Capital Gains vs Interest deductibility

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Eitsop

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#304688 28-May-2023 17:13

The Govt trying to get some sort of control of housing market

extended the bright line test (which national introduced)
removed interest deductibility

it is a messy alternative to not introducing a "capital gains tax"..

It would be cleaner to have

left interest as deductible
removed brightline test
introduce capital gains calculated every year, based on market estimates, so capital gains were paid every year.
and if the property is sold.. then the true capital gains can be calculated.
capital loss's could only be applied either for properties that are brought from now onwards.. or if lower than the original purchase price.

Full disclosure. I am left leaning.. own my own house, I have no mortgage.. I have no rental properties..

I just wanting to see a country where everyone can afford to buy a house and live a reasonable life, not work 60 hours a week, not seeing family kids to barely make ends meet.

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#3080522 29-May-2023 06:05

No, there is no moral case for interest deductibility when an owner-occupier is going to use that house in exactly the same way, but would not get the benefit of any form of relief on the interest costs.

sir1963

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#3083169 1-Jun-2023 10:06

GV27:

No, there is no moral case for interest deductibility when an owner-occupier is going to use that house in exactly the same way, but would not get the benefit of any form of relief on the interest costs.

But they are NOT using it the same way, one is using it as a business, one is not.

Businesses tax deduct their vehicles, depreciated them, claim interest on them, claim expenses on them , everyone else can't , and superficially these are used for the same purposes

I use my lawn more the same way a lawn mowing business does.

If I get a tradie in to fix stuff, that is exactly the same as any business who gets tradies in to fix stuff

Businesses who buy petrol as the end user, they still get to claim the GST back, no one else can

Tradies who have home offices get to deduct up to 5% of their home mortgage interest, rates, insurance, internet, etc etc etc

By using the tax system to punish people who you do not like is a dangerous path to go down.

For example ( and I will fight anyone who thinks these are a good ideas, because there will be some who do think that way, these idea are abhorrent, but various political groups already believe these things)

Christian religions are tax free, all other religions are fake and therefore are not tax free. Some will go so far as to say only some christians are REAL, the rest are fake.

LGBTQ people are an affront to god, so we can punish them via taxes too and allow others to discriminate

Make Maori pay more tax as they commit more crime

There are taxes to discourage certain things, alcohol taxes, tobacco taxes, but in these cases we tax the product not the business.

We do not tax car yard owners more, nor vape shops, nor businesses that sell unhealthy foods, nor "health shops" that sell unproven treatments.

ONE solution to housing could have been loans limited to 70% (for investors) - 90% for FHB, of the last property RV used for rates, getting a new RV is irrelevant, it is the one from year X that counts. New Houses will have new RVs.

Apply this to ALL property, each increase makes it harder and harder to buy/sell, pegging it to the past. Even keep that peg for 10 years, it will act as a serious brake. Yet ALL buyers and sellers are treated the same.

Enforce laws so that deliberate property damage is treated as a criminal offence , that will reduce risk and lower rents

Get the government to pay damage costs, they can deduct it out of wages/benefits to reclaim it, reduces risk and will reduce rent

All rents to be direct debited from wages/benefits , ensures rent is paid, reduces risk which reduces rents

Bring in a poll tax, everyone over 18 pays, so a property with 8 people in it pays more than a property with 1 person it it because they use more rates based resources. This will reduce rates, reduce costs, reduce rents.

Make it a requirement that ALL homes are compliant with healthy homes standards. Kids health does not depend on who owns the property.

I am sure there are other means too that do not involve ideological beatings of just sections of people.

mudguard

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#3083248 1-Jun-2023 13:08

sir1963:

Bring in a poll tax, everyone over 18 pays, so a property with 8 people in it pays more than a property with 1 person it it because they use more rates based resources. This will reduce rates, reduce costs, reduce rents.

Would this be in place of local rates? I'm not sure how feasible this would be. Sounds like it would probably hit big families the hardest, who probably aren't the most wealthy to begin with. It reminds me a little of wealth issue Gareth Morgan brought up in his book.

Take two widows, both on their own four bedroom homes. Both get NZ Super. One lives in Devonport and one lives in Invercargill. On paper one is considerably wealthy than the other yet they both get the same amount from universal super. I mean that's the way it is, it's brilliantly simple. Very little bureaucracy involved.

