Mitigating the effects of a potential new capital gains tax

[Beagle]

http://www.sharechat.co.nz/article/7b64b584/tax-working-group-proposes-wider-scope-for-taxing-capital-gains.html?utm_medium=email&utm_campaign=Tax%20Working%20Group%20proposes%20wi der%20scope%20for%20taxing%20capital%20gains&utm_content=Tax%20Working%20Group%20proposes%20wid er%20scope%20for%20taxing%20capital%20gains+CID_64 1dc9810c7f57d5a376ebffb8b979ae&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticle7b64b584tax-working-group-proposes-wider-scope-for-taxing-capital-gainshtml

It looks like the goal posts could be moved in the foreseeable future.
Very good to see they are NOT recommending changing the imputation scheme as that would have been a huge blow to the market.
So...this begs the question of how to mitigate the effects of any new capital gains tax on shares ?
What springs to mind immediately is Percy's favorite of finding good quality companies that will pay ever increasing dividends and hold them indefinitely.
Well worth noting that the interim Tax working group report does not recommend taxing unrealized profits.
So buy high quality companies with a sound dividend yield that will grow earnings and dividends very nicely over time and never sell. OCA springs readily to mind.

[couta1]

http://www.sharechat.co.nz/article/7b64b584/tax-working-group-proposes-wider-scope-for-taxing-capital-gains.html?utm_medium=email&utm_campaign=Tax%20Working%20Group%20proposes%20wi der%20scope%20for%20taxing%20capital%20gains&utm_content=Tax%20Working%20Group%20proposes%20wid er%20scope%20for%20taxing%20capital%20gains+CID_64 1dc9810c7f57d5a376ebffb8b979ae&utm_source=Email%20marketing%20software&utm_term=httpwwwsharechatconzarticle7b64b584tax-working-group-proposes-wider-scope-for-taxing-capital-gainshtml

It looks like the goal posts could be moved in the foreseeable future.
Very good to see they are NOT recommending changing the imputation scheme as that would have been a huge blow to the market.
So...this begs the question of how to mitigate the effects of any new capital gains tax on shares ?
What springs to mind immediately is Percy's favorite of finding good quality companies that will pay ever increasing dividends and hold them indefinitely.
Well worth noting that the interim Tax working group report does not recommend taxing unrealized profits.
So buy high quality companies with a sound dividend yield that will grow earnings and dividends very nicely over time and never sell. OCA springs readily to mind.Or sell every gain you have before it comes into effect.:D

[Beagle]

Or sell every gain you have before it comes into effect.:D
I'm getting out of HLG now before you destroy the price and Couterise me :p

[Patient Panda]

Yes Beagle the strategy You outlined favoured by Percy and many others is the same one espoused by Warren Buffet :). Will certainly encourage a longer term view for many.

overall I would not be upset about a CGT so long as it applies to everything equally similar to how gst operates. However I would be extremely annoyed if they do actually ring fence the family home. You could not get any worse policy than that.

[mondograss]

Past CGT proposals have included a "valuation day" whereby gains are recorded only from that day onwards. So if that's the case there's no need to worry about gains you have right now.

[Beagle]

Yes Beagle the strategy You outlined favoured by Percy and many others is the same one espoused by Warren Buffet :). Will certainly encourage a longer term view for many.

overall I would not be upset about a CGT so long as it applies to everything equally similar to how gst operates. However I would be extremely annoyed if they do actually ring fence the family home. You could not get any worse policy than that.

Yep, just finished backing up the truck and cleaned out the remaining shares of offer at $1.19 in OCA. Compelling fundamental's and long term growth story.

[couta1]

CGT would be set at a lower rate than most of the current marginal tax rates so wouldn't make any difference to traders, just means everyone else starts paying an extra tax somewhere along the line.

[Well Endowed]

it would probably be bad news for the NZX, one of the popular advantages to mum and dad investor types is the lack of capital gains tax. Throw that in the mix and I think personally we'd see a sizeable asset re-allocation back into less complex asset type.

[winner69]

Even the Percys of the world will be worse off ...even though he holds for increasing dividends he does sell things quite often (when things slow down) and it appears he would have to pay tax on any share price gains.

[Rep]

At the end of the day, it will be a political decision.

Mainly because of two things:

One - it will be hard for the electorate to accept a CGT without an exemption for the principal place of residence (i.e. family home) even though this is part of a number of factors affecting housing affordability (including amongst others - cheap interest rates driving up asset prices, relative shortage of units particularly in Auckland).

Two - currently PIEs don't pay taxes on capital gains on locally listed shares and large Australian ones, start taxing these capital gains then there will be a lot of ordinary New Zealanders who are going to see their after tax returns on their kiwisavers take a hit or dissuade them from making further contributions. If they do leave the exemption for PIEs then the CGT on equities is going to be avoided by investing in PIEs rather than directly (although you could see special PIEs that only say invest in a particular share instead) and the managed funds are going to be pumping their fists.

Changing the rules on the tax status of Kiwisaver returns is going to be met with suspicion and derision.

Watch this one get parked.

[minimoke]

Yep, just finished backing up the truck and cleaned out the remaining shares of offer at $1.19 in OCA. Compelling fundamental's and long term growth story.Good onya for clearing that level. Next step $1.20

[Jonboyz]

Might be time to start getting into investing in fine art and collectables. Apparently, fine wines can be quite lucrative.

[traineeinvestor]

Might be time to start getting into investing in fine art and collectables. Apparently, fine wines can be quite lucrative.

While wine (and other collectables) can be profitable and there are plenty of stories of investors doing very well, the markets are highly illiquid, price transparency is poor, price spreads and transaction costs are high, there is negative cash flow from storage fees and insurance and there are risks of damage from various causes. If you do invest in wine, you will need to be able to show provenance (i.e. that the wines have been legitimately sourced and properly stored from the moment they left the chateaux) or your sales price will be heavily discounted.

The most significant risk is that what starts as an investment in a new asset class for your portfolio ends up being a very expensive investment in future drinking.

[Filthy]

Might be time to start getting into investing in fine art and collectables. Apparently, fine wines can be quite lucrative.

reckon id just end up consuming my investment

[Marilyn Munroe]

Getting electorate buy in for a new tax will be a hard sell even in the most favourable circumstances.

Given the thought leader for the tax paid silly money to buy back Transrail and the execution skills displayed so far by the Coalition Government are woeful I can't see this new tax gaining electoral support.

Boop boop de do
Marilyn

[minimoke]

A Sugar Tax could well be on the table. So I might invest in some bulk supplies and sell them off for a capital gain.

[steveb]

There is of course the not so small hurdle of getting past winston.NZ First will never vote for a CGT bill.Also remember Andrew Little was not keen on bringing in CGT.There are just to many hurdles for Jacinda to climb over with the coalition she has,she would have to be ruling alone(or just with the greens) to pull it off,and I can't see that happening in the near future

[bull....]

2 ways to tax

would tax the gain in assets when they are sold (except the family home). At up to 33%

accrual tax, which would tax certain assets on an annual rate of return deemed by IRD - known as the risk-free rate of return (RFRM) - but which would also exempt the family home.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12128604

no 1 better i reckon more simpler

the other question would be i guess the end of the pie fund regime?

[Patient Panda]

I was.going to start a new thread to ask but may as well put it here.

Under the current regime, what criteria do they use to seperate between trading and investing for the purpose of tax?

Always been a gray area of some confusion in my mind.

(I do not do a lot of transactions and the vast majority are buys)

[minimoke]

I was.going to start a new thread to ask but may as well put it here.

Under the current regime, what criteria do they use to seperate between trading and investing for the purpose of tax?

Always been a gray area of some confusion in my mind.

(I do not do a lot of transactions and the vast majority are buys)Accountants her can be more specific. But generally relys on purpose of the Share buy at the time of the buy. So if you buy with the intention of selling at a greater price tax is payable on gain. If purpose is to enjoy divi's tax isnt payable on eventual sale.

[couta1]

I was.going to start a new thread to ask but may as well put it here.

Under the current regime, what criteria do they use to seperate between trading and investing for the purpose of tax?

Always been a gray area of some confusion in my mind.

(I do not do a lot of transactions and the vast majority are buys) You can find threads on that topic on the off market section but here is the definition from the Tax Bible." Profits from selling shares are taxable if the Clear and Dominant purpose at the time of purchase was to resell to make a profit. Look at each individual parcel of shares that taxpayer sells to make correct ruling. If shares are aquired to make capital gains from their growth in value as well as to earn income from dividends then there is no clear purpose of resale so profit is not taxable and losses are not deductable." A CGT will change all that of course.

