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  Reply # 2185162 22-Feb-2019 07:21
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GV27:

 

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. 

 

 

I see two articles on Google search, I'll read them today. More viewpoints the better

 

My idealogical stance is this. We all pay Income Tax. If we feel CGT is appropriate we all pay that, after all, a capital gain is income, just deferred. Therefore we all pay income tax. It does get murky when if you pay income tax via CGT you should claim capital losses. It does cause more tax to the wealthier, and it will drive behaviour, but so does any tax. If we feel its not appropriate we have no CGT at all. That seems fair


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  Reply # 2185165 22-Feb-2019 07:41
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frankv:

 

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?

 

 

 

 

Capital gains are tax free. To be fairer, if CGT is implemented, if the home in the trust is a family home or isnt, it should get treated based on the CGT stance for a family home or non family house IMO. Then there is the issue as to what tax rate, but Trusts tax rate is similar to the average marginal tax rate so probably not too relevant (if the income caused by new CGT is kept in the Trust and taxed in the Trust or is given to beneficiaries and taxed on the beneficiaries tax return)

 

 


 
 
 
 


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  Reply # 2185166 22-Feb-2019 07:51
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tdgeek:

 

frankv:

 

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?

 

 

Capital gains are tax free. To be fairer, if CGT is implemented, if the home in the trust is a family home or isnt, it should get treated based on the CGT stance for a family home or non family house IMO. Then there is the issue as to what tax rate, but Trusts tax rate is similar to the average marginal tax rate so probably not too relevant (if the income caused by new CGT is kept in the Trust and taxed in the Trust or is given to beneficiaries and taxed on the beneficiaries tax return)

 

 

They're only eligible for the family home exemption under Brightline if it's a settlor's home and a main residence of a beneficiary. Otherwise the gain is subject to Brightline rules. 


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  Reply # 2185172 22-Feb-2019 08:20
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GV27:

 

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. 

 

 

Baby boomers would pay less tax, but so does everyone else? So why specifically mention baby boomers?

 

"working age Kiwis and savers" will be subject to CGT, but so are baby boomers, who might also have assets and businesses that attract CGT, probably more so. Savers, whicb is Kiwisavers has always been mentioned that other measures to counter CGT will be brought in to neutralise that

 

 

 

Ironically, this article says the opposite. A CGT would likely have a disproportionate effect on older New Zealanders and baby boomers, who own the vast majority of the assets which would be taxed, under Cullen's proposal.  https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206112

 

 


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  Reply # 2185185 22-Feb-2019 08:51
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tdgeek:

 

Baby boomers would pay less tax, but so does everyone else? So why specifically mention baby boomers?

 

"working age Kiwis and savers" will be subject to CGT, but so are baby boomers, who might also have assets and businesses that attract CGT, probably more so. Savers, whicb is Kiwisavers has always been mentioned that other measures to counter CGT will be brought in to neutralise that

 

Ironically, this article says the opposite. A CGT would likely have a disproportionate effect on older New Zealanders and baby boomers, who own the vast majority of the assets which would be taxed, under Cullen's proposal.  https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206112

 

 

The report doesn't take into effect the loss from tax revenue taken from Kiwisaver that would otherwise compound until you turn 65. But the boomers will pay less tax on their pension. It's a transfer from working people's retirement savings to underwrite a tax cut for pensioners. 

 

Also, who does a tax hit harder: the boomers who have six properties who decide to sell one down to fund their retirement, or the struggling first home owners with a $500k mortgage who received a $100K inheritance. It's effectively regressive in the same way GST is. Remember, you're a rich prick if you earn over $70K. 


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  Reply # 2185190 22-Feb-2019 08:57
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GV27:

 

tdgeek:

 

Baby boomers would pay less tax, but so does everyone else? So why specifically mention baby boomers?

 

"working age Kiwis and savers" will be subject to CGT, but so are baby boomers, who might also have assets and businesses that attract CGT, probably more so. Savers, whicb is Kiwisavers has always been mentioned that other measures to counter CGT will be brought in to neutralise that

 

Ironically, this article says the opposite. A CGT would likely have a disproportionate effect on older New Zealanders and baby boomers, who own the vast majority of the assets which would be taxed, under Cullen's proposal.  https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206112

 

 

The report doesn't take into effect the loss from tax revenue taken from Kiwisaver that would otherwise compound until you turn 65. But the boomers will pay less tax on their pension. It's a transfer from working people's retirement savings to underwrite a tax cut for pensioners. 

 

Also, who does a tax hit harder: the boomers who have six properties who decide to sell one down to fund their retirement, or the struggling first home owners with a $500k mortgage. It's effectively regressive in the same way GST is. Remember, you're a rich prick if you earn over $70K. 

 

 

I thought the Kiwisaver effect was going to be neutralised?

 

I also thought the tax cuts were for everyone? Not just baby boomer pensioners?


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  Reply # 2185192 22-Feb-2019 09:04
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GV27:

 

Also, who does a tax hit harder: the boomers who have six properties who decide to sell one down to fund their retirement, or the struggling first home owners with a $500k mortgage.