But also we have the population of Blenheim (30,000) earning over $100k and getting super.
There are nearly 3000 superannuitants earning over $300,000pa.

Coming back to your original point, how feasible is it for someone to rent their own home as a business? Is it even possible?

sir1963

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#3083255 1-Jun-2023 13:20

mudguard:

sir1963:

Bring in a poll tax, everyone over 18 pays, so a property with 8 people in it pays more than a property with 1 person it it because they use more rates based resources. This will reduce rates, reduce costs, reduce rents.

Would this be in place of local rates? I'm not sure how feasible this would be. Sounds like it would probably hit big families the hardest, who probably aren't the most wealthy to begin with. It reminds me a little of wealth issue Gareth Morgan brought up in his book.

Take two widows, both on their own four bedroom homes. Both get NZ Super. One lives in Devonport and one lives in Invercargill. On paper one is considerably wealthy than the other yet they both get the same amount from universal super. I mean that's the way it is, it's brilliantly simple. Very little bureaucracy involved.

But also we have the population of Blenheim (30,000) earning over $100k and getting super.
There are nearly 3000 superannuitants earning over $300,000pa.

Coming back to your original point, how feasible is it for someone to rent their own home as a business? Is it even possible?

IRD would not have a bar of it. They look at the intent. Just as likely they would say it should come under "Perk Tax" and you pay 60%.

Personally I think the legal fees would make the whole thing an own goal.

a) Over 18, you have 6 kids under 18 its irrelevant

b) Fixed rate no matter where you live, collected as part of PAYE taxes

c) Local rates will be smaller, reality is it costs more per head of population for water in small towns than it does in big cities, same with other council services.

d) Local councils will need to be able to justify the increases so "well we paid $500k for a concrete triangle that is ART" can not be justified, but 500K for more library boos can be.

e) councils will have a "budget" that they need to live within. My rates for example went up by 50% last year because they chose to shift from capital value to land value, ie anyone with a full section got screwed. bye people on small sections with million dollar houses go a reduction.

GV27

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#3083263 1-Jun-2023 13:47

sir1963:

GV27:

No, there is no moral case for interest deductibility when an owner-occupier is going to use that house in exactly the same way, but would not get the benefit of any form of relief on the interest costs.

But they are NOT using it the same way, one is using it as a business, one is not.

Businesses tax deduct their vehicles, depreciated them, claim interest on them, claim expenses on them , everyone else can't , and superficially these are used for the same purposes

Most businesses do not have a single asset, that is never cashflow positive, yields below retail TD rates and then ceases when said asset is sold for a totally coincidental and absolutely not the point of the exercise capital gain that used to get pocked tax-free.

"Superficially" doesn't cut it in a country where supply constraints have pushed affordable housing out of reach for many - I think you'll find many businesses only get to carry on so long before they have to account for their externalities that they push onto the rest of society, either through tax or through loss of social license.

mudguard

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#3083265 1-Jun-2023 14:00

sir1963:

a) Over 18, you have 6 kids under 18 its irrelevant

b) Fixed rate no matter where you live, collected as part of PAYE taxes

c) Local rates will be smaller, reality is it costs more per head of population for water in small towns than it does in big cities, same with other council services.

d) Local councils will need to be able to justify the increases so "well we paid $500k for a concrete triangle that is ART" can not be justified, but 500K for more library boos can be.

e) councils will have a "budget" that they need to live within. My rates for example went up by 50% last year because they chose to shift from capital value to land value, ie anyone with a full section got screwed. bye people on small sections with million dollar houses go a reduction.

Sheesh, PAYE earners get whacked again. Imagine being a student. Come out of university, 10% student loan repayments, 3% kiwisaver, earn next to minimum wage, then a poll tax on top to live with probably 6 others in a cramped house, whilst the landlord takes the rent and has a massive rates reduction.

Guess the young will have kids in their forties.

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sir1963

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#3083268 1-Jun-2023 14:12

GV27:

Most businesses do not have a single asset, that is never cashflow positive, yields below retail TD rates and then ceases when said asset is sold for a totally coincidental and absolutely not the point of the exercise capital gain that used to get pocked tax-free.