[Bjauck]

it would probably be bad news for the NZX, one of the popular advantages to mum and dad investor types is the lack of capital gains tax. Throw that in the mix and I think personally we'd see a sizeable asset re-allocation back into less complex asset type.
The fact that an enormous inestment class - owner occupied real estate - is likely to be excluded from a CGT could mean that many more people will favour further capitalisation of their homes either by bidding up the price of land further or by further investment in improvements. That could be at the expense of investment in equities (which would be subject to a CGT)

In addition those who do not have their own homes but do have investments in businesses and shares could be further encouraged by the tax system to divest from income producing assets into owner-occupied residential property.

If owner-occupied housing is exempt from a CGT, There should be scheme to allow those who do not own their own homes to have a higher exemption threshhold before CGT applies.

[Beagle]

Good onya for clearing that level. Next step $1.20
Chatted with my old mate Couta a littler earlier this afternoon and it turns out I was buying his shares at $1.19. He's officially been Beaglized :lol:
The claw marks are really going to hurt when this hits $1.25 shortly...
Might hold these OCA puppies till I die and transfer them to my family trust then any capital gains tax is my kids problem :D

[Jonboyz]

While wine (and other collectables) can be profitable and there are plenty of stories of investors doing very well, the markets are highly illiquid, price transparency is poor, price spreads and transaction costs are high, there is negative cash flow from storage fees and insurance and there are risks of damage from various causes. If you do invest in wine, you will need to be able to show provenance (i.e. that the wines have been legitimately sourced and properly stored from the moment they left the chateaux) or your sales price will be heavily discounted.

The most significant risk is that what starts as an investment in a new asset class for your portfolio ends up being a very expensive investment in future drinking.


Well, if that's the case, I might just stay with 'investing' in low cost wines then.

[minimoke]

Chatted with my old mate Couta a littler earlier this afternoon and it turns out I was buying his shares at $1.19. He's officially been Beaglized :lol:
The claw marks are really going to hurt when this hits $1.25 shortly...
Might hold these OCA puppies till I die and transfer them to my family trust then any capital gains tax is my kids problem :D
And part of my mitigation strategy would be to trade off market to to remove a potential transaction radar (as well as broker fees)

[Beagle]

And part of my mitigation strategy would be to trade off market to to remove a potential transaction radar (as well as broker fees)

Good idea and simple enough to make an in specie transfer or one to an external party for that matter.

[minimoke]

If owner-occupied housing is exempt from a CGT, There should be scheme to allow those who do not own their own homes to have a higher exemption threshhold before CGT applies.Just something to keep an eye on - and thats definition.

Two phrases are coming to light: "family home" and "Owner occupied house". Assuming both are free from CGT I may vacate my "family home" and move into an "owner occupied house" do-oer upper thought that might depend on cost involved in the doing up

[steveb]

How about moving your portfolio offshore? Caymen Islands for example

[kiwico]

Just something to keep an eye on - and thats definition.

Two phrases are coming to light: "family home" and "Owner occupied house". Assuming both are free from CGT I may vacate my "family home" and move into an "owner occupied house" do-oer upper thought that might depend on cost involved in the doing up

Or is this trying to differentiate between a home owned by the occupier and a home owned by a trust?

[Patient Panda]

Just something to keep an eye on - and thats definition.

Two phrases are coming to light: "family home" and "Owner occupied house". Assuming both are free from CGT I may vacate my "family home" and move into an "owner occupied house" do-oer upper thought that might depend on cost involved in the doing up


Yes if they have any economically trained or minded people in the TWG regardless of political orientation they will know and hopefully convey ringfensing the family home is disturbingly economically inefficient and will create a lot of perverse behaviours and incentives.


for a while I worked in a mortgage brokerage and very often I saw numerous perverse behaviours to sidestep rules regarding kiwisaver and the first home buyers grant and a requirement for ‘owner occupation’. I can only imagine it being the same or much worse with family home ring fensing.

[minimoke]

Or is this trying to differentiate between a home owned by the occupier and a home owned by a trust?
I think its more aimed at the "doer Upper". Tricky area as it avoids tax on labour put into the doing up as well as the gain made on the sale.

Family trusts will be a whole other kettle of fish. You have your relatively straight forward home that the trust beneficiaries live in. But then you also have income producing farms held in trust. Trusts will be a complication

Edit - when I say avoid I don't mean "avoid". A better word will come to me.

[Ggcc]

I will be surprised if labour are in the next government. Of course Simon Bridges needs to go if that were to happen and then all this talk about CGT will be wiped out. I do know the government needs extra money as there is not enough to pay for all their promises. Maybe create more indirect taxes (user pays scenario)

[777]

And part of my mitigation strategy would be to trade off market to to remove a potential transaction radar (as well as broker fees)

Transaction has still taken place and recorded at the share registry with value of transaction also recorded.

[minimoke]

Transaction has still taken place and recorded at the share registry with value of transaction also recorded.If I was Inland Revenue I'd firstly target accounts help by Share Brokers - like for example my ANZ Securities Account. That would given me a quick snapshot of buying selling activity.

Its a bit harder to go to the share registries. Given IRD cant track bright line house sales there is no chance at all they could delve efficiently into a share registry. At best they might hunt a CSN on Link or Computershare. But given they cant do a bank account then I dont think this would be an option.

[777]

"Can't do a bank account".

Are you sure about that?

A friend of mine was audited some years ago (random they said) and they already had transactions in his account that they were interested in.

[minimoke]

"Can't do a bank account".

Are you sure about that?

A friend of mine was audited some years ago (random they said) and they already had transactions in his account that they were interested in.Seems they use data from Land Information - http://www.scoop.co.nz/stories/BU1809/S00492/inland-revenue-firmly-focussed-on-bright-line-richard-owen.htm

[percy]

Even the Percys of the world will be worse off ...even though he holds for increasing dividends he does sell things quite often (when things slow down) and it appears he would have to pay tax on any share price gains.

That's the way I see it too.
Hate to think what the tax bill would have been on the EBO I held for over 25 years.For a start I can not remember or have records for what I paid for them.
I don't see how my approach would change.Hang onto my winners and sell my losers.

[bull....]

they dont even need a capital gains tax they could just clarify the law and say if you buy and sell shares this no of times in a year your a trader and now you have to pay tax. simple

[777]

they dont even need a capital gains tax they could just clarify the law and say if you buy and sell shares this no of times in a year your a trader and now you have to pay tax. simple


Would that apply to wine, cars , stamps, art works?

One class of an investment can't be isolated.

[traineeinvestor]

Would that apply to wine, cars , stamps, art works?

One class of an investment can't be isolated.

But they already have with the "bright line test" for property sales.

[kiwico]

To me the first to go after would be the rentals with interest only loans. Given the borrowing process is based on not paying off the loan then the assumption can be that the intent is for an increase in value (although I realise that this will not be the only reason as the cost of the loan can also be a factor).

[kiwico]

But that then leads us on to shares that don't pay a dividend. There can always be the argument that a dividend is expected but how does one start they are not purchasing with the intent of capital gain where there is no other income? If you think of the likes of Berkshire Hathaway it has long been said there will never be a dividend (as WB knows better how to spend the money than us). [Although this is caught by FIF of course.]

[Ggcc]

But that then leads us on to shares that don't pay a dividend. There can always be the argument that a dividend is expected but how does one start they are not purchasing with the intent of capital gain where there is no other income? If you think of the likes of Berkshire Hathaway it has long been said there will never be a dividend (as WB knows better how to spend the money than us). [Although this is caught by FIF of course.]
I believe we would work similar to Australians would. They tend to love investing in growth stocks that produce no income ie Xero and they rise quickly. I would rather invest in stocks with Percy’s ideas hold and sell very little. If CGT gets introduced, having a great accountant to help reduce tax will be my next port of call.

[Rep]

I believe we would work similar to Australians would. They tend to love investing in growth stocks that produce no income ie Xero and they rise quickly. I would rather invest in stocks with Percy’s ideas hold and sell very little. If CGT gets introduced, having a great accountant to help reduce tax will be my next port of call.

And therein lies both problems with the proposed CGT, it changes investment criteria for taxation rather than underlying economic reasons - some companies will hoard cash or use it in investments elsewhere for diminishing marginal benefit rather than paying a dividend - secondly, tax advisors are going to be hatching schemes everywhere designed with large compliance costs that are merely to diminish tax than of productive benefit (the same dead weight loss we had around gifting duty).

