View Poll Results: Should there be a Capital Gains Tax on Property
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No
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Yes
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Goff is just an idiot
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Epic fail for Labour
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14-03-2019, 07:33 PM
#541
Originally Posted by Bjauck
it sounds like your equity has been used inefficiently. Many others would be in your position too I guess. A CGT could deter such inefficiency and hopefully it would benefit the country and the owners of equity too. Plus who knows maybe land would become more affordable for those wanting a principal home to live in.
I have to agree, we used our capital very inefficiently, it was a dog of an investment really, but we did enjoy the holidays. I was making the point though, that once I figured out all the interest and other costs, I saw it for what it was. But many people just say they've made money because the resale value has gone up. Not true in many cases. A CGT on the bach would fix it for me, we'll sell it in advance, and if I wasn't a leftie I'd have brutally rented it out every chance I could over the previous years. So is a CGT justified on a family bach like ours? Probably, because it was an inefficent asset and in any case the capital gain has been low historically, so it's not that important if it kicks off in 2020.
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14-03-2019, 07:41 PM
#542
Originally Posted by jmsnz
Is my understanding correct then, you are suggesting that if I:
1) Buy a property in Auckland to use as my bach and don't rent it out it is all good and regardless of any gain I pay no tax
2) Buy a property in Auckland to use as my bach and rent it out occasionally and cover rates, insurance and some maintenance, I now pay tax on any gain
3) Buy a property in Auckland and run a business as a residential landlord renting that property I immediately turn into a 3 headed monster that has to be taxed within an inch of my life, not to mention a continual raft of legislation around running that business
All those situations are very different, aren't they? So maybe a flat rule would be a bit cruel. Option 2 is not much different to 1, as the interest cost can swamp out other costs. But in Option 3 the effort is being made to have the tenant cover all costs for the landlord over the term of ownership.
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14-03-2019, 09:09 PM
#543
Originally Posted by elZorro
So is a CGT justified on a family bach like ours? Probably, because it was an inefficent asset and in any case the capital gain has been low historically, so it's not that important if it kicks off in 2020.
It may be an inefficient asset, but is your asset and it should be solely up to you what you do with it. If its a family bach I would have thought it ought to be treated in the same way as all other family property.
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15-03-2019, 08:32 AM
#544
Originally Posted by minimoke
It may be an inefficient asset, but is your asset and it should be solely up to you what you do with it. If its a family bach I would have thought it ought to be treated in the same way as all other family property.
I guess we thought that the capital gain alone would cover interest and costs, and that didn't happen with this bach to date. Average of about 2.5% gain p.a. over 13 years but the interest rate was a lot higher. Any CGT regime should try to be fair in all the diverse situations, if that is possible. We were of course lucky to have the bach at all, it wasn't too much of a drain ultimately on our finances, but there is no true leftover capital gain, it is a loss so far, but how would the IRD see it?
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15-03-2019, 08:34 AM
#545
Originally Posted by minimoke
It may be an inefficient asset, but is your asset and it should be solely up to you what you do with it. If its a family bach I would have thought it ought to be treated in the same way as all other family property.
That is true. However on a national scale, if the banking system prefers the lending of funds for investment in real estate, on the collateral of the real estate itself, this helps inflate land values and the build up of investment in non-efficient real estate such as baches.
Add to that the tax system that taxes wages and investment income but not the capital gain then the untaxed build up of land values and non-efficient investments diverts investment away from productive income producing investments.
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15-03-2019, 08:37 AM
#546
Originally Posted by elZorro
I guess we thought that the capital gain alone would cover interest and costs, and that didn't happen with this bach to date. Average of about 2.5% gain p.a. over 13 years but the interest rate was a lot higher. Any CGT regime should try to be fair in all the diverse situations, if that is possible. We were of course lucky to have the bach at all, it wasn't too much of a drain ultimately on our finances, but there is no true leftover capital gain, it is a loss so far, but how would the IRD see it?
if you had rented the Bach over the same period - what would that have cost? You have had the exclusive use of that Bach - to use whenever you wanted. That was a valuable annual benefit to you. Your annual interest expense would have been deductible from your imputed rent if it had been taxable.
Last edited by Bjauck; 15-03-2019 at 08:39 AM.
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15-03-2019, 09:03 AM
#547
For me the issue with CGT is that there are no definitive plans, no one is in charge, the governing coalition is incoherent with no visible competent manager.
I have always found an architectural argument such as "it would'nt look right" extremely difficult to counter with logical argument.
Justifying an expensive to implement complex new CGT tax on the argument of a move to a fair system ignores the option that existing tax GST and Income Tax rates can easily be changed if the Govt is desperate for revenue.
IMHO We do not need new taxes and the increase in Govt costs.
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15-03-2019, 09:03 AM
#548
Originally Posted by minimoke
Which will only be another shot at the "poor" people as they are elevated into the next tax bracket on the sale of what little capital they may have.
Only for the amount that is in the top bracket in the year in which the asset is actually sold and any gain realised.
As any CGT is supposed to be neutral on the total tax take. Those “poor” people with little capital* may well be better off overall - taking into account tax reduction in other areas. So they could well pay less income tax if income tax rates are adjusted down. In addition they may benefit from other taxes being reduced.
* Maybe they have a multi-million dollar principal house that will still be exempt from a CGT under the TWG’s proposals.
Last edited by Bjauck; 15-03-2019 at 09:18 AM.
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15-03-2019, 09:15 AM
#549
Originally Posted by elZorro
I guess we thought that the capital gain alone would cover interest and costs, and that didn't happen with this bach to date. Average of about 2.5% gain p.a. over 13 years but the interest rate was a lot higher. Any CGT regime should try to be fair in all the diverse situations, if that is possible. We were of course lucky to have the bach at all, it wasn't too much of a drain ultimately on our finances, but there is no true leftover capital gain, it is a loss so far, but how would the IRD see it?
As at today IRD isnt interested as you have held the property for too long to be covered by Brightline.
Will be interesting in the future though. If you hold the property as a family bach you cant claim expenses. But if it increase in value over time at the same rate of inflation then under the proposed regime you would be liable for tax on any gain. So in your scenario, going forward, you would be liable for CGT on the 2.5% inflation related gain. So about $12,540 in tax on a $38,000 gain on a $100,000 property. Or to put it another way. You will be loosing another $964 a year, on top of interest and expenses. Might be financially wiser to simply book-a-bach for the time you want to be away.
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15-03-2019, 09:18 AM
#550
Originally Posted by Bjauck
Only for the amount that is in the top bracket in the year in which the asset is actually sold and any gain realised.
As any CGT is supposed to be neutral on the total tax take. Those “poor” people with little capital* may well be better off overall - taking into account tax reduction in other areas. So they could well pay less income tax if income tax rates are adjusted down. In addition they may benefit from other taxes being reduced.
* Maybe they have a multi-million dollar principal house that will still be exempt from a CGT under the TWG’s proposals.
A gain will bump people into the next tax bracket, not necessarily the top bracket
Income |
Tax rate |
Effective tax rate |
$0 – $14,000 |
10.5% |
10.5% |
$14,001 – $48,000 |
17.5% |
10.5 - 15.5% |
$48,001 – $70,000 |
30% |
15.5 - 20.0% |
Over $70,000 |
33% |
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