"Superficially" doesn't cut it in a country where supply constraints have pushed affordable housing out of reach for many - I think you'll find many businesses only get to carry on so long before they have to account for their externalities that they push onto the rest of society, either through tax or through loss of social license.

I have multiple properties that are cash flow positive.

No business pays CGT, so even if you owned a super market that was started for $1 Million and got sold for $10 million, there is no capital gains tax paid.

I do pay tax , I also pay ACC on those profits. I actually pay higher taxes because they are not set up within a company structure. I could do this and save money I guess, Business tax is 28%

Other businesses (eg commercial property) gets to claim depreciation, I dont.

Owner occupied houses do not need to meet health homes standards, rental do

The cash return over the last few years have been way higher than term deposit rates.

I do pay higher mortgage rates for the rentals than I do on the home we occupy

I do pay higher insurance for the rentals

There is a social need for rental housing that the government can not supply.

School leavers

Separated families

disaster options (ie earthquakes, floods) when their home is made unliveable

Immigrants, Refugees

Tertiary Students

Temporary workers, ie staff on secondment for 12 months, construction jobs, fixed term jobs.

Families with special requirements, ie disabilities, large families, live close to family for support , etc

Being able to change your housing requirements as your needs change (children, down sizing, etc)

Short term housing

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#3083270 1-Jun-2023 14:15

sir1963:

I have multiple properties that are cash flow positive.

No business pays CGT, so even if you owned a super market that was started for $1 Million and got sold for $10 million, there is no capital gains tax paid.

Yes there is, the $10m becomes part of their taxable revenue. It's not explicitly called Capital Gains Tax, but it's the net effect. You are being very dishonest in a lot of your arguments.

sir1963

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#3083272 1-Jun-2023 14:25

Kyanar:

sir1963:

I have multiple properties that are cash flow positive.

No business pays CGT, so even if you owned a super market that was started for $1 Million and got sold for $10 million, there is no capital gains tax paid.

Yes there is, the $10m becomes part of their taxable revenue. It's not explicitly called Capital Gains Tax, but it's the net effect. You are being very dishonest in a lot of your arguments.

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/buying-or-selling-a-business/tax-on-asset-sales

sir1963

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#3083277 1-Jun-2023 14:34

mudguard:

Sheesh, PAYE earners get whacked again. Imagine being a student. Come out of university, 10% student loan repayments, 3% kiwisaver, earn next to minimum wage, then a poll tax on top to live with probably 6 others in a cramped house, whilst the landlord takes the rent and has a massive rates reduction.

Guess the young will have kids in their forties.

Sheesh...people who can not have families still pay for education, health, etc etc etc for people who do/can have families.

Imagine though customers being forced to pay extra so the employer can put in the same amount as the employee, and then that employee gets a tax deduction. NICE 100% increase there.

Imagine someone like David Seymour who flats with other people and that household contributes no more than any other household.

Imagine 6 adults who use far more resources than a family of 6, have greater household income than a family of 6, not having to contribute more. Talk about shafting young families.

As a whole University students do not earn minimum wages, look at how much teachers and nurses get along with IT and engineers etc etc etc.

sir1963

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#3083281 1-Jun-2023 14:36

mudguard:

sir1963:

Bring in a poll tax, everyone over 18 pays, so a property with 8 people in it pays more than a property with 1 person it it because they use more rates based resources. This will reduce rates, reduce costs, reduce rents.

Would this be in place of local rates? I'm not sure how feasible this would be. Sounds like it would probably hit big families the hardest, who probably aren't the most wealthy to begin with. It reminds me a little of wealth issue Gareth Morgan brought up in his book.

Take two widows, both on their own four bedroom homes. Both get NZ Super. One lives in Devonport and one lives in Invercargill. On paper one is considerably wealthy than the other yet they both get the same amount from universal super. I mean that's the way it is, it's brilliantly simple. Very little bureaucracy involved.

But also we have the population of Blenheim (30,000) earning over $100k and getting super.
There are nearly 3000 superannuitants earning over $300,000pa.

Coming back to your original point, how feasible is it for someone to rent their own home as a business? Is it even possible?

And those 3000 supernatant are also paying tax on that income.

