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- Mitigating the effects of a potential new capital gains tax
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Originally Posted by Lewylewylewy
....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.
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