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

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  • No

    213 100.00%
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  1. #521
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    Quote Originally Posted by Bjauck View Post
    I agree. To exempt the family home from CGT and income tax on imputed rent, whilst subjecting other investments, business, shares and KiwiSaver investments to a CGT and Tax on income earned will make the purchase of a family home the de facto tax efficient pension scheme for those that can afford it. How long would it be before the NZX would close up shop?
    Two consequences.

    NZ'ers will look for capital investment opportunities overseas on, say, ASX.

    Second usual supply demand principle will see increased demand for upscale residential housing which will push up prices which will see holders in NZ residential property get larger tax free capital gain.

  2. #522
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    Quote Originally Posted by Bjauck View Post
    It may have been normal back in the day to buy a home when still young and then use that asset as collateral for a business. Certainly in Auckland that Avenue is more for the wealthy family member or for those on high incomes and good luck in trying to obtain a mortgage with sufficient funds available to invest in a business in addition to being able to afford the house itself.

    A business or shares bought and added to with tax paid income should have the net income taxed and capital gains taxed but an owner-occupied home that is not liable to tax on net imputed rent should also not be liable for capital gains? I do not see the logic or fairness in that.
    I don't think they'll use the marginal tax rates with the CGT, and they'll have to be very careful around businesses and share portfolios, as you say.

    But the difference between a landlord's rented house and a private dwelling is stark. In the first situation a paper transaction can be made, leveraged against other property, and over the full term the landlord pays nothing to hold that asset, they even derive a small income from each property. Tax losses from earlier years defray their income tax. The private dwelling is more expensive to hold onto than renting something equivalent, for the average household. They might not pay rent, but they have to pay interest and usually some capital too, out of tax-paid income. If you really look hard at all the costs associated with owning a home and redecorating or adding on, in many cycles there really is no return on that spending and effort. But, that home is worthy capital to borrow against for other projects, and it gives the household stability.

    The govt cannot undo that incentive to home ownership by imposing a CGT on it.

  3. #523
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    Quote Originally Posted by elZorro View Post
    I don't think they'll use the marginal tax rates with the CGT, and they'll have to be very careful around businesses and share portfolios, as you say.

    But the difference between a landlord's rented house and a private dwelling is stark. In the first situation a paper transaction can be made, leveraged against other property, and over the full term the landlord pays nothing to hold that asset, they even derive a small income from each property. Tax losses from earlier years defray their income tax. The private dwelling is more expensive to hold onto than renting something equivalent, for the average household. They might not pay rent, but they have to pay interest and usually some capital too, out of tax-paid income. If you really look hard at all the costs associated with owning a home and redecorating or adding on, in many cycles there really is no return on that spending and effort.
    That pretty much sums up renting out residential property. The owner occupier however gets the return of rent-free accommodation.

  4. #524
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    Quote Originally Posted by elZorro View Post
    I don't think they'll use the marginal tax rates with the CGT, and they'll have to be very careful around businesses and share portfolios, as you say.
    Marginal rates is what they want and what the TWG came up with. Remember the TWG was told what the result was to be.

  5. #525
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    Quote Originally Posted by 777 View Post
    Marginal rates is what they want and what the TWG came up with. Remember the TWG was told what the result was to be.
    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.

  6. #526
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    NZ is in a unique situation. Canada's high taxation throughout the 90s and 2000 created a "brain drain" (i'm part of it). The response was so great PM Harper had created a fast track immigration program to attract expat Cdns (who married abroad with children) that they can easily move back to Canada. NZ doesn't have this problem because residents & wealth can easily move to Australia (no immigration requirement). A move that a Cdn can't do by moving to the USA.

    The NZ gov't may be too blind to wealth moving abroad, and looking to upscale into a high end house is not wise when the buyers of those houses have... moved abroad.

  7. #527
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    Quote Originally Posted by SBQ View Post
    NZ doesn't have this problem because residents & wealth can easily move to Australia (no immigration requirement). A move that a Cdn can't do by moving to the USA.
    It may be easy to move but as a NZ citizen you do not get any of the benefits Australians receive as an Australian citizen. Its all good until things start to go wrong.