Observation - John Russell possibly thought he was a clever and great accountant, and the orthopods Penny and Hooper thought they had a great one too - and I'm sure Hadlee rued the day he assigned partnership units to his family members to try to stream income to reduce his tax burden. The IRD has 7 years to serve a notice of assessment and what appears to be bottomless pit to wrestle with you in court.

[Bjauck]

Just something to keep an eye on - and thats definition.

Two phrases are coming to light: "family home" and "Owner occupied house". Assuming both are free from CGT I may vacate my "family home" and move into an "owner occupied house" do-oer upper thought that might depend on cost involved in the doing up Good point I think CGT regimes allow just one exempt "family home."

With any new tax there is a hidden extra "extra tax" - namely taxpayers having to pay more in acountant fees! It will be interesting to see what the recommended threshhold levels for annual tax-free realised capital gains will be before a cgt is levied.

[traineeinvestor]

Depending on circumstances, leaving the country is an option.

[traineeinvestor]

FWIW, there is a list of the Austrian CGT exemptions here: https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/

[Cricketfan]

With any new tax there is a hidden extra "extra tax" - namely taxpayers having to pay more in acountant fees! It will be interesting to see what the recommended threshhold levels for annual tax-free realised capital gains will be before a cgt is levied.

The extra costs and general hassle might put a lot of people off shares altogether. I wonder if/when such a CGT is announced, what effect it'll have overnight. I can imagine a lot of people getting out just to avoid the hassle.

[captainigloo]

There's a lot of talk about creating a "fairer tax system". Which presumably means "the wealthy should pay more and others should pay less" . If that's what they mean, fine, but they should just say so.

[Cricketfan]

There's a lot of talk about creating a "fairer tax system". Which presumably means "the wealthy should pay more and others should pay less" . If that's what they mean, fine, but they should just say so.

This would affect Kiwisaver too though, wouldn't it? Or is that exempt?

[percy]

How am I going?.
I have $1mil at start of the tax year,
I buy 10 stocks at 100k each.
7 of those stocks go up 20%. so I have $840k of winners,which I hang into going into year 2.
3 of those stocks 10 stocks go down 10%,so I sell.So I have $270k,so claim $30k of losses.No tax to pay.
Year 2,my 7 winners go up another 20%,so $840k is now $1.008.
The 3 new stocks I brought using the $270k [ie $90k each] have had a mixed year.
One tripled to $270k,one went up 25% to $112.5k,while the third went down 20%[to $72k] so I sold and claimed $18k loss.
So the portfolio is now $1,462,500.and no tax has been paid,yet I have claimed $48k losses.
The next three years I did not buy or sell anything and the portfolio doubled,so now worth $2,925,000.Still no capital gain tax paid?
"Well positioned".?

[RTM]

That's the way I see it too.
Hate to think what the tax bill would have been on the EBO I held for over 25 years.For a start I can not remember or have records for what I paid for them.
I don't see how my approach would change.Hang onto my winners and sell my losers.

Although personally I don’t want it, it does seem fair that there should be a tax on gains we make. And I guess this should be offset against any losses as well.

What about if one buys a company for say $200k, works hard and builds it up and sells it for $400K two years later..would the tax on this gain be assessed as well ? And boats...and artwork and...?
Needs to be pretty comprehensive to be fair.

Good rhread.

Cheers, RTM

[traineeinvestor]

How am I going?.
I have $1mil at start of the tax year,
I buy 10 stocks at 100k each.
7 of those stocks go up 20%. so I have $840k of winners,which I hang into going into year 2.
3 of those stocks 10 stocks go down 10%,so I sell.So I have $270k,so claim $30k of losses.No tax to pay.
Year 2,my 7 winners go up another 20%,so $840k is now $1.008.
The 3 new stocks I brought using the $270k [ie $90k each] have had a mixed year.
One tripled to $270k,one went up 25% to $112.5k,while the third went down 20%[to $72k] so I sold and claimed $18k loss.
So the portfolio is now $1,462,500.and no tax has been paid,yet I have claimed $48k losses.
The next three years I did not buy or sell anything and the portfolio doubled,so now worth $2,925,000.Still no capital gain tax paid?
"Well positioned".?

This is one of the reasons why CGTs generally raise less revenue than politicians predict - people stick with their winners and sell their losers.

At the end of the day, CGT is primarily a tax on: retained after tax earnings reinvested in the business which creates share price growth (i.e. double taxation) and inflation (i.e. a tax on gains which are not real). Alongside estate duty and wealth taxes, it is the least fair and rational means of generating tax revenue available.

[WayOverTheHill]

I'd get rid of all taxes bar GST. Set GST at about 45% and job done

[Patient Panda]

To me the first to go after would be the rentals with interest only loans. Given the borrowing process is based on not paying off the loan then the assumption can be that the intent is for an increase in value (although I realise that this will not be the only reason as the cost of the loan can also be a factor).


That doesn’t work as interest only loans are also the most efficient financing option for long term rentals and really almost any income producing asset.

[couta1]

That doesn’t work as interest only loans are also the most efficient financing option for long term rentals and really almost any income producing asset. Correct as people take out interest only loans to buy dividend producing shares on the same basis, why would you take out a loan where you have to pay back principal, defeats the whole purpose.

[blackcap]

How am I going?.
I have $1mil at start of the tax year,
I buy 10 stocks at 100k each.
7 of those stocks go up 20%. so I have $840k of winners,which I hang into going into year 2.
3 of those stocks 10 stocks go down 10%,so I sell.So I have $270k,so claim $30k of losses.No tax to pay.
Year 2,my 7 winners go up another 20%,so $840k is now $1.008.
The 3 new stocks I brought using the $270k [ie $90k each] have had a mixed year.
One tripled to $270k,one went up 25% to $112.5k,while the third went down 20%[to $72k] so I sold and claimed $18k loss.
So the portfolio is now $1,462,500.and no tax has been paid,yet I have claimed $48k losses.
The next three years I did not buy or sell anything and the portfolio doubled,so now worth $2,925,000.Still no capital gain tax paid?
"Well positioned".?

Yes very well positioned. Well done.

What they probably would want to do is take the combined asset value of $840k +270k which adds up to $1,110k and tax you on the 110k profit. But that is hard enough to administer.

Spare a thought for the poor investors in The Netherlands where I have lived for a while. They take your end of year 1 position of $840k + $270k = $1,110k and just tax you 4% of the $1,110k. This happens every year. Very badly positioned.

[minimoke]

There's a lot of talk about creating a "fairer tax system". Which presumably means "the wealthy should pay more and others should pay less" . If that's what they mean, fine, but they should just say so.I'll give you this form the Interim Report " Taxes fund the redistribution that allows all New Zealanders, regardless of their market income, to participate fully in society."

[Bjauck]

The extra costs and general hassle might put a lot of people off shares altogether. I wonder if/when such a CGT is announced, what effect it'll have overnight. I can imagine a lot of people getting out just to avoid the hassle.You could be right. It is not as though NZ has a large number of shareholders in the first place. Even more will be scared back into putting more money into the family home or into term deposits.

[percy]

You could be right. It is not as though NZ has a large number of shareholders in the first place. Even more will be scared back into putting more money into the family home or into term deposits.

My brother lives in Hobart.His tax is a nightmare to work out.
I expect houses in the top suburbs will go sky high if the house is exempted.

[GTM 3442]

FWIW, there is a list of the Austrian CGT exemptions here: https://www.ato.gov.au/general/capital-gains-tax/cgt-assets-and-exemptions/


Thanks for that.

Having rolled around the ATO website for a while, I'm not convinced that the New Zealand IRD would have the capacity or capability to administer such a system.

[traineeinvestor]

Thanks for that.

Having rolled around the ATO website for a while, I'm not convinced that the New Zealand IRD would have the capacity or capability to administer such a system.

Which wouldn't stop our current political overlords enacting it.

[GTM 3442]

Which wouldn't stop our current political overlords enacting it.

And then having to explain it to my accountant! I think I'd just go bush somewhere up Lambton Quay and shoot policy analysts for food.

[Ggcc]

Yes very well positioned. Well done.

What they probably would want to do is take the combined asset value of $840k +270k which adds up to $1,110k and tax you on the 110k profit. But that is hard enough to administer.

