If National wins ...

[fungus pudding]

FP, you have confirmed my view of some landlords. You owned a building for 18 years and had to do no upkeep on your side of the lease agreement? Obviously it was not tidied up enough to interest a new tenant. And now it is to be demolished, so you were land-banking with that asset. Your situation and the one the younger investor sees, are different. In one, the capital gain must have been quite small if it didn't cover the selling and buying costs. So he would have little CGT to bother about.

Your ownership of the first building was mainly concerned with the appreciation of the land value over time, otherwise you'd have tried to ensure the building was too useful as a business premises to be pulled down.

The reason my building did not attract a new tenant, and why the last tenant moved was because it had become surrounded by multi-storeyed student accommodation. My intention was to own it forever, but the area changed. Damned if I know where land baking comes into it. All my investing is for permanent income - always has been. I am worse off from selling it.
In the other example, as stated there was a massive so-called profit from selling the Ch-ch property. It was replacing it - Dunedin prices had risen just as much - and all the associated costs that ate up all that profit. Don't be too hung up on CGT. Go and spend a year in Australia and see if you still think it's a good thing. As I have stated before, CGT, if not well designed, e.g. Australian system, is a bad tax. It will certainly harm the NZ share market, but will not affect real estate prices.

[elZorro]

The reason my building did not attract a new tenant, and why the last tenant moved was because it had become surrounded by multi-storeyed student accommodation. My intention was to own it forever, but the area changed. Damned if I know where land baking comes into it. All my investing is for permanent income - always has been. I am worse off from selling it.
In the other example, as stated there was a massive so-called profit from selling the Ch-ch property. It was replacing it - Dunedin prices had risen just as much - and all the associated costs that ate up all that profit. Don't be too hung up on CGT. Go and spend a year in Australia and see if you still think it's a good thing. As I have stated before, CGT, if not well designed, e.g. Australian system, is a bad tax. It will certainly harm the NZ share market, but will not affect real estate prices.

The Australian system is to treat the capital gains as they occur, as normal income in a given year. The family home is exempted as long as it's on land less than 2Ha. There is a 50% discount for individuals, no discount for companies. The tax rate on part of it could be near 40% if that is the bracket that the income moves the entity into.

http://www.ato.gov.au/General/Capital-gains-tax/

Here, the CGT proposal is to levy a flat and lower rate of tax on it. The family home will still be exempt. Any CGT will not affect property or assets already owned before the CGT comes into force. Losses in a given transaction will more likely be carried forward to offset against future capital gains.

http://www.stuff.co.nz/national/poli...s-tax-new-rate

The Australian system is a bit messy with exemptions for some people (older business owners) and not others, and the tax rate can be quite high. So a 15% flat rate is quite acceptable in comparison. I don't think the CGT's reason for being is to lower property prices or clobber the sharemarket. It's to make things fairer in NZ.

[Harvey Specter]

The Australian system is to treat the capital gains as they occur, as normal income in a given year.

So a 15% flat rate is quite acceptable in comparison. I don't think the CGT's reason for being is to lower property prices or clobber the sharemarket. It's to make things fairer in NZ.

Just want to pick up on these two.

The gains are taxed as they are realised, not an unrealised basis. (I am sure you meant that but the work occur is a bit ambiguous).

Why should someone who earns all their income from capital gains have a lower tax rate than someone who earns through effort. I am not refer to 'passive' capital gains but active capital gains like a spec builder, share trader or as Buffet once said, why should he pay a lower tax rate than his secretary?

ON that last point, I would like to see CGT, if introduced, being revenue neutral - that is at the same rate as income tax but the income from the CGT used to lower the tax rate. Eg. CGT will take 10 years to earn sufficient tax so we will drop the top tax rate (and changes to the lower rates as well) 1% per year for the next year. EDIT: ultimately end up on say a $5k tax free, 10% up to $40k and 25% after that. I dont know if that would be revenue neutral but you get the idea.