    Quote Originally Posted by SBQ View Post
    The NZ gov't may be too blind to wealth moving abroad, and looking to upscale into a high end house is not wise when the buyers of those houses have... moved abroad.
    The vacuum left by departing high wealth NZ'ers could be filled by high wealth migrants.

  8. #528
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    Quote Originally Posted by elZorro View Post
    ....
    The govt cannot undo that incentive to home ownership by imposing a CGT on it.
    As home ownership rates fall (in Auckland it is down to close to 50% of homes) the “incentive to home ownership” tax breaks for owner-occupiers is a form of a benefit for the middle class.

    Those who rely on KiwiSaver for their pension fund either through choice (for some, home ownership may not be appropriate) or because they simply cannot raise the deposit or finance to buy a home (and consequent ascent of the principal residence property ladder) end up helping to pay the tax that is not levied on owner-occupiers. So the young and the poor end up paying higher tax on their wages, term deposits and KiwiSaver whilst the old and wealthier enjoy their tax-exempt homes which they are able to trade down or use for a reverse mortgage in retirement?

    Perhaps The tax foregone as a result of the exemptions for owner-occupied housing should be costed and published as a subsidy or benefit in the same way as other benefits paid by the government.
    Last edited by Bjauck; 12-03-2019 at 05:37 PM.

  9. #529
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    Quote Originally Posted by minimoke View Post
    It may be easy to move but as a NZ citizen you do not get any of the benefits Australians receive as an Australian citizen. Its all good until things start to go wrong.

    The vacuum left by departing high wealth NZ'ers could be filled by high wealth migrants.
    Wealthy people that move don't look for benefits. As Charlie Munger recently talked about at his Daily News AGM 2 weeks ago, paraphrasing that "Why would you not want rich people in your neighbourhood? They're not a burden to society, they don't fill up the jails.... they don't line up for gov't hands outs...". Many NZ citizens use private medical insurance for faster and better care despite - how would that be different to NZ citizens paying for private medical insurance in Australia?

    High wealth migrants moving to NZ? That boat was long gone pre-2000 when overseas assets and equities could be sold tax free by a NZ resident. We have a ban on non-residents buying real estate in NZ (with exception of Sg and S. Korea). Vastly different to how Aus or Canada treats non-resident ownership of real estate. Australia allows foreign investment into NEW development and newly built houses. Canada's door is wide open as a trap so they can tax your overseas income if you make too much of a presence / tie with the country. But there's no need to just read the news, just ask the real estate agents on where are the high net worth individuals coming to NZ? We have a Thai neighbour down the street that has chosen to put their house up for sale (after all they spent most of their time in Thailand). But deep down, the reason is they can't form a tie in NZ anymore from the real estate ban and decided to just simply stay in Thailand.

    Just look in the past 2 years where global capital outflows have gone? Brexit and EU issues... they've moved their wealth to the USA because they're the friendliest to foreign investment. (it's apparent by the strong USD currency).

  10. #530
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    Quote Originally Posted by Bjauck View Post
    It may have been normal back in the day to buy a home when still young and then use that asset as collateral for a business. Certainly in Auckland that Avenue is more for the wealthy family member or for those on high incomes and good luck in trying to obtain a mortgage with sufficient funds available to invest in a business in addition to being able to afford the house itself.

    A business or shares bought and added to with tax paid income should have the net income taxed and capital gains taxed but an owner-occupied home that is not liable to tax on net imputed rent should also not be liable for capital gains? I do not see the logic or fairness in that.
    A bach may also be subject to CGT under the new regime, in that case there is no imputed rent really (and assuming it's not rented out at any stage). I did some numbers on ours, and based on the last 13 years, with a paper transaction to kick it off, if we sell it now at a new market high it has still cost us the thick end of $80,000 in cashflow plus the use of all that money over the years (interest we could have accrued instead of paying). We don't use it much and haven't spent a lot on renovations. I wouldn't want to pay a CGT on the so-called capital gain in that situation. If we'd decided to just rent the place out fulltime we'd have a cashflow positive situation plus the use of the money that was tied up, and tax benefits.

    I think I'm coming to the conclusion that when you run a business with these assets, be it shareholding, commercial or residential property, a general business, then a CGT is likely and appropriate in some form. In other words, an effort is being made to have someone else pay off or cover the costs of that asset. But the bach, principal home, other personally owned assets can be a lot trickier to justify.

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