Spare a thought for the poor investors in The Netherlands where I have lived for a while. They take your end of year 1 position of $840k + $270k = $1,110k and just tax you 4% of the $1,110k. This happens every year. Very badly positioned.
In the Netherlands it used to be that they also tax you for rental income even if you owned your own house freehold. So if your house could get rent of $500 per week over 52 weeks that’s $26,000 multiply that by whatever tax bracket you are in ie New Zealand 33% is the highest it would be $7,878 in tax you would need to pay from your home. They all tended to keep their mortgage high to offset this.
They love their taxes in Europe

[RTM]

In the Netherlands it used to be that they also tax you for rental income even if you owned your own house freehold. So if your house could get rent of $500 per week over 52 weeks that’s $26,000 multiply that by whatever tax bracket you are in ie New Zealand 33% is the highest it would be $7,878 in tax you would need to pay from your home. They all tended to keep their mortgage high to offset this.
They love their taxes in Europe

Isn't that what Gareth Morgan / TOPS party was proposing ? Or close to it ?

[Bjauck]

This is one of the reasons why CGTs generally raise less revenue than politicians predict - people stick with their winners and sell their losers.

At the end of the day, CGT is primarily a tax on: retained after tax earnings reinvested in the business which creates share price growth (i.e. double taxation) and inflation (i.e. a tax on gains which are not real). Alongside estate duty and wealth taxes, it is the least fair and rational means of generating tax revenue available.
Assets have to be sold or disposed of eventually - even if by the trustees/administrators of your estate. So there will be some lag before revenue is raised.

Income tax brackets should also be adjusted annually for bracket creep due to inflation and there should also be an inflation allowance for the income from fixed interest deposits and bonds.

[Bjauck]

Isn't that what Gareth Morgan / TOPS party was proposing ? Or close to it ?
Something like it....imputed rent on owner occupied housing (taking into account maintenance and rates etc costs). It made the party unelectable but many economists agree that it makes sense.

In NZ If you invest you money in a business you are taxed on the services, income and profit it produces (and maybe later also the Capital gains due to inflation and its success.) However if you invest your money in a house that provides you with a valuable service of providing accommodation it is tax exempt and the capital gains are also untaxed. So it is tax efficient, for those who can afford it, to invest your money in (non taxable income producing) owner occupied residential property.

[Jonboyz]

How am I going?.
I have $1mil at start of the tax year,
I buy 10 stocks at 100k each.
7 of those stocks go up 20%. so I have $840k of winners,which I hang into going into year 2.
3 of those stocks 10 stocks go down 10%,so I sell.So I have $270k,so claim $30k of losses.No tax to pay.
Year 2,my 7 winners go up another 20%,so $840k is now $1.008.
The 3 new stocks I brought using the $270k [ie $90k each] have had a mixed year.
One tripled to $270k,one went up 25% to $112.5k,while the third went down 20%[to $72k] so I sold and claimed $18k loss.
So the portfolio is now $1,462,500.and no tax has been paid,yet I have claimed $48k losses.
The next three years I did not buy or sell anything and the portfolio doubled,so now worth $2,925,000.Still no capital gain tax paid?
"Well positioned".?


This is why the TWG is also considering an alternative method, similar to FIF on foreign shares but applying to all shares.

In this CGT scenario, IRD tax would you 5% of your total share portfoilio value at the beginning of every tax year, regardless of your portfolio changes/transactions over that year.

Extrapolating from your example:
year 1 = $0 (assuming you had no share investments at start of y1),
year 2 = taxed on $50,000 ->$16,500 income tax to pay if you're on 33% tax rate
year 3 = taxed on $73,125 -> $24,131 income tax to pay if you're on 33% tax rate
year 4 = taxed on $146,250 -> $48,262 income tax to pay if you're on 33% tax rate

Would make share investment quite unattractive.

It would be a horrid choice: would create havoc with kiwisaver, an exodus of share investment by NZ'ers, reduction in companies listing in NZ, and an increase in consumer spending (why bother saving?).

[Bjauck]

...
They love their taxes in Europe Universal medical care, social welfare and a modern infrastructure costs money.

[Bjauck]

This is why the TWG is also considering an alternative method, similar to FIF on foreign shares but applying to all shares.

In this CGT scenario, IRD tax would you 5% of your total share portfoilio value at the beginning of every tax year, regardless of your portfolio changes/transactions over that year.

Extrapolating from your example:
year 1 = $0 (assuming you had no share investments at start of y1),
year 2 = taxed on $50,000 ->$16,500 income tax to pay if you're on 33% tax rate
year 3 = taxed on $73,125 -> $24,131 income tax to pay if you're on 33% tax rate
year 4 = taxed on $146,250 -> $48,262 income tax to pay if you're on 33% tax rate

Would make share investment quite unattractive.

It would be a horrid choice: would create havoc with kiwisaver, an exodus of share investment by NZ'ers, reduction in companies listing in NZ, and an increase in consumer spending (why bother saving?). The deemed dividend rate is 5%. Some NZ companies pay more than that in dividends. Also I think under FIF scheme In years when your portfolio drops in value by more than your dividends then you tax bill is zero.

[minimoke]

How is the impact of inflation accounted for. If I have a $100,000 rental house and inflation runs at 1% and my house is worth $101,000 in a years teim have I made a capital gain?

[winner69]

How is the impact of inflation accounted for. If I have a $100,000 rental house and inflation runs at 1% and my house is worth $101,000 in a years teim have I made a capital gain?

Farms and small business when sold will stuff up a few retirement plans if gains taxable

[Scrunch]

How is the impact of inflation accounted for. If I have a $100,000 rental house and inflation runs at 1% and my house is worth $101,000 in a years teim have I made a capital gain?
Economically no. You have the asset base to purchase the same goods and services as at the start of the year.

If you are looking to widen the tax net. Yes.

[enzed staffy]

The fairness argument is laughable wrt exemption
If 2 people have 1 million dollars NTA currently - one in Auckland has a family home for the average million dollar price, one has an average family home in Dunedin at 400k and 600k in the share market - the Dunedin person already pays more tax (on dividends) and now they want capital gains as well?
While the Auckland punter sits pretty on their exempt family home gaining capital and selling at a later date - no cost thank you.

[Jonboyz]

The fairness argument is laughable wrt exemption
If 2 people have 1 million dollars NTA currently - one in Auckland has a family home for the average million dollar price, one has an average family home in Dunedin at 400k and 600k in the share market - the Dunedin person already pays more tax (on dividends) and now they want capital gains as well?
While the Auckland punter sits pretty on their exempt family home gaining capital and selling at a later date - no cost thank you.

Starts making me wonder whether I should sell all my shares and upgrade my HOME to the maximum I can afford, and then keep on upgrading over the years until I need liquidity, and then start down-grading.

[Patient Panda]

Starts making me wonder whether I should sell all my shares and upgrade my HOME to the maximum I can afford, and then keep on upgrading over the years until I need liquidity, and then start down-grading.


If you want access to the increased value of the house you don’t even need to downgrade you can simply get a new registered valuation every few years and the bank will let you use a mortgage like an increasing bank account every time it get revalued upwards.

[percy]

Starts making me wonder whether I should sell all my shares and upgrade my HOME to the maximum I can afford, and then keep on upgrading over the years until I need liquidity, and then start down-grading.

Exactly right..
And if you are old enough when you need liquidity, you could take out a reserve mortgage with Heartland,while the value of your home keeps increasing..

[allfromacell]

Starts making me wonder whether I should sell all my shares and upgrade my HOME to the maximum I can afford, and then keep on upgrading over the years until I need liquidity, and then start down-grading.

Me too... As a younger person I personally prefer living in a nice suburb close to work and let my landlord subsidies my rent while I grow equity in other investments. However if this tax comes into effect it will make more sense to buy a house I can afford further out which I don't really want to do.

I don't really mind a capital gains tax but it needs to fairly applied to all assets, don't ring fence the family home! This is of course political suicide and would never fly with the electorate.

[enzed staffy]

Rather than exemptions - they would be better to set a threshold of NTA for capital gains applied to above to prevent the family home distortion- but then I guess that's much like a wealth tax

[Rep]

Starts making me wonder whether I should sell all my shares and upgrade my HOME to the maximum I can afford, and then keep on upgrading over the years until I need liquidity, and then start down-grading.

That is the distortive effect of exempting the family home so there's no CGT on these gains and potentially a massive tax advantage against say owning shares or starting a business that is productive and employs people... or in fact saving for retirement with your kiwisaver... if a PIE isn't exempt on the capital gains for shares.

Some suburbs are going to end up with vastly over capitalised mansions because the unintended consequence will be everyone buying bigger, more expensive housing until they look at reverse mortgages or liquidating their gains - Ryman, Summerset and Oceania will be laughing all the way to the bank....

