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View Poll Results: Should there be a Capital Gains Tax on Property

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  • No

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  1. #541
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    Quote Originally Posted by Bjauck View Post
    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.

  2. #542
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    Quote Originally Posted by jmsnz View Post
    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.

  3. #543
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    Quote Originally Posted by elZorro View Post
    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.

  4. #544
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    Quote Originally Posted by minimoke View Post
    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?

  5. #545
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    Quote Originally Posted by minimoke View Post
    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.

  6. #546
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    Quote Originally Posted by elZorro View Post
    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.

  7. #547
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    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.

  8. #548
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    Quote Originally Posted by minimoke View Post
    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.

  9. #549
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    Quote Originally Posted by elZorro View Post
    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.

  10. #550
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    Quote Originally Posted by Bjauck View Post
    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%

  11. #551
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    Quote Originally Posted by minimoke View Post
    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%
    Sure - their top bracket. Someone with few non-exempt assets will probably end up paying less tax under the TWG proposals.

    Besides If the TWG’s are ever introduced and CGT receipts become meaningful then maybe those tax bands will be more generous and the top rate of income tax may be dropped to 28%...However our “poor” taxpayer may have already shifted all his equity into his over-capitalised multi-million Dollar exempt principal residence by then.
    Last edited by Bjauck; 15-03-2019 at 09:36 AM.

  12. #552
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    Quote Originally Posted by Bjauck View Post
    Sure - their top bracket. Someone with few non-exempt assets will probably end up paying less tax under the TWG proposals.
    Which results in what we know all along. The "rich" will be taxed to pay to the "poor". Its all about wealth redistribution.

  13. #553
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    Quote Originally Posted by minimoke View Post
    Which results in what we know all along. The "rich" will be taxed to pay to the "poor". Its all about wealth redistribution.
    I thought you were concerned about the poor taxpayer with little capital?

    Under the TWG proposal, If you are rich with a valuable principal house and lots of income producing equity, I don’t imagine the overall effect will be much different (given the stated parameters)

    If you have a big expensive house and a high income, you could see a tax reduction.

    If you have currently no principal house, minimised taxable income and lots of investments which have relied on capital gain things may be different if capital profit is treated the same as income.
    Last edited by Bjauck; 15-03-2019 at 09:56 AM.

  14. #554
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    Quote Originally Posted by Bjauck View Post
    Sure - their top bracket. Someone with few non-exempt assets will probably end up paying less tax under the TWG proposals.

    Besides If the TWG’s are ever introduced and CGT receipts become meaningful then maybe those tax bands will be more generous and the top rate of income tax may be dropped to 28%...However our “poor” taxpayer may have already shifted all his equity into his over-capitalised multi-million Dollar exempt principal residence by then.
    Poor tax payers investing in their MM$ home? First you need to find where the buyers of these high end homes? Have we forgot there's a ban on foreign / non-residents buying real estate in NZ? Kiwis are not use to investing into their own home as the focus has always been through property accumulation and NOT property improvements. This is evident in how N. Americans view home ownership with multi-generational living vs NZ's change the house as often as "changing cars" point of view.

    Is it me or the media is slow at releasing more news about this CGT? Beehive isn't talking much about CGT and isn't the reporting deadline in April?

  15. #555
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    Quote Originally Posted by SBQ View Post
    Poor tax payers investing in their MM$ home? First you need to find where the buyers of these high end homes? Have we forgot there's a ban on foreign / non-residents buying real estate in NZ? Kiwis are not use to investing into their own home as the focus has always been through property accumulation and NOT property improvements. This is evident in how N. Americans view home ownership with multi-generational living vs NZ's change the house as often as "changing cars" point of view.

    Is it me or the media is slow at releasing more news about this CGT? Beehive isn't talking much about CGT and isn't the reporting deadline in April?
    I disagree - Many kiwis improve their main residence by adding rooms, renovating, landscaping etc.

    As for multi-generational living in the same residence, that may be a cultural or affordability issue for many. I would have that would have applied in all the states of the USA including British Canada and French Quebec as well..

    It is true - buying then selling the principal residence and borrowing to leverage your way up the property ladder is the de facto tax efficient way to accumulate the kiwi nest egg or fund for old age!

    CGT in the form as released by the majority on the TWG is a political non-starter. A NZ CGT is like orthodontistry on Ken Dodd’s teeth*. Most people know work needs to be done to fix the teeth but nobody wants to be the one to have to do it and possibly stuffing up his act.

    * or Cilla Black being gender equal! You have to be a certain age to appreciate those references (they were popular here back in the day. Did they make it to N.America?)
    Last edited by Bjauck; 15-03-2019 at 02:54 PM.

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