 

 

Actually, it will help the struggling first home buyers (although it will be bad for current home owners) because it will take a lot of the speculators, and landlords who currently aim to make profits from capital gains, out of the property market, so house prices will drop. 

 

I guess this means it's bad for boomers who already own real estate, and especially bad for anyone who has bought a house in the last couple of years at a price that has been inflated by speculation. Perhaps the next couple of years will be a particularly good time to buy your own home.

 

 


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  Reply # 2185193 22-Feb-2019 09:07
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frankv:

 

Actually, it will help the struggling first home buyers (although it will be bad for current home owners) because it will take a lot of the speculators, and landlords who currently aim to make profits from capital gains, out of the property market, so house prices will drop. 

 

 

It won't have this affect, the report acknowledges that and so does Robertson.

 

Other changes coming into effect 1 April are more likely to have this effect. This is why the modelling used to illustrate relative marginal tax rates on property are largely already out of date. 

 

The struggling couple already had a mortgage, and already had to pay a record price for their home. Taking money from them is going to hurt more than it will taking it from well-off boomers cashing up. That's the definition of a regressive tax. 


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  Reply # 2185194 22-Feb-2019 09:11
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tdgeek:

 

I thought the Kiwisaver effect was going to be neutralised?

 

 

It is as long as the additional contribution credit you receive is more than the tax paid on any gains. Once the tax paid on the gains is more than the credit, you're going backwards, and due to the compounding nature of Kiwisaver and the lack of inflation adjustment, you will go backwards fast. 

 

I do not believe this cumulative effect is taken into account in the report, only the tax out vs. additional contribution. It has a pretty big effect over 45 years so I'm searching for where it is taken into consideration. I haven't found anything yet. 


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  Reply # 2185196 22-Feb-2019 09:13
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GV27:

 

frankv:

 

Actually, it will help the struggling first home buyers (although it will be bad for current home owners) because it will take a lot of the speculators, and landlords who currently aim to make profits from capital gains, out of the property market, so house prices will drop. 

 

 

It won't have this affect, the report acknowledges that and so does Robertson.

 

Other changes coming into effect 1 April are more likely to have this effect. This is why the modelling used to illustrate relative marginal tax rates on property are largely already out of date. 

 

The struggling couple already had a mortgage, and already had to pay a record price for their home. Taking money from them is going to hurt more than it will taking it from well-off boomers cashing up. That's the definition of a regressive tax. 

 

 

What do you suggest? PAYE is regressive as is GST. CGT is already in place, but its on some things and not others


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  Reply # 2185204 22-Feb-2019 09:22
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tdgeek:

 

What do you suggest? PAYE is regressive as is GST. CGT is already in place, but its on some things and not others

 

 

I am broadly in agreement with the Minority Report, although I would prefer a stamp duty with a variable rate which could also be used to subsidise first home buyers; more surgical, less collateral damage - politically as well. I suspect we'll end up with one of the two. 


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  Reply # 2185221 22-Feb-2019 09:41
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https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12206050

 

Here is an interesting read.  I like many others don't have the expertise of many of the posters and will just have to sit back and wait.  It amuses me that many people go on about this being Cullens pet baby but he was only one of the working group involved and a consensus was reached with some of the group disagreeing. Surely we should being referring to this being a Working Group decision. Just like in the future it wont be a decision taken by only the PM and Grant Robertson. I am sure there will be lots of discussion between now and April and as with any good business or organisation someone will be the spokesperson and but the decision will be a group one. I hope it will be for the benefit of the country


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  Reply # 2185244 22-Feb-2019 09:58
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That's a good article. The bias is stated clearly as everywhere, so its difficult to see real facts.

 

There are entrepreneurs and investors who say it will break everything, and there are entrepreneurs and investors who say it wont. It will hurt startups or it wont. It will be bad for shares, or that shares are not productive

 

Its a topic that is easy to paint a bad, or good picture of.


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  Reply # 2185260 22-Feb-2019 10:26
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tdgeek:

 

Its a topic that is easy to paint a bad, or good picture of.

 

 

If Twitter is any indication of what we're in for, it looks like it's going to marxist class warfare rhetoric vs. sweeping statements about bootstraps and entitled lazy bludgers.


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  Reply # 2185297 22-Feb-2019 11:18
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tdgeek:

 

That's a good article. The bias is stated clearly as everywhere, so its difficult to see real facts.

 

There are entrepreneurs and investors who say it will break everything, and there are entrepreneurs and investors who say it wont. It will hurt startups or it wont. It will be bad for shares, or that shares are not productive

 

Its a topic that is easy to paint a bad, or good picture of.

 

 

Any good tax system should be simple and inescapable.

 

That the proposed CGT system has multiple exemptions from the outset (family home, art, cars, whatever) and will be complicated, it's a failure before it's even off the ground.

 

IMO that's a more relevant criticism than arguing about whether it punitive, regressive, or theoretically effective to address generally agreed issues about home affordability and tax burdens.

 

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.


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