[Bjauck]

The fairness argument is laughable wrt exemption
If 2 people have 1 million dollars NTA currently - one in Auckland has a family home for the average million dollar price, one has an average family home in Dunedin at 400k and 600k in the share market - the Dunedin person already pays more tax (on dividends) and now they want capital gains as well?
While the Auckland punter sits pretty on their exempt family home gaining capital and selling at a later date - no cost thank you.
Exactly. It only becomes “fair” if all individuals stuff all their earned and inherited money (if they are lucky enough to afford home ownership) into their own homes.

[Bjauck]

Me too... As a younger person I personally prefer living in a nice suburb close to work and let my landlord subsidies my rent while I grow equity in other investments. However if this tax comes into effect it will make more sense to buy a house I can afford further out which I don't really want to do.

I don't really mind a capital gains tax but it needs to fairly applied to all assets, don't ring fence the family home! This is of course political suicide and would never fly with the electorate.
Have you been able to leverage your capital gains from the equity in your other investments in the same way that your landlord may have done with the equity in his rental property? Plus he may have been able to negatively gear his investment and offset his income from other sources.

[allfromacell]

Have you been able to leverage your capital gains from the equity in your other investments in the same way that your landlord may have done with the equity in his rental property? Plus he may have been able to negatively gear his investment and offset his income from other sources.

No I haven't... The landlord very may have been able ofset losses but I belive the goverenment's stepping in now to stop this.


I can see there are many benefits to owning a house and the leverage flexibility it gives you but there are plenty of risks and disadvantages associated with that level of debt too. Personally I prefer the freedom and instant positive cash flow equity investments have given me. I can go overseas for several months without worrying about massive mortgage repayments, I can live where I want to live instead of buying in the only areas I can afford such as the south of Auckland. This is a probably a discussion best suited for another thread anyway...

[minimoke]

Exactly right..
And if you are old enough when you need liquidity, you could take out a reserve mortgage with Heartland,while the value of your home keeps increasing..That will be the forefront of my thinking when I come to trade my house in the next 5 years or so. Might need to get me one of those flash apartments.

[Timesurfer]

I don't really mind a capital gains tax but it needs to fairly applied to all assets, don't ring fence the family home! This is of course political suicide and would never fly with the electorate.

That is the approach Gareth Morgan was pushing. I don't think he thought it through properly. He was suggesting this on the one hand (to tax him and his rich mates more) but on the other hand he was trying to drive more money into businesses. Good for tech businesses etc with little capital investment. However, it would have put a lot of small business with high capital investment out of business. People like myself with a truck and digger that get used part time - no incentive to keep that lying around. A caravan used as a spare room would go. A boat that would be written down in value pretty quick.

If I am being taxed on capital then I might as well have all my money in stocks pay tax on my gains from the comfort of my bed - own less toys and rent them when needed. Hard to see it growing the economy.

[Jay]

Could be growth in the renting Toys business ts :-)

[davflaws]

There's a lot of talk about creating a "fairer tax system". Which presumably means "the wealthy should pay more and others should pay less" . If that's what they mean, fine, but they should just say so.

The way I understand it from Michael Cullen's explanation is that they are widening the definition of income to include income derived from capital. The following illustration is simplistic - but I can't see what is wrong with it - either in theory or in practice. Allan is in IT. His salary is $100k. Bryan is a semi retired accountant. His Personal Drawings from his small practice are $50k and his shares and bonds provide dividends and interest totalling $50k.
A fair tax system would see Allan and Bryan paying the same tax.

[Lewylewylewy]

Not ring fencing the home would be very bad. It's not just political, it's economical.

If you buy a house, then it goes up in price, then you want to move to another city, if you sell the house, you won't be able to afford a similar house because you'll be taxed. Moving house will mean a downgrade.

This will make people disinclined to move. This makes the labor market imobile. Bad for busines and economy. This will also be bad for employees who can't get a better job in another city because it costs them too much. Bad for people.

Taxing the family home is bad for everyone.

Separate note: nz tall poppy syndrome = high chance of cgt for investments, without thought to all the impacts. Especially with labor and greens in power. I doubt your average kiwisavers understand the correlation.

[mondograss]

I vaguely recall (and someone who's been there more recently might correct me) that in the UK you still pay CGT on the family home if you've just bought it to do up and flick, but otherwise you don't normally. In deciding whether the property was bought for profit they look at how long you owned and lived in it for I think.

[Bjauck]

Not ring fencing the home would be very bad. It's not just political, it's economical.

If you buy a house, then it goes up in price, then you want to move to another city, if you sell the house, you won't be able to afford a similar house because you'll be taxed. Moving house will mean a downgrade.....

If it is bad economically not to ring fence the family home then it is even worse economically not to ring fence productive assets such as shares. Your arguments would equally apply to businesses and shareholding. In the absence of tax-free investment schemes, A Partial CGT that excludes the home could be a disincentive to investing in productive assets.

Besides if a cgt were introduced on the family home, Prices would probably drop quickly so there would be precious few taxable capital gains from the valuation point of when the tax were introduced - at least for many years. Cheaper land could mean greater affordability for first home buyers.

The main objection to a cgt on the family home would be political and from existing baby boomer home owners who have had massive leveraged capital gains over the past couple of decades.

[Bjauck]

The way I understand it from Michael Cullen's explanation is that they are widening the definition of income to include income derived from capital. The following illustration is simplistic - but I can't see what is wrong with it - either in theory or in practice. Allan is in IT. His salary is $100k. Bryan is a semi retired accountant. His Personal Drawings from his small practice are $50k and his shares and bonds provide dividends and interest totalling $50k.
A fair tax system would see Allan and Bryan paying the same tax.
Income from capital is already taxed at 33% for dividends and at your elected rate for interest. It is the capital gains they are after.

For example A earns 100k from their job and is currently taxed.
B has no taxable income but sold their Auckland investment rental for a $600k capital profit on their equity. B is not currently taxed, except where it is within bright line.

[Lewylewylewy]

If it is bad economically not to ring fence the family home then it is even worse economically not to ring fence productive assets such as shares. Your arguments would equally apply to businesses and shareholding. In the absence of tax-free investment schemes, A Partial CGT that excludes the home could be a disincentive to investing in productive assets.

Besides if a cgt were introduced on the family home, Prices would probably drop quickly so there would be precious few taxable capital gains from the valuation point of when the tax were introduced - at least for many years. Cheaper land could mean greater affordability for first home buyers.

The main objection to a cgt on the family home would be political and from existing baby boomer home owners who have had massive leveraged capital gains over the past couple of decades.

Well, imagine if you get offered a job in a different city but can't take it because you'd lose thousands by selling your house. Employers wouldn't be able to pay people enough to incentivize their move.

Its different because if you sell your house and move, you'll be buying another house because you have to live somewhere.

With investments you build an investment and sell to get the profit. You then buy another and do the same.

I agree it isnt good for the economy taking people's investment money away, but it's worse for the family home.

[iceman]

Interesting comments and thoughts on this thread. I am not going to do anything at present to mitigate against a possible CGT. The interim report from Sir Michael Cullen´s Tax Working Group makes it abundantly clear how complex and difficult it will be to implement any CGT, unless it is comprehensive and applied across the board. Voters will not allow that to happen, for better or for worse.
I suggest that following the final report from the TWG, Labour will develope an election policy proposing to extend the current housing bright line test to other forms of investments (with umpteen exemptions) and a carrot of lowering the lower and middle income tax rates at the same time.
In any case, they´ve said that even if a CGT is implemented, it will only apply to assets bought after implementation date.

The Greens will continue running with their CGT policy but they´ve become irrelevant and have no say on anything. NZ First and National will be against it so nothing will happen about it after the election. Steady as she goes !!

[Bjauck]

Well, imagine if you get offered a job in a different city but can't take it because you'd lose thousands by selling your house. Employers wouldn't be able to pay people enough to incentivize their move.

Its different because if you sell your house and move, you'll be buying another house because you have to live somewhere.

With investments you build an investment and sell to get the profit. You then buy another and do the same.

I agree it isnt good for the economy taking people's investment money away, but it's worse for the family home. We'll have to disagree on this point.

In a new tax regime, If your house is dropping in value then the house in another NZ city that you may want to buy will be dropping in value too.


With (share and fixed interest) investments many people hold them for the income as well as (with shares) a hedge against inlation. (Just like owner occupied housing with accommodation being the "income" and capital appreciation being the hedge against inflation)

In NZ, many people, who can afford it (including singles and those who need to travel for work,) buy a house because of the current tax adavantages, the ability to leverage capital gains and the fact that NZers historically tend to look down on renting. So many currently do it because it is the most tax efficient investment and not necessarily because they want to be tied to the place where they buy the house.

