Capital Gains Tax - I wonder if they'll rebate any tax if negative growth?

[The Stranger:Me]

Move some of the tax away from company tax and onto capital gains? Sounds awesome. Do it now.

Less personal tax, less company tax, more GST and capital gains.

GST. Sure, I'm all for increasing the percentage of the tax take from GST as it catches the black market economy in the tax net too.

But lets not forget the real root of this issue. The amount the govt spends. So whilst it may be a good idea to tweak the tax system here and there none of that will help the economy more than reducing govt spending.
Treasury spending serious energy on that one will pay way way bigger dividends.

Plus of course history suggests that as they increase the burden in one area to another they simply forget to reduce the burden in the other area and hello they wind up with a windfall - that we pay for.
Do they ever hand it back? No, they simply spend more.
So be careful what you wish for.

[James Deuce]

"Capital gains" should only be taxed once they are realised as income.

This raises some interesting issues about the taxation treatments applied to superannuation investments.

There's a Tui billboard in there. Probably two.

[James Deuce]

At the risk of agreeing with someone sporting a beard, the idea has some merit, particularly if it results in greater investment in productive export industries.

Oooo look, another Tui billboard.

[vifferman]

I think capital gains tax is a capital idea.
Especially if it targets speculators, greedy developers, and those who use family trusts to avoid paying tax, like my sister-in-law and her husband. Their household income is much higher than ours, yet they pay virtually no tax, courtesy of owning three rental properties that they use to post a loss to offset against their tax.

[The Stranger:Me]

You don't get a hand out from IRD when if your bussiness makes a loss...why would they give you money if your house makes a loss??

I don't understand peoples thinking on this....

You get a tax credit if your business makes a loss (I think) which can be used against future income.
The same principal should apply here, why not? You make a loss on your investment you get a credit to use against your income.

[Flatcap]

At the risk of agreeing with someone sporting a beard, the idea has some merit, particularly if it results in greater investment in productive export industries.

Oooo look, another Tui billboard.

Yes, I shouldn't listen to Beardy-Weirdies

Quite right

[The Stranger:Me]

I think capital gains tax is a capital idea.
Especially if it targets speculators, greedy developers, and those who use family trusts to avoid paying tax,

speculators, greedy developers are already taxed on all of their activities - even on their personal properties.

Damn, my trust has to file tax returns and pay tax on any income. I would be REALLY interested to know how they avoid this - please.

[Brett]

It's a bit late for that. The housing boom is over.

Untill they loosen the immigration control and immigrants come flooding into NZ again, this will bolster auckland at least...

[discotex]

You get a tax credit if your business makes a loss (I think) which can be used against future income.
The same principal should apply here, why not? You make a loss on your investment you get a credit to use against your income.

Absolutely.. IF capital gains are realised on sale then if you make a loss you should be able to offset that loss against your income (in the case of an LAQC).

I don't by your other argument about requiring higher rents blah blah unless capital gains are on unrealised gains (which would be stupid). Landlords who hold onto property for the long term won't be affected very much as the size of the capital gains will more than offset the tax.

You can also exempt the average home owner and single property owner so you don't hurt them. The simple way is to make it a sliding scale so if you sell after 5 years you pay less capital gains tax than someone who sells after 1.

It's really a "sky will fall in" argument against it until there are details of the specifics.

All that said, I'd rather see a "stamp duty" style system rather than capital gains. It could discourage speculation and encourage cashflow positive long-term rentals.

[The Stranger:Me]

Absolutely.. IF capital gains are realised on sale then if you make a loss you should be able to offset that loss against your income (in the case of an LAQC).

I don't by your other argument about requiring higher rents blah blah unless capital gains are on unrealised gains (which would be stupid). Landlords who hold onto property for the long term won't be affected very much as the size of the capital gains will more than offset the tax.

Say what?. They will be affected more as the gain is likely to be higher.

You can also exempt the average home owner and single property owner so you don't hurt them. The simple way is to make it a sliding scale so if you sell after 5 years you pay less capital gains tax than someone who sells after 1.

It's really a "sky will fall in" argument against it until there are details of the specifics.

Hmm "sky will fall in" argument. Well ok, but you are offering ideas as to possible outcomes without knowing the details too of course. So if it's good for you to speculate on the possible situation I feel it is acceptable for me to also.

[smoky]

Brian Fallow is a left wing, soft-cock, who’s lacking in any ability to write without resorting to scaremongering to get attention.
He has a poor understanding of NZ financial systems. There is a difference between a columnist and a reporter and he is not a reporter – important to remember when reading, he’s paid to sensationalise
Then don’t forget the history of our current Treasury Secretary; John Whitehead. He’s a throwback to the Rogernomics era, when he held very senior public service position in Treasury; his bent is toward a free market dictatorship. Which of course is all about the less well off paying for an environment where big investors can get even richer.

John Whitehead and his mates would dearly love to have a ‘broader base’ tax with lower rates. Interpretation; more GST on a wider range of things (including capital gains tax), in the past he’s suggested raising GST to 15%. But Company Income Tax should be reduced.

That means we all pay more for stuff, while our bosses pay less tax “shifting more of the tax base towards consumption”

He raises the red hearing of people leaving NZ to go where taxes are lower – what a crock of shyte – the difference in wages is not about tax, the differential is way bigger than the few % they could hope to reduce our tax by. Of course the extra $ a week from tax cuts will soon disappear for most of us if the GST is increased

The key point around Capital Gains Tax is this; The largest rental home providers in the country is the State, followed by the Mum & Dad investors.
We use them to try build an asset that will subsidise our retirement
The Government encourages this – they know it is largely inflation proof, creates wealth and is sustainable, so they cut us some slack to make it even more affordable.

