Leveraging the investment using the investment itself as collateral? It may happen for some share investors today but I imagine nowhere to the same extent as happens with real estate.
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That's because of the N.Z. Banks conservative approach to lending. The point I was trying to make is that tax law does not distinguish, but treats shares and property equally. i.e. there is no special treatment for real estate as a class. Just borrow from a rich uncle.
The definition of what is a taxable dividend would also need to be compared with what constitutes current taxable returns from property.
However in relation to CGT I understand. Perhaps the crux of “fairness” lies in real world practice and the comparison of taxes raised per $1 net return on the investment.
I’ve just signed the Labour Party petition on the CGT
labour.org.nz
I have done likewise to Grant Robertson. Specifically pointing out if CGT does proceed and also covers the family home, it would raise meaningful revenue, thus allowing a meaningful drop in income tax - and if it's considered fair to tax gains from property, then treat all property equally rather than just play with it.
Do you think they are crazy enough to give solid weighting to disingenuous advice from property investors FP? The standard household home was never in the CGT equation in any case. And I don't think that would lead to any investor worth their salt, over-investing in the family home, as it would be a waste of good capital. All property is being treated fairly, unless you'd consider not being able to add interest paid and other ownership costs into your annual tax return for your property portfolio.
Other dastardly options for landlords:
https://www.newshub.co.nz/home/polit...ichardson.html
https://www.newshub.co.nz/home/polit...or-labour.html
Renters just have to look forward to increases. Labour has changed how property management fees are charged - so loading up rent. They are insisting on minimum housing standards so cost will be loaded onto rent. Nothing wrong with landlords now wanting to manage their capital risks by cashing up any potential gain by loading up rents.
I can see you have the mantra spot-on, MM. It's only fair that the tenants will pay for every last cent of your investment, and more.
Attachment 10386
In the NZ context, the fact that the principal household home was not part of the TRG’s terms of reference exempts a significant proportion of household wealth. Nothing should have been off-limits. Our political masters would have decided what to ignore in the report anyway. Just as they are going to do with the actual report.
Why shouldn’t those who, instead of investing their equity and the banks money in a house, invest their equity in a business that earns taxable income and employs other people also have their capital gains on their equity exempted?
Why wouldn’t people over-invest in the exempt household residence? It could be more tax efficient (no income tax or capital gains) than KiwiSaver in its current form.
My point is that the household residence isn't such a great investment, on paper. Running a business or property investment portfolio does allow some tax benefits along the way. But I certainly agree that a business has a harder road to success, and wouldn't want to see the marginal tax rate on that gain, unless it was at some quite high threshold, and/or generated over a short time, as Labour proposed years ago.
I disagree in relation to the principal household residence. It is a great investment. Your annual benefit is tax free. By investing in the house it means that you do not have to pay rent out of tax-paid income. You can obtain a mortgage to leverage capital gain or obtain a retirement capital release at reasonable rates, the funds from which enable your purchase of other assets if you want. If there is a CGT and the principal home is exempt, that would be an extra benefit.
Also with asset testing for long-term care, the owner-occupied main home is exempt if there is a spouse not in care. That could mean a substantial nest egg available for the surviving spouse, which may not be available if the couple had invested in financial assets, shares or a business instead and which would not have been exempted from asset testing.
I bought my original residence for $52,000. my Current one is significantly much more than that - and that has been a deliberate plan to buy / sell upwards on the property "ladder". Of course there have been costs along the way. But the capital gain has been huge.
I havent given it a lot of thought yet because I need to see the final CGT policy. But I will look art the option of cashing up some lesser performing investments and trading up to a new "expensive" home and then look at reverse equity loans to release the capital. Who owns the family home will depend on the most efficient tax structure - I may sell it into a company.