Currently with housing many people trade up the property ladder leveraging their capital gains as they go. In retirement they then can trade down accessing their tax free capital as their investment nest egg. I think it should be treated the same way as other investments, which are currently already subjected to income tax.

[Lewylewylewy]

We'll have to disagree on this point.

In a new tax regime, If your house is dropping in value then the house in another NZ city that you may want to buy will be dropping in value too.


With (share and fixed interest) investments many people hold them for the income as well as (with shares) a hedge against inlation. (Just like owner occupied housing with accommodation being the "income" and capital appreciation being the hedge against inflation)

In NZ, many people, who can afford it (including singles and those who need to travel for work,) buy a house because of the current tax adavantages, the ability to leverage capital gains and the fact that NZers historically tend to look down on renting. So many currently do it because it is the most tax efficient investment and not necessarily because they want to be tied to the place where they buy the house.

Currently with housing many people trade up the property ladder leveraging their capital gains as they go. In retirement they then can trade down accessing their tax free capital as their investment nest egg. I think it should be treated the same way as other investments, which are currently already subjected to income tax.

The house isn't dropping in value, the money you get for it is less.

For example: i buy a house in city1 for $600,000. X years later it goes up to $900,000. I see a great job in city2 that pays $30,000 more. Its a big improvement for me and the company desperately wants me because I'm the best candidate and they're struggling to get good widget wanglers in city2

I decide to sell up so i can move to city2 and buy a house there. My house gained $300,000 so i pay $100,000 tax. I move to city2 and buy a similar house for $900,000 (same price i sold the house in city1). So far I'm $100,000 down, plus say another $30,000 down for real estate agent fees.

I then work in my new high paid job for 4 years (getting an extra $120,000 pay than if I'd just stayed in city 1, over that 4 year period). After 4 years the whole exercise has cost me $10,000.

... wait, why am i moving to city2? The model gets worse the longer I've owned my house.

... and that's why it's bad for the economy. companies will not be free to higher the best employees from afar, because the wont be able to pay them enough to incentivize them to move. Bad for economy (busines and labor force).

Cgt also makes it harder to trade up, because after you sell, you haven't got the money to buy anything even as good as you had before.

Some folk will just move to city2 and keep the house in city1, which pushes up prices because the policy creates reduced supply of houses to the market.

Finally govt policy shouldn't dictate whether or not people invest in housing or not, unless they're trying to fix a market problem. In this case, cgt will work against what they're trying to achieve in housing policy.

Therefore the family home should be doing fenced.

If you're not convinced, we will just have to agree to disagree. 😀

It's my opinion that tax is a disincentive policy, and i don't think we need any more disincentives to invest in nz; we want to encourage investing in nz.

[Lewylewylewy]

Actually, rereading that, the extra pay over 4 years would only be $80,000, not $120,000 because of income tax.

Id have to work 6 years to conver the cost of my move, in my example 😁

[blackcap]

The house isn't dropping in value, the money you get for it is less.

For example: i buy a house in city1 for $600,000. X years later it goes up to $900,000. I see a great job in city2 that pays $30,000 more. Its a big improvement for me and the company desperately wants me because I'm the best candidate and they're struggling to get good widget wanglers in city2

I decide to sell up so i can move to city2 and buy a house there. My house gained $300,000 so i pay $100,000 tax. I move to city2 and buy a similar house for $900,000 (same price i sold the house in city1). So far I'm $100,000 down, plus say another $30,000 down for real estate agent fees.

I then work in my new high paid job for 4 years (getting an extra $120,000 pay than if I'd just stayed in city 1, over that 4 year period). After 4 years the whole exercise has cost me $10,000.

... wait, why am i moving to city2? The model gets worse the longer I've owned my house.

... and that's why it's bad for the economy. companies will not be free to higher the best employees from afar, because the wont be able to pay them enough to incentivize them to move. Bad for economy (busines and labor force).

Cgt also makes it harder to trade up, because after you sell, you haven't got the money to buy anything even as good as you had before.

Some folk will just move to city2 and keep the house in city1, which pushes up prices because the policy creates reduced supply of houses to the market.

Finally govt policy shouldn't dictate whether or not people invest in housing or not, unless they're trying to fix a market problem. In this case, cgt will work against what they're trying to achieve in housing policy.

Therefore the family home should be doing fenced.

If you're not convinced, we will just have to agree to disagree. ��

It's my opinion that tax is a disincentive policy, and i don't think we need any more disincentives to invest in nz; we want to encourage investing in nz.

Surely with any CGT there will be an inflation adjuster? So if you buy house now for $600k and then in 10 years sell for $900k to buy equivalent $900k house somewhere else (that 10 years ago was worth $600k) then there will be no capital gains tax to pay?

I mean from my way of thinking there is NO capital gain as you have gained nothing. The house is still the same house you bought 10 years ago (in another city or place albeit) but you are not moving up and have not actually made anything.

[traineeinvestor]

Surely with any CGT there will be an inflation adjuster? So if you buy house now for $600k and then in 10 years sell for $900k to buy equivalent $900k house somewhere else (that 10 years ago was worth $600k) then there will be no capital gains tax to pay?

I mean from my way of thinking there is NO capital gain as you have gained nothing. The house is still the same house you bought 10 years ago (in another city or place albeit) but you are not moving up and have not actually made anything.

You would think so, but usually not. Two other approaches to this are (i) the exception for the primary residence and (ii) differential rates between short and long term capital gains. As I said previously, capital gains tax is a tax on inflation (as well as retained earnings which have already been taxed).

[minimoke]

In any case, they´ve said that even if a CGT is implemented, it will only apply to assets bought after implementation date.
!At which point expect a bump in the share market as people move cash into something that wont be taxed then but would be taxed if bought the day after implementation date.

[percy]

At which point expect a bump in the share market as people move cash into something that wont be taxed then but would be taxed if bought the day after implementation date.

As you would expect I already have my share portfolio "well positioned" for that CGT implementation day.
However, buying a modest new over 60s house, to see us over the next 10 years or so, may not have been the best option. Perhaps I should have brought a flash up market town house in Cashmere.

[Bjauck]

....If you're not convinced, we will just have to agree to disagree. 😀


It's my opinion that tax is a disincentive policy, and i don't think we need any more disincentives to invest in nz; we want to encourage investing in nz.

I agree the non-comprehensive CGT proposal would be disincentive to invest in NZ.


If a cgt is introduced on the famiy home, house prices would drop!


The same reduced purchasing power could be said of the result of a CGT on shares when the sharemarket in general is rising.


In most systems overseas I believe there is an exemption of a certain amount of Capital gains in a year.


However Using the example of a $600k family home being sold at $900k with (say) $100k CGT being payable, most people of working age in our expensive housing market have a mortgage.


Let's say they are in their late 30's and had a $400K interest only mortgage so their equity was $200k when the house is sold for $900k.


After deducting the mortgage (900-400=500) their capital gain is $300k on their equity of $200k. So their capital return is 150% even though house prices had gone up by only 50%! If CGT is 33% (which is unlikely as any system would probably have an annual exemption amount and a lower CGT rate) they would be left with 200k capital profit which is still a decent 100% return - still greater than the 50% increase in values. This working couple/family will have double the deposit for their new house in a market that has only increased by 50%.


It is a political decision to exclude the family home and this would therefore further increase the favourable tax treatment of owner-occupied homes.


In NZ assuming all other things remaining the same, No CGT would be better than a non-comprehensive CGT system.

Of course it would be a lot easier if renting was a positive choice in NZ. You could rent in the new town. It would be a more flexible option for those who may need to move around the country.

[sonny n share]

"National MP Judith Collins, a former tax lawyer, told The AM Show any capital gains tax would be removed once National got back into power."

https://www.newshub.co.nz/home/politics/2018/09/fears-kiwisaver-could-be-hit-by-capital-gains-tax.html

[Bjauck]

As you would expect I already have my share portfolio "well positioned" for that CGT implementation day.
However, buying a modest new over 60s house, to see us over the next 10 years or so, may not have been the best option. Perhaps I should have brought a flash up market town house in Cashmere.I think you may have done the right thing as you have released a lot of the tax free capital gains from the last years/decades. It is unlikely that house price growth will be as great in the next decade so you may not miss many tax free gains from exempt owner occupied home ownership. But who knows...

Yet again it will be the post boomer generations who will miss out...let them eat crushed avocado:0)

[janner]

Hong Kong Government charges point 1 % on share trades. HK $1 in every HK$ 1000 or part thereof..

Simplicity !!!..

Can be done with out all of the bureaucracy becoming involved.

[percy]

Hong Kong Government charges point 1 % on share trades. HK $1 in every HK$ 1000 or part thereof..

