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  1. #91
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    Quote Originally Posted by davflaws View Post
    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.

  2. #92
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    Quote Originally Posted by Bjauck View Post
    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.

  3. #93
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    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 !!
    Last edited by iceman; 21-09-2018 at 07:16 PM.

  4. #94
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    Quote Originally Posted by Lewylewylewy View Post
    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.

  5. #95
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    Quote Originally Posted by Bjauck View Post
    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.

  6. #96
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    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 😁

  7. #97
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    Quote Originally Posted by Lewylewylewy View Post
    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.
    Last edited by blackcap; 22-09-2018 at 12:39 PM.

  8. #98
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    Quote Originally Posted by blackcap View Post
    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).

  9. #99
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    Quote Originally Posted by iceman View Post
    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.

  10. #100
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    Quote Originally Posted by minimoke View Post
    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.

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