In that case, why not do things the normal way, and buy a home first (or get into a leveraged home) and then start a business with the home as security? It would be less flexible and more expensive per week than renting, but maybe it would be better overall, as you say. Would you then think differently about working on that home, constantly improving it with tax-paid income and paying all that interest with tax-paid income, if the capital gain on the home that you also used for business finance security was to be taxed?
It may have been normal back in the day to buy a home when still young and then use that asset as collateral for a business. Certainly in Auckland that Avenue is more for the wealthy family member or for those on high incomes and good luck in trying to obtain a mortgage with sufficient funds available to invest in a business in addition to being able to afford the house itself.
A business or shares bought and added to with tax paid income should have the net income taxed and capital gains taxed but an owner-occupied home that is not liable to tax on net imputed rent should also not be liable for capital gains? I do not see the logic or fairness in that.
Yeh i'll have to agree that the banks are not stupid when it comes to lending. They know it's FAR less riskier to lend on residential homes than on commercial (which only have a business focus and having more risk).
I don't buy into the argument of funneling all your $ into your home by buying a mansion size expensive home. That recipe just doesn't work because higher end / pricier homes are far and few and attract less capital gain over the long term. The reality what makes prices go is simply location. The largest house with the largest investment of it's kinds means nothing if it's in a poor location. Even in a new sub-divisions one would be foolish to build extravagant when there's no knowing what the demand will be in 10 or 20 years time (ie. Pegasus area north of Christchurch). While i'm all for home owners to improve the value of their own home, I don't believe CGT exemption on the principle residence would cause many to up-scale their house (especially when it's a common trend for seniors to 'down scale' by selling their 4 bedroom home to a small 2 bedroom 'elderly person unit' type housing). and if you want to get rid of your house by doing a 'reverse-equity' mortgage ; each to their own.
NZ's tax system is not like the US where are no exemption of CGT on the principle residence. But then they're allowed all sorts of goodies like deducting their mortgage interest rate off their income, and capital losses that can be applied forward and back (again something the TWG has not talked about). Therefore, it would be more prudent for NZ to have a more comparable tax system such as in Australia (or UK colonies) where they allow a CGT exemption on the principle residence.
I would not be surprised if Princess Leia is looking for a CGT model like Australia or Canada. The simplicity of NZ's tax system penalises the low and middle class and makes the equality gap wider. I'll reiterate, a simple tax on all people is not just for those that are not able. Those who are disabled clearly have the right to make a decent living and get into their own home without being a rental tenant for the rest of their lives. Those who are more skilled and affluent deserve to pay more taxes but do so by structuring their assets in the form of paying CGT (of course this approach is meaningless if the tax rate on CGT = the person's tax bracket).
Location, or more specifically future demand is the key to the recipe - and it will help ensure the recipe work
A golden rule is to avoid new subdivisions - simply because you dont know who your neighbours are going to be.
People will be wise to put their money in places that secure their capital it the most effective way.
All these people are doing is releasing their own capital for their own benefit
Comparing others tax system is only of academic interest - and not part of this governments agenda. They apparently want a "Fairer" system
Other than trade, we dont need a comparable system. We need one that is efficient - like NZ's GST
A tax system should apply equally to all people - that is fair. The more you profit teh more tax you will pay. That is fair.
They dont have a right at all. They have an opportunity. As does everyone else.No-one deserves to pay tax. It is simply a burden we must all bear and we should all bear it equally and fairly.
One thing is sure in life - we need a roof over our heads when we stop earning - ie retire.
How is it fair I can put my money into an eventual mortgage free residential property and pay no capital gain as I release that capital. Compared with a renter, who ought to be putting their non-housing savings into a Superannuation, Kiiwsaver or other capital investment scheme , only to be taxed when they release that capital to pay for that roof in retirement
I agree. To exempt the family home from CGT and income tax on imputed rent, whilst subjecting other investments, business, shares and KiwiSaver investments to a CGT and Tax on income earned will make the purchase of a family home the de facto tax efficient pension scheme for those that can afford it. How long would it be before the NZX would close up shop?