Simplicity !!!..

Can be done with out all of the bureaucracy becoming involved.

And that is the sort "no brainer" Michael Cullen is looking for.

[janner]

Since when ?? He has had his turn..

[percy]

Since when ?? He has had his turn..

Aunty Helen would not let him,but Jacinda may.?

[janner]

Aunty Helen would not let him,but Jacinda may.?

Jacinda who ?

It would depend upon whether Winston would be agreeable.

If he can hear above the cacophony coming from the interested parties in the present system.

" It will not work "..

Money for jam. Investors win or lose. They reap. No misunderstandings as to whether one is an investor or trader.

[Beagle]

No chance any party proposing a capital gains tax on one's family home is elected in my opinion.

[lissica]

With (share and fixed interest) investments many people hold them for the income as well as (with shares) a hedge against inlation. (Just like owner occupied housing with accommodation being the "income" and capital appreciation being the hedge against inflation)



My primary concern would be that they disregard inflation when taxing capital gains. Without taking inflation into account, the government is not taxing capital gain, they are expropriating capital.



In NZ, many people, who can afford it (including singles and those who need to travel for work,) buy a house because of the current tax adavantages, the ability to leverage capital gains and the fact that NZers historically tend to look down on renting. So many currently do it because it is the most tax efficient investment and not necessarily because they want to be tied to the place where they buy the house.

Currently with housing many people trade up the property ladder leveraging their capital gains as they go. In retirement they then can trade down accessing their tax free capital as their investment nest egg. I think it should be treated the same way as other investments, which are currently already subjected to income tax.

A capital gains tax will favour housing over share investments. It is much easier to deal with capital gain of a chunky asset like property. With shares, people buy small parcels at different times, have DRPs, company takeovers, mergers, rights issues. An accountants wet dream.

If the government is serious about encouraging people to invest in areas outside of housing, it should apply CGT only to property, or leave the tax system alone.

[janner]

No chance any party proposing a capital gains tax on one's family home is elected in my opinion.

Stamp Duty has a much nicer sound than Capital Gains Tax.

[Bjauck]

Stamp Duty has a much nicer sound than Capital Gains Tax. Stamp duty is a type of wealth tax - it applies to a transaction whether or not there is a capital gain. If that is introduced it should be applied to all real estate as well as financial investments.

CGT on the family home is a political non-starter. So more than likely it seems we could end up with a system that will see further flight of individual investors from owning shares and a further hollowing out of the share market with more household wealth ending up in residential land.

[janner]

Stamp duty is a type of wealth tax - it applies to a transaction whether or not there is a capital gain. If that is introduced it should be applied to all real estate as well as financial investments.

It was in reply to Beagle. If there has to be any monies raised by Government on real estate Stamp Duty would sound kinder.

Which is what the Hong Kong Government call the Point Zero One % on share trading.
Buying or Selling.

However. Most if not all Governments are just plain greedy.

[Bjauck]

...However. Most if not all Governments are just plain greedy.
....an ageing population, health, defence, security, infrastructure and social welfare cost money. I wouldn’t want to see a return to Victorian era (and earlier) poverty, workhouses, begging, and widespread violence. I also have no problem with the government wishing to broaden the tax base. I hope any reforms also help broaden household investment base away from being so dependent on residential property and help successful business to remain in NZ with NZ funding.

Anyway it is still a long furrow to hoe before even a partial CGT is introduced.

[Patient Panda]

It was in reply to Beagle. If there has to be any monies raised by Government on real estate Stamp Duty would sound kinder.

Which is what the Hong Kong Government call the Point Zero One % on share trading.
Buying or Selling.

However. Most if not all Governments are just plain greedy.

A stamp duty or transactional tax would be a much better, much more efficient implementation.

[janner]

A stamp duty or transactional tax would be a much better, much more efficient implementation.

Of course.

However there are to many vested interests.

[janner]

....an ageing population, health, defence, security, infrastructure and social welfare cost money. I wouldn’t want to see a return to Victorian era (and earlier) poverty, workhouses, begging, and widespread violence. I also have no problem with the government wishing to broaden the tax base. I hope any reforms also help broaden household investment base away from being so dependent on residential property and help successful business to remain in NZ with NZ funding.

Anyway it is still a long furrow to hoe before even a partial CGT is introduced.

Not to be introduced until " after " Liabour are re-elected was promised.

We know how trustworthy this current lot are.

[Lewylewylewy]

I think there should be a "tall poppy tax". Basically, if you feel that anyone looks like they're doing well, you can call an 0800 hotline (and it can even be if someone buys the nice cut of meat in the supermarket), the hotline folk will then bravely tax the person you're calling about. The tax will be a percentage of their total wealth plus $10k (in case they've got money hidden off shore, because i bet they have!)

[sonny n share]

"There is nothing fair about a Cullen Capital Gains Tax"https://www.stuff.co.nz/opinion/107263365/damien-grant-there-is-nothing-fair-about-a-cullen-capital-gains-tax

[pierre]

I think there should be a "tall poppy tax". Basically, if you feel that anyone looks like they're doing well, you can call an 0800 hotline (and it can even be if someone buys the nice cut of meat in the supermarket), the hotline folk will then bravely tax the person you're calling about. The tax will be a percentage of their total wealth plus $10k (in case they've got money hidden off shore, because i bet they have!)

Hilarious! But don't anyone tell Jacinda - she's bound to think its a great idea and implement it before Christmas.

[minimoke]

I think there should be a "tall poppy tax". Basically, if you feel that anyone looks like they're doing well, you can call an 0800 hotline (and it can even be if someone buys the nice cut of meat in the supermarket), the hotline folk will then bravely tax the person you're calling about. The tax will be a percentage of their total wealth plus $10k (in case they've got money hidden off shore, because i bet they have!)
And people think it strange when I wear my Pyjamas into The Warehouse. I'll be safe,

[iceman]

Peter Dunne writes an interesting article on the Newsroom website outlining why a CGT is unlikely to be introduced https://www.newsroom.co.nz/2018/09/19/244073/dunne-its-time-to-bury-the-capital-gains-tax

[Bjauck]

I am not sure what “tall poppies” have to do with a CGT. I know successful people who are only too happy to pay taxes back to the society in which they have prospered.

There are plenty of tall poppies who earn big incomes as a result and pay tax. Is it just the tall poppies who get leveraged capital gains who should pay no tax on them? Sometimes this is done by reducing the taxable rent income too.

Many of these gains are from happenstance - by being in the right generation at the right time in a period of falling interest rates. So they are lucky poppies grown from seeds that happened to get blown into the nice fertile soil!

However a comprehensive CGT is a non-starter and the timing of CGT introduction would anyway come too late in this cycle as it would just be an administrative nightmare and would raise minimal income. Other tax reforms may be more appropriate.

[davflaws]

Not to be introduced until " after " Liabour are re-elected was promised.

We know how trustworthy this current lot are.

Do we? Are they any less trustworthy than the former lot?

[janner]

Do we? Are they any less trustworthy than the former lot?

Absolutely not.

However these are more " open and transparent " about it.. Therefore we are made more aware.

[Bjauck]

I wonder how would a capital gains tax apply to foreign investments that are already taxed on unrealised capital gains via the "Fair dividend rate" or the "comparative value" methodology? Will a CGT just mean that capital gains would on such investments end up being taxed twice? Overseas shareholdings could be even less appealing than presently. Investing in the owner occupied home would be the most tax efficient investment bar none (no income tax or CGT liability.)

[blackcap]

I wonder how would a capital gains tax apply to foreign investments that are already taxed on unrealised capital gains via the "Fair dividend rate" or the "comparative value" methodology? Will a CGT just mean that capital gains would on such investments end up being taxed twice? Overseas shareholdings could be even less appealing than presently. Investing in the owner occupied home would be the most tax efficient investment bar none (no income tax or CGT liability.)

Surely there would be a clawback provision similar to the property that was previously depreciated.

Ie I buy $100k investment in FB in 2005. I sell investment in 2015 for $200k.

Taxable profit is 200-100 or $100k.
However during that 10 year period I have paid tax on 10x$4,000 4% every 10 years, so paid tax on $40,000 of "profit"

This portion I can claw back and so instead of paying tax on the $100k, I pay tax on $100k-$40k, or on a final figure of $60k. That would seem to be the sensible way to approach things?

[Bjauck]

Surely there would be a clawback provision similar to the property that was previously depreciated.

Ie I buy $100k investment in FB in 2005. I sell investment in 2015 for $200k.