[Harvey Specter]

Roll over relief seems to be missing from this discussion. Anyone who has read a Robert Kiyosaki book should know how this works in the US. Sell a property but buy a more expensive property and that gain gets rolled over into the next purchase, effectively deferring the tax until the gain is ultimately realised.

[fungus pudding]

The Australian system is to treat the capital gains as they occur, as normal income in a given year. The family home is exempted as long as it's on land less than 2Ha. There is a 50% discount for individuals, no discount for companies. The tax rate on part of it could be near 40% if that is the bracket that the income moves the entity into.

http://www.ato.gov.au/General/Capital-gains-tax/

Here, the CGT proposal is to levy a flat and lower rate of tax on it. The family home will still be exempt. Any CGT will not affect property or assets already owned before the CGT comes into force. Losses in a given transaction will more likely be carried forward to offset against future capital gains.

http://www.stuff.co.nz/national/poli...s-tax-new-rate

The Australian system is a bit messy with exemptions for some people (older business owners) and not others, and the tax rate can be quite high. So a 15% flat rate is quite acceptable in comparison. I don't think the CGT's reason for being is to lower property prices or clobber the sharemarket. It's to make things fairer in NZ.

Yes, yes, we know all that. If the tax was levied if and when sale proceeds were used for personal expenditure it would be fairer and less likely to stop things happening - that is the big problem in Australia which you would know if you'd ever had experience in the Australian R.E. market. All taxes slow activity, but to put blocks that stifle expansion, as in trading up, in the way of a trading enterprise is plain nuts. I have no doubt we'll end up with a CGT within a decade, so it's important to get it right. The current proposal is not good.

[elZorro]

Harvey, thanks for the correction, it wasn't clear, as you say. Spec builders and sharemarket people who are active traders are already picked up in the current system, taxed at normal rates. I would think that the 15% rate is there so it's more likely to be accepted by the public at large.

If a capital gain on investments had been earned slowly over several years, and its effect on a tax rate would have been less if it was settled every year like normal business income, then I think it is punitive to put all the capital gain into one year's income when it is sold, and tax a fair bit of it, at what is likely to be the highest tax rate. Most of us will not be selling off capital assets very frequently. 15% is a low figure, but of course it might be like the GST rate, it was 10% and now it's 15%.

I don't agree with a repatriation clause or rollover clause though. That is just the old boys network getting away with it again. If you're smart enough to make a capital gain on a sale alongside other income streams, you can afford to allow for a CGT payment in the financial year in which it settles. Take 85% of the gain and do it all again, it's still appealing.

R&D grants don't always work out. Some NZers made a good capital gain here on a sale, the govt later granted funds to the Canadian-owned business, and now it's going to be wound down.

http://www.nzherald.co.nz/business/n...ectid=11198551

[Harvey Specter]

If a capital gain on investments had been earned slowly over several years, and its effect on a tax rate would have been less if it was settled every year like normal business income, then I think it is punitive to put all the capital gain into one year's income when it is sold, and tax a fair bit of it, at what is likely to be the highest tax rate. Most of us will not be selling off capital assets very frequently.

I am in the top tax rate (it isn't hard to be a the moment though DC may bump it up with a $150k limit) and hope to be for the rest of my working life. So why do I get a discount for making a capital gain.

I also note that somehow hedge funds treat the carry interest as a capital gain. HOw they do that is anyones guess but shows that the it is the rich that will benefit from a lower CGT rate.

Maybe they need a rule where you can elect to do an additional calc which effectively spreads the income over the past 6 years should you be in a lower tax bracket.

[Cuzzie]

Prime Minister John Key has called Labour leader David Cunliffe an "idiot" over his comments about Kiwis' entitlements in Australia. Read it here.

[Harvey Specter]

Agreed. But to make this work quickly there need to be no exemptions. I find this to be completely reasonable.

If they really want to 'exempt' the family home, why not roll over releif or a cap (ie. first $350k only)

[fungus pudding]

Still distorting ... e.g. Aucklanders would all move to the South Island to minimise their tax bills ... I'd not want that ... Would you?

We South Islanders wouldn't want that either. Not that we don't like North Islanders. We just like them better when they are there.