Capital Gains Tax proposed

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#2185299 22-Feb-2019 11:30

I don't feel exemptions are an issue as long as there are not 2145 of them with multi layer conditions. 1 rule, EVERY CG applies, then list exemptions. Any particular sector will just have a few I would expect

GV27

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#2185302 22-Feb-2019 11:33

Fred99:

IMO, Gareth Morgan probably had the right idea about tax, recognising that wealth inequality is a bigger long-term issue than income inequality, as with wealth inequality it compounds over generations. If meritocracy actually existed and was fostered, then breaking free from relative poverty should happen routinely. So to prevent the inevitable outcome (a few overlords ruling landless servile peasants) you tax wealth rather than income. Despite being correct (IMO) that idea wasn't popular with anybody at all.

There was a reason for that: Telling little old ladies in a two bedroom unit they had to stump up the cash for an imputed rent each year because they were deriving a benefit from owning a house and not paying rent was going to go down like a cup of cold sick. It also papered over the massive compliance costs involved, but economists usually don't care about things like that.

tdgeek

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#2185308 22-Feb-2019 11:40

Apparently a small business owner said he would shut up shop and invest in his house instead. What a stupid thing to say

Fred99

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#2185309 22-Feb-2019 11:41

GV27:

Fred99:

IMO, Gareth Morgan probably had the right idea about tax, recognising that wealth inequality is a bigger long-term issue than income inequality, as with wealth inequality it compounds over generations. If meritocracy actually existed and was fostered, then breaking free from relative poverty should happen routinely. So to prevent the inevitable outcome (a few overlords ruling landless servile peasants) you tax wealth rather than income. Despite being correct (IMO) that idea wasn't popular with anybody at all.

There was a reason for that: Telling little old ladies in a two bedroom unit they had to stump up the cash for an imputed rent each year because they were deriving a benefit from owning a house and not paying rent was going to go down like a cup of cold sick. It also papered over the massive compliance costs involved, but economists usually don't care about things like that.

I don't disagree, but surely an "exemption" could have been made just like the proposed exemptions for CGT, rendering it of course as being just as close to useless as CGT will prove to be.

Another alternative would be to increase GST significantly, eliminate income taxes / business tax completely, and pay everybody a UBI.

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#2185312 22-Feb-2019 11:48

Fred99:

I don't disagree, but surely an "exemption" could have been made just like the proposed exemptions for CGT, rendering it of course as being just as close to useless as CGT will prove to be.

Another alternative would be to increase GST significantly, eliminate income taxes / business tax completely, and pay everybody a UBI.

If CGT will be useless, remove ALL of it. Or tax all of it, with some exemptions

Your alternative is interesting. Not sure a UBI needs to be part of it though, or why you mentioned it

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#2185316 22-Feb-2019 11:59

Fred99:

and pay everybody a UBI.

We already do to a large degree. WFFTC and the minimum wage. If GST was the only tax, WFFTC would just need to be adjusted to allow for distortions for lower income people when the extra GST exceeds the low amount of tax they are saving.

GV27

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#2185345 22-Feb-2019 12:23

tdgeek:

Apparently a small business owner said he would shut up shop and invest in his house instead. What a stupid thing to say

He will be taxed on the sale of his business and the sale of his house if he has claimed a home office expense.

If he just renovates the absolute hell out of his family home, he doesn't pay any Capital Gains tax at all.

This is the mansion effect at work.

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tdgeek

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#2185354 22-Feb-2019 12:38

GV27:

tdgeek:

Apparently a small business owner said he would shut up shop and invest in his house instead. What a stupid thing to say

He will be taxed on the sale of his business and the sale of his house if he has claimed a home office expense.

If he just renovates the absolute hell out of his family home, he doesn't pay any Capital Gains tax at all.

This is the mansion effect at work.

