from that time on upon sale
Initial partial offset with smallish (~$10/wk) broad-based tax reduction via moving a lower tax threshold up
Excluded from tax if passing on capital as part of inheritance (death duties) or during divorce - but family farms value is not reset if sold on later (so not sure yet exactly how that works in all cases)
Also thrown into the mix are changes/more environmental tax (eg land fill/ carbon tax), reducing tax on some super contributions and a few other things

Overall I think a capital gains tax is fair, why should someone get taxed when the invest by putting money in the bank, yet avoid tax if the invest in property or shares.

If CGT is proposed, it becomes an election "all-in" poker bet.

CGT is not due to take effect until after the next election.

So if it passes, then you have the next General Elections being the GE of CreGxiT - yes vs no.

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#2185099 21-Feb-2019 22:12

darylblake:

It discourages investment. Not only in shares but in investment property as well.

At the end of the day it's just another new tax that will go on and probably never come off. Because the government believe the public sector can spend your money better than you can.

I dont think a CGT will discourage people from investing at all.

Income tax doesn't seem to stop people from working.

As far as the oft repeated line that follows, NZers have said they want better services. If thats the case we need to pay for them.

Most of the posters in this thread are just like chimpanzees on MDMA, full of feelings of bonhomie, joy, and optimism. Fred99 8/4/21

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#2185103 21-Feb-2019 22:20

elpenguino:

darylblake:

It discourages investment. Not only in shares but in investment property as well.

At the end of the day it's just another new tax that will go on and probably never come off. Because the government believe the public sector can spend your money better than you can.

I dont think a CGT will discourage people from investing at all.

Income tax doesn't seem to stop people from working.

As far as the oft repeated line that follows, NZers have said they want better services. If thats the case we need to pay for them.

Agree but CGT wont pay for any services. Its essentially Income Tax that is currently tax free, so when its collected it goes back to us the taxpayers as now someone else is paying the rest of their share so we can pay a little less. That was always the goal by the Coalition, its not a tax grab

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#2185110 21-Feb-2019 22:56

tdgeek:
Yes, its not described as a Capital Gain, its described as a Profit on Sale of Fixed Asset or similar. After recovering deprecation, there is a profit on the asset. If you have an asset as a Land and Building. Say a building on land :-) [you with me so far? 😎] You don't amortise land, the building, the deprecation is low. You sell it, and like property does, its gone up. You write off the deprecation you have Profit on Sale of an Asset, (after writing back depreciation.)

You specifically used figures that would not result in a capital gain. I am well aware of how this works.

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#2185111 21-Feb-2019 23:02

GV27:
tdgeek:

Yes, its not described as a Capital Gain, its described as a Profit on Sale of Fixed Asset or similar. After recovering deprecation, there is a profit on the asset. If you have an asset as a Land and Building. Say a building on land :-) [you with me so far? 😎] You don't amortise land, the building, the deprecation is low. You sell it, and like property does, its gone up. You write off the deprecation you have Profit on Sale of an Asset, (after writing back depreciation.)

You specifically used figures that would not result in a capital gain. I am well aware of how this works.

Ok, if the car was sold at a higher figure than purchased for, same half year, so no FA schedule compiled, it would still be a profit on sale of a fixed asset. It would also be a capital gain. My point is that both are a gain on the capital value of an asset. In the depreciated version net capital value/net book value

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#2185112 21-Feb-2019 23:13

Recovered depreciation does not hit the capital reserve account. It goes through the P&L as income. The gain over and above the original purchase price is the capital gain, which isn't booked to the P&L. Companies don't pay tax on this.

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#2185118 21-Feb-2019 23:33

GV27: Recovered depreciation does not hit the capital reserve account. It goes through the P&L as income. The gain over and above the original purchase price is the capital gain, which isn't booked to the P&L. Companies don't pay tax on this.

You are right, my error.

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#2185157 22-Feb-2019 06:54

tripp:

There would be a lot more truck drivers :P

And that's the point of the change to the CGT. Because there's effectively no tax on gains made from buying and selling properties, this encourages many people to invest in buying and selling properties. This encourages speculation, which pushes up the price of properties that other people would want to live in. Worse still, it encourages investment in existing properties, because that's way easier than building new ones, so it doesn't even increase the number of houses out there for people to live in. They just change hands.

So now we have too many truck drivers, and most of those truck drivers are just driving around in circles not carrying anything anywhere, but instead adding to congestion and pollution.

These changes are designed to make being a truck driver driving around in useless circles much less attractive. It won't make house prices crash overnight - nor would we want it to - but in the long run it will nudge the money into more economically beneficial investments. Now your man in the Herald with 80 investment properties actually isn't going to be affected that much. That type of investor buys a house and holds onto it for the long term. He's not paying a huge tax bill every year: he only pays if he sells a house. But the investor who buys a house, holds it for 6 months, and then expects to sell it again for a $100K profit: they are going to be discouraged, and that's a good thing for society as a whole.

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#2185158 22-Feb-2019 06:56

tdgeek:

GV27: Recovered depreciation does not hit the capital reserve account. It goes through the P&L as income. The gain over and above the original purchase price is the capital gain, which isn't booked to the P&L. Companies don't pay tax on this.

You are right, my error.

All good.

Hooten has taken an interesting approach: he's arguing this is a transfer from working age Kiwis and savers to the baby boomers, who still get to continue to draw down state pensions but pay less tax on them.

I really hate agreeing with him but he's kind of right. This isn't actually righting any inter-generational issues at all; it's kind of entrenching them.

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#2185159 22-Feb-2019 07:04

I wonder what happens to capital gain by trusts? If a trust owns a house and sells it making a capital gain, does tax get paid on that?

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