Mitigating the effects of a potential new capital gains tax

[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.