If he runs his business he earns a good income. If he dumps it and invests in his house he does'nt earn an income. You can't spend 100k on a house every year to fancy it up to add another 100k in value. And no cashflow, until he sells. if he did this once a year, won't he will be pinged for being a trader in the business of selling houses?. From what I recall its about intention

Isn't the home office expenses issue, based on the floor area if he claims expenses? As that's his business not his house, whicb is the intention of CGT, exclude the house

wsnz

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#2185358 22-Feb-2019 12:42

tdgeek:

If he runs his business he earns a good income.

Not to derail the CGT discussion, the statement above appears to the be supposition of most. Everyone I know that is involved in non-chain store retail, is paying their staff far more than themselves as the industry is of marginal profitability even now.

The follow up statement is usually “well, they shouldn’t be in business then”, but then a large proportion of retailers would cease to exist.

wsnz

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#2185359 22-Feb-2019 12:44

GV27:

He will be taxed on the sale of his business and the sale of his house if he has claimed a home office expense.

I haven't had a chance to fully read the proposal (just the summary) so is that stipulated in it? If so that would capture the vast majority of small business owners, effectively applying CGT to a large number of family homes.

GV27

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#2185361 22-Feb-2019 12:48

tdgeek:

If he runs his business he earns a good income. If he dumps it and invests in his house he does'nt earn an income. You can't spend 100k on a house every year to fancy it up to add another 100k in value. And no cashflow, until he sells. if he did this once a year, won't he will be pinged for being a trader in the business of selling houses?. From what I recall its about intention

Isn't the home office expenses issue, based on the floor area if he claims expenses? As that's his business not his house, whicb is the intention of CGT, exclude the house

The home office provision overrides the family home exemption.

The cashflow issue is resolved by getting a salaried job. If the business risk and time involved is no longer worth it given his disposal proceeds have to work 33% harder upon sale before retirement, then why be in business?

Then just pour all your money into developing your home, move every five or so years into a bigger and better place. Pay almost nothing into your Kiwisaver while you're at it, because eventually you'll downsize into a small apartment and you've booked 20 years of untaxed capital gains to finance your retirement.

GV27

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#2185362 22-Feb-2019 12:48

wsnz:

GV27:

He will be taxed on the sale of his business and the sale of his house if he has claimed a home office expense.

I haven't had a chance to fully read the proposal (just the summary) so is that stipulated in it? If so that would capture the vast majority of small business owners, effectively applying CGT to a large number of family homes.

As well as the sale of their business. It's not either/or.

wsnz

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#2185363 22-Feb-2019 12:49

tdgeek:

I don't feel exemptions are an issue as long as there are not 2145 of them with multi layer conditions. 1 rule, EVERY CG applies, then list exemptions. Any particular sector will just have a few I would expect

That is until legal precedents are set by corporates and groups of tax payers effected by CGT. These could significantly complicate the tax system further. That's not necessarily an argument to not implement a CGT, but if any party things this will create a simple easy to administer system, they are wrong.

tdgeek

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#2185364 22-Feb-2019 12:49

wsnz:

tdgeek:

If he runs his business he earns a good income.

Not to derail the CGT discussion, the statement above appears to the be supposition of most. Everyone I know that is involved in non-chain store retail, is paying their staff far more than themselves as the industry is of marginal profitability even now.

The follow up statement is usually “well, they shouldn’t be in business then”, but then a large proportion of retailers would cease to exist.

I did wonder if I should put good income, you are right on that, many do though, but not all. Sell up, get a job, earn interest, no risk for earning more money. Years ago my local shopkeeper and I had that discussion when I asked him how was the business going. Couple of years later they built a supermarket literally over the road, unlucky.

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#2185366 22-Feb-2019 12:54

GV27:

The home office provision overrides the family home exemption.

If he business floor area is 8%, you are taxed on the capital gain of the entire home?

"The rules get more complicated for people who work from a home office.

They would be able to claim an exemption on any gain in the value of that home, like other home owners. But they would then no longer be allowed to deduct any costs related to their property, such as rates or mortgage payments, from their taxable income.

Alternatively they could choose to keep those deductions, but pay tax on any capital gain on the proportion of the home that they used for business, when they sold it."

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