Taxable profit is 200-100 or $100k.
However during that 10 year period I have paid tax on 10x$4,000 4% every 10 years, so paid tax on $40,000 of "profit"

This portion I can claw back and so instead of paying tax on the $100k, I pay tax on $100k-$40k, or on a final figure of $60k. That would seem to be the sensible way to approach things? That would be logical.

As the FDR or CV is taxed as (imputed "fair") Income it could be treated as not having been taxed under any CGT regime.

Before the imputation credit regime (nz) company profits also used to be doubly taxed - as company tax and then, when paid as dividend, under shareholder income tax.

[blackcap]

That would be logical.

Before the imputation credit regime (nz) company profits also used to be doubly taxed - as company tax and then, when paid as dividend, under shareholder income tax.

I remember that well. It was a rort and investing in dividend paying companies was detrimental. Yet NZ companies paid high dividends relative to global peers. Still annoys me that we cannot use Australian Franking credits, as most of my Australian dividends are taxed twice too. Luckily Aussie stocks are not so high dividend paying.

[Bjauck]

Yep investment decisions are often made according to the effect of taxation and not always according to whuch companies/investments are the most efficient or effective in the use of capital.

[777]

FIF regime would go and be replaced by what ever CGT system dreamed up is my guess.

[cammo]

Just makes the climb out of poverty even harder. Cgt will dissuade all forms of investment. If the family house is exempt , watch all the supermansions develop. Certainly doesn't help ethical investments on down the lane either.

[GTM 3442]

I suspect that one of the factors determining the final form of a CGT will be the capacity of IRD to implement it. This tends to suggest that any CGT will have to be both simple enough for IRD to cope with, or similar enough to some form of tax which already exists, and which can be readily expanded.

A system where, in as large a part as possible, the compliance burden can be shifted to third parties. As it has been with interest payments, where the banks, for example, act as tax collection agents at the point of payment.

IRD currently have the FIF system, which they have administered for years, and which they understand.

So I'm inclined to think that any CGT will be a derivative of the existing FIF regime. Not an exact copy, but similar enough to make it readily extensible to minimize the compliance burden for IRD.

And b*gger how much work it is for anyone else. . . .

[Bjauck]

A drawback of the FIF scheme is that taxpayers can be liable to pay income tax on unrealised capital gains. So it could result in the necessity to sell the asset to pay the tax - or raising borrowings to pay the tax. This could mean the sale of the whole asset if it is not able to be partially sold. It could be said that it is a method that would discourage investment into assets that increase in capital value in particular if regular income is not assured.

For the FIF scheme to fit into a CGT scheme may mean major change of the unrealised gains liability aspect?

[mcdongle]

Someone will come up with a CFD type product ..Unless there is one already that i don't know about??

[GTM 3442]

A drawback of the FIF scheme is that taxpayers can be liable to pay income tax on unrealised capital gains. So it could result in the necessity to sell the asset to pay the tax - or raising borrowings to pay the tax. This could mean the sale of the whole asset if it is not able to be partially sold.

Is that not already the case where income tax might be payable on a capital gain?

And it could be readily sold to an innumerate electorate as affecting only the "rich pricks"

[blackcap]

Is that not already the case where income tax might be payable on a capital gain?



I think what Bjauck is meaning is that if asset value goes up from $100k to $200k in tax year, you are liable for tax on the $100k value increase. But where are you going to get the $33,000 from (tax on the $100k) because you have not yet sold the asset. Some people would really be struggling to pay the tax when the value of their houses go up for example.
Its easier with stocks for instance to sell a portion of shares if you have to pay a bill, but for some larger capital assets this is very difficult, especially if these assets are not really liquid.

[777]

Except that under FIF rules the amount you pay tax on is 5% of the $100K starting price. So $5000*33c is $1,650.

FIF has been the best thing for having offshore unit trusts.

[blackcap]

Except that under FIF rules the amount you pay tax on is 5% of the $100K starting price. So $5000*33c is $1,650.

FIF has been the best thing for having offshore unit trusts.

I thought we were talking about a Capital Gains tax on unrealised gains?

Either way, a tax on profits yet to be realised (like FIF) can be difficult if the asset is major, illiquid (most peoples homes fall under these two) and the only asset held.

[Bjauck]

Is that not already the case where income tax might be payable on a capital gain?

FIF also calculates liability on unrealised gains (when the assets have not been sold.) So it is a type of wealth tax when no income has actually been derived and no asset actually sold or disposed.

CGT calculates liability when the asset has been realised. For example income tax may apply to realised capital gains under the brightline test.

[GTM 3442]

I think what Bjauck is meaning is that if asset value goes up from $100k to $200k in tax year, you are liable for tax on the $100k value increase. But where are you going to get the $33,000 from (tax on the $100k) because you have not yet sold the asset. Some people would really be struggling to pay the tax when the value of their houses go up for example.
Its easier with stocks for instance to sell a portion of shares if you have to pay a bill, but for some larger capital assets this is very difficult, especially if these assets are not really liquid.

What makes you think the effective rate for a CGT would be comparable to the current income tax rates?

[GTM 3442]

FIF also calculates liability on unrealised gains (when the assets have not been sold.) So it is a type of wealth tax when no income has actually been derived and no asset actually sold or disposed.

CGT calculates liability when the asset has been realised. For example income tax may apply to realised capital gains under the brightline test.

Oh, a wealth tax is coming, but it's probably a couple of decades away.

[blackcap]

What makes you think the effective rate for a CGT would be comparable to the current income tax rates?

I don't, and it may not be. Just using a hypothetical example to show that if you were going to be taxed on unrealised gains, or a wealth type tax, it may cause a lot of people a lot of heartache getting the funds necessary to pay the IRD.

[Timesurfer]

I don't, and it may not be. Just using a hypothetical example to show that if you were going to be taxed on unrealised gains, or a wealth type tax, it may cause a lot of people a lot of heartache getting the funds necessary to pay the IRD.

Could be good for banks offering reverse mortgages ...

[blackcap]

This is going to create some liquidity issues if it becomes law:

https://www.stuff.co.nz/business/107854674/tax-working-group-plan-for-baches-a-wealth-tax-that-will-rob-kiwis-of-their-dream

[Jay]

Isn't the basis of any CGT that it is paid when the asset is sold, alternatively if you have to pay each year then you must be able to claim the loss if/when it happens as well. Cannot see any govt trying to implement that across a broad spectrum of assets not withstanding the admin nightmare/cost - use the KISS (as possible) principle!

[blackcap]

Isn't the basis of any CGT that it is paid when the asset is sold, alternatively if you have to pay each year then you must be able to claim the loss if/when it happens as well. Cannot see any govt trying to implement that across a broad spectrum of assets not withstanding the admin nightmare/cost - use the KISS (as possible) principle!

Yes a CGT is paid when the asset is sold. But plenty of countries have a "wealth" tax". For instance, in The Netherlands where I have lived for some time, if you own net cash or assets over 25,000 Euro, you have to pay 4% per annum of that wealth added to your income to be taxed. For example you have 100,000 Euro sitting in a bank account. Every year the tax man takes 4% of this or 4,000 Euro and adds it to your taxable income. . Applies to other assets as well like houses etc. You end up paying 4% of your net assets in tax. This tax is currently at 30%. (your own home is exempt) Think we have it pretty good in NZ at the moment.

[enzed staffy]

thats a bit Sh*t, to take 4% - in the bank you're lucky to get 2%-2.5%, add inflation and it looks more like government theft. Certainly wont encourage saving

[blackcap]

thats a bit Sh*t, to take 4% - in the bank you're lucky to get 2%-2.5%, add inflation and it looks more like government theft. Certainly wont encourage saving

You are only taxed on the 4% though... so you end up losing 1.2% of your wealth per annum.

To be fair, on the flip side you are not taxed on your interest. There is no tax on interest income. But yeah if like many countries in Europe you do not even get 1% for your money in the bank then you are going backwards, and with inflation and all you are really going down hill. So there is little incentive to save after certain amounts.

[enzed staffy]

Ok Ok - I misunderstood. thanks for the clarification

[couta1]

Have a look at the number of countries that once had a wealth tax and have since chucked it out.

[Joshuatree]

How many is that?

[couta1]

How many is that? Wikipaedia is your friend.Lol

[Bjauck]

Have a look at the number of countries that once had a wealth tax and have since chucked it out. NZ has no broad-based wealth taxes, capital gains taxes, death or estate duties, or capital transfer taxes. How many other countries have such a situation?

Of course existing NZ income tax can become a CGT or a Wealth tax in certain situations - which will warp investment decisions correspondingly. So maybe if you are not in such situations you can say there are no wealth or CGT taxes.