This doesn’t suit the greedy capitalist who would like to reduce their competition – to quote; “shifting investment incentives, by taxing returns to capital in a more even-handed way”
That means no advantages to private landlords/LAQCs
“…….. capital gains or property taxes would be beneficial for encouraging investment in productive activity………. reduces the impact of tax distortions on investment decisions, thereby improving the allocation of capital in the economy."
That means they would like to remove the incentives for hard working Mums & Dads to invest in real estate, make it less profitable for us, so more of us will invest in investment funds or shares – trust them with our money, because they are ‘productive’.

Most of us see it as investing in risk – and going by the investment companies and industry track records, most of us would rather take a gamble and invest in a second property than risk loosing our live savings in some company that goes bankrupt while their directors are paid fat bonuses and live in luxury

[Naki Rat]

"Capital gains" should only be taxed once they are realised as income.

This raises some interesting issues about the taxation treatments applied to superannuation investments.

Isn't this effectively what the high "Stamp Duty" payable in the course of property transactions in NSW (and probably elsewhere in Aussie) does. That has worked to stop real estate speculation there.... Yeah right!

[vifferman]

Damn, my trust has to file tax returns and pay tax on any income. I would be REALLY interested to know how they avoid this - please.

I'm no accountant (I leave that to the WifeAccountantPorcupinePillionist), but I believe the loan payments they are making on their properties and other costs are effectively higher than their rental income, so the trust is effectively making a loss, offset against the income the trust gets from their salaries. This is just a guess - all I know is that the trust is set up as a loss-making venture, but the nett result is they effectively pay very little tax, are much better off than us - despite having a similar gross household income - and will have four wodges of Auckland property at retirement.

Trust law was originally designed to protect family properties (such as farms, or heritage homes) from potential mortgagee sale or the like, so the beneficiaries of the trust (kids, grandkids, etc.) were protected. Loopholes allow the greedy and unscrupulous to manipulate things so the property in trust, and income directed into the trust, is beyond the reach of the IRD.
Unfortunately, this state of affairs will continue on until there are no longer so many politicians, judges, lawyers, etc taking advantage of it. In other words, indefinitely, or forever, whichever comes first.

For us, integrity and conscience come before the mighty dollar. Sorry kids... you will just have to envy your wealthy cousins...

[Winston001]

John Whitehead and his mates would dearly love to have a ‘broader base’ tax with lower rates. Interpretation; more GST on a wider range of things (including capital gains tax), in the past he’s suggested raising GST to 15%.

The problem is that GST at 15% isn't an easy calculation. To find the GST component in $100 you have to divide by 7.65 and even then that is only approximate. At 12.5% we divide by 9 = exact answer. So moving to 15% might make fiscal sense but opens the door to lots of errors.

“…….. capital gains or property taxes would be beneficial for encouraging investment in productive activity………. reduces the impact of tax distortions on investment decisions, thereby improving the allocation of capital in the economy."

Most of us see it as investing in risk – and going by the investment companies and industry track records, most of us would rather take a gamble and invest in a second property than risk loosing our live savings in some company that goes bankrupt while their directors are paid fat bonuses and live in luxury

Mmmmm.....Yes and No.

As a nation we do not invest in business. Instead we invest in houses. Its worked for generations but only because NZ has generated enough wealth from a narrow sector - farming. That's provided the money for the rest of us to buy stuff.

Ideally mum and dad would invest in a cheese factory or merino wool fabric machine, or something internet based.

But you are right - investment in shares and funds has proven dismal for many Kiwis. In that sense I completely understand the fascination with property - it is solid, low risk, and it can't evaporate like a finance company.

Isn't this effectively what the high "Stamp Duty" payable in the course of property transactions in NSW (and probably elsewhere in Aussie) does. That has worked to stop real estate speculation there.... Yeah right!

Well said. Stamp Duty is a pernicious illogical tax which belongs in the 15th century from which it came.

And capital gains tax has not stopped the property frenzy and crash in Australia. The tax just got factored in to prices, and buyers figured they'd get it back when they sold down the track.

[The Stranger:Me]

I'm no accountant (I leave that to the WifeAccountantPorcupinePillionist), but I believe the loan payments they are making on their properties and other costs are effectively higher than their rental income, so the trust is effectively making a loss, offset against the income the trust gets from their salaries. This is just a guess - all I know is that the trust is set up as a loss-making venture, but the nett result is they effectively pay very little tax, are much better off than us - despite having a similar gross household income - and will have four wodges of Auckland property at retirement.


For us, integrity and conscience come before the mighty dollar. Sorry kids... you will just have to envy your wealthy cousins...

At a guess they are claiming depreciation on the properties, which in many cases allows one to effectively turn any profit into a loss and yes you can claim the "loss" against other income. It should be noted that depreciation is clawed back upon sale, should the property prove to NOT have devalued.
I suspect that the trust is nothing more than a vehicle and not in and of itself responsible for a beneficial tax position. Though there are circumstances where a trust can assist your tax position, I suspect that most can't/don't avail themselves of that benefit. There can be many good reasons to use a trust beyond tax avoidance - which of course is illegal in NZ anyway.

It almost appears you harbour some small malice toward these people. Why?
It appears to me they are only taking prudent action that is available to all of us to provide for their kids and retirement etc.
Indeed I can only conclude that the laws are structured the way they are to encourage this. Were they not who would supply the ever increasing demand to accommodation?

We all have a duty to pay as little tax as necessary - noting again that both tax evasion and avoidance are illegal in NZ.

There will be NO medals at the end for falling on your sword. If you have some equity in your own home there is NOTHING stopping you from using this to purchace a rental property or two.