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Kyanar

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#3083286 1-Jun-2023 14:38

sir1963:

https://www.ird.govt.nz/income-tax/income-tax-for-businesses-and-organisations/buying-or-selling-a-business/tax-on-asset-sales

Let's see.

If these assets are sold above their tax book value, then the seller must include the excess depreciation deductions they claimed previously as income in their tax return.

Ok, so the income from a sale of a depreciated asset needs to be recognised as income and tax paid. Alright, next.

Any part of the business sale price that relates to trading stock is taxable

Ok so everything the business has for sale or hire is taxable.

Any profits from the sale of commercial or residential land and buildings are income

Ok, so the dirt, sticks and bricks are taxable.

In fact the only thing I can find that isn't taxable, is "goodwill". And that's only if the "goodwill" is based on the reputation of the business. If it's based on location it's taxable.

You basically just proved yourself wrong.

mudguard

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#3083290 1-Jun-2023 14:46

sir1963:

]Sheesh...people who can not have families still pay for education, health, etc etc etc for people who do/can have families.

Imagine though customers being forced to pay extra so the employer can put in the same amount as the employee, and then that employee gets a tax deduction. NICE 100% increase there.

Imagine someone like David Seymour who flats with other people and that household contributes no more than any other household.

Imagine 6 adults who use far more resources than a family of 6, have greater household income than a family of 6, not having to contribute more. Talk about shafting young families.

As a whole University students do not earn minimum wages, look at how much teachers and nurses get along with IT and engineers etc etc etc.

Presumably a household of six renters is contributing a lot more PAYE than the home owing retiree? I would assume most rates are incorporated into rents. Yes I'm sure some kind hearted landlords probably cop it. But plenty won't.

I guess we could look at it two ways. I looked up Nelson. 50,000 odd people, about 10,000 under 18. Rates were $95 million, so you'd bill everyone over 18 that as part of their PAYE. That was $2375 pa. Remove property rates altogether. Now dispersing it would be interesting, as you said it didn't matter where the individual lived.

So how do you divvy it up around the country. And how dramatically different is that to how PAYE is spent now?

Maybe while we are going down this track, take the PAYE income total for the country, and just divide it by the population over 18? Is that very different from moving rates from property to individuals?

sir1963

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#3083339 1-Jun-2023 15:05

mudguard:

sir1963:

]Sheesh...people who can not have families still pay for education, health, etc etc etc for people who do/can have families.

Imagine though customers being forced to pay extra so the employer can put in the same amount as the employee, and then that employee gets a tax deduction. NICE 100% increase there.

Imagine someone like David Seymour who flats with other people and that household contributes no more than any other household.

Imagine 6 adults who use far more resources than a family of 6, have greater household income than a family of 6, not having to contribute more. Talk about shafting young families.

As a whole University students do not earn minimum wages, look at how much teachers and nurses get along with IT and engineers etc etc etc.

Presumably a household of six renters is contributing a lot more PAYE than the home owing retiree? I would assume most rates are incorporated into rents. Yes I'm sure some kind hearted landlords probably cop it. But plenty won't.

I guess we could look at it two ways. I looked up Nelson. 50,000 odd people, about 10,000 under 18. Rates were $95 million, so you'd bill everyone over 18 that as part of their PAYE. That was $2375 pa. Remove property rates altogether. Now dispersing it would be interesting, as you said it didn't matter where the individual lived.

So how do you divvy it up around the country. And how dramatically different is that to how PAYE is spent now?

Maybe while we are going down this track, take the PAYE income total for the country, and just divide it by the population over 18? Is that very different from moving rates from property to individuals?

PAYE does not pay rates.

I did not say remove rates all together, I said everyone over 18 contributes. Home owners, businesses, etc etc etc all still pay rates

It gets divided up based on how many people pay the poll tax in your area.

Is it fair that 6 high paying adults who use more water, sewerage, etc, make more use of sports fields and other ammenities only pay the same things as the retired person next door ?

It could be as low as $50-$100 a year, I am not talking thousands a year.

This would be great for places that do not have water meters for example in that high use properties with adults would actually contribute more but not impact young families.

All SENSIBLE stuff, not histrionics .

mudguard

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#3083372 1-Jun-2023 16:28

sir1963:

All SENSIBLE stuff, not histrionics .

Well I can't help with that. But shifting the rates income from property to individuals is a pretty big shift.

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