Mitigating the effects of a potential new capital gains tax

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Originally Posted by blackcap

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.

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

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Originally Posted by Bjauck

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.

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

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Originally Posted by GTM 3442

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

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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.

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Originally Posted by blackcap

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.

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Could be good for banks offering reverse mortgages ...

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

https://www.stuff.co.nz/business/107...of-their-dream

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!

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Originally Posted by 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!

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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.

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

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Originally Posted by 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

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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.

Ok Ok - I misunderstood. thanks for the clarification