ACT's David Seymour - i like his style.

[Daytr]

Yes, Cullen recommended this incredibly convoluted sytem for CGT that would just be a nightmare.

He certainly didn't put any of these 'bright ideas' forward when he was Finance Minister I might add.

But a nice pet project for him later in his career, and I am sure he was remunerated nicely for his 'good advice'.

CGT with no exemptions whatsoever (not even for Maori) and it could work. Just don't expect to be re-elected, and the next lot will probably reverse some if not all of it because they will crucify you running up to the next election on the subject. Plenty of examples of a particularly sad looking mom and pop wondering why the govt is taking a slice of their Kiwi Dream when they sell their house at a profit.

Ha!

It works overseas with exemptions.
The family home & Maori land should be the only exemptions.
It's not that hard as proven in most Western Countries.

[mistaTea]

It works overseas with exemptions.
The family home & Maori land should be the only exemptions.
It's not that hard as proven in most Western Countries.

I know the UK has a system with lots of exemptions and different rules.

Not sure it works that well or how effective it is.

If we are going to broaden the tax base (I agree we should) then I don't understand why I should be able make a large capital gain on my Auckland property and not kick anything into the tin.

Yet my local hairdresser would have to fork out up to a third of her gain to the govt if she sold.

If you want it to work efficiently, ideally no exemptions. In the real world you probably need some, but they should be the absolute minimum.

One exemption you would need is Maori Land. Taxing that land is a big no-no given land tax was a way previous governmets used 'legal' means to confiscate land. So let's not even go there

I suspect for places like the UK, they have come up with these difficult to administer systems because that was the only way they could get it over the line (not because it is the best/most fair CGT system).

[Ferg]

I don't understand why I should be able make a large capital gain on my Auckland property and not kick anything into the tin.

Yet my local hairdresser would have to fork out up to a third of her gain to the govt if she sold.

Both of those sentences are both correct as well as incorrect - depending on the intention and a bunch of other factors. Legislation currently exists to tax both of these gains in NZ, under certain circumstances. And in other circumstances, both transactions could be on capital account and not subject to income tax.

Any discussion around taxing such gains should also take into consideration adjustments for inflation, and also retrospectively spreading the gain over the tax years any such gains were accrued, rather than in one year at punitive personal rates.

Keep in mind, you are allowed to make voluntary declarations of such income to the IRD. If you feel you should contribute then there are no legal impediments.

[777]

As I understand it...

Australia used to apply inflation but gave it away due to its' complexity. They replaced it with charging full tax on capital gain if sold in first year and taxed 50% of the gain if held longer. US use a the same method.

mistaTea if you bought your house for a million dollars and then were transferred to another city getting two million for your house, then you would have to pay tax on the million profit. When you arrive in the new city and wanted to maintain the same standard of house to what you sold then you would have to take out a mortgage to pay the tax on the earlier house. Would that be ideal?

[Panda-NZ-]

mistaTea if you bought your house for a million dollars and then were transferred to another city getting two million for your house, then you would have to pay tax on the million profit. When you arrive in the new city and wanted to maintain the same standard of house to what you sold then you would have to take out a mortgage to pay the tax on the earlier house. Would that be ideal?

Or if the new house was simply priced 100k more.

[mistaTea]

As I understand it...

Australia used to apply inflation but gave it away due to its' complexity. They replaced it with charging full tax on capital gain if sold in first year and taxed 50% of the gain if held longer. US use a the same method.

mistaTea if you bought your house for a million dollars and then were transferred to another city getting two million for your house, then you would have to pay tax on the million profit. When you arrive in the new city and wanted to maintain the same standard of house to what you sold then you would have to take out a mortgage to pay the tax on the earlier house. Would that be ideal?

Could you not argue the same if I wanted to sell shares of X Ltd to buy shares in Y Ltd?

Geez govt, now I have to take out a loan to pay the tax on X Ltd to keep me in the same $$$ ownership of the new company?

I am not really trying to debate the fairness of CGT. There are arguments for and against.

I just point out that if you are going to have one, the more complex you make it the less effective it is and more difficult to enforce.

What Cullen proposed was complicated.

Exempting the family home is little to do with fairness and is all about political expediency in my view. And that’s ok, but I just want to separate the two.

If kiwis were not property obsessed and were shares obsessed instead we would not be talking about the ‘need’ to exempt the family home. We would be squealing about the ‘need’ to exempt the share market from CGT!

[Balance]

Could you not argue the same if I wanted to sell shares of X Ltd to buy shares in Y Ltd?

Geez govt, now I have to take out a loan to pay the tax on X Ltd to keep me in the same $$$ ownership of the new company?

I am not really trying to debate the fairness of CGT. There are arguments for and against.

I just point out that if you are going to have one, the more complex you make it the less effective it is and more difficult to enforce.

What Cullen proposed was complicated.

Exempting the family home is little to do with fairness and is all about political expediency in my view. And that’s ok, but I just want to separate the two.

If kiwis were not property obsessed and were shares obsessed instead we would not be talking about the ‘need’ to exempt the family home. We would be squealing about the ‘need’ to exempt the share market from CGT!

Good point, MT about primary residence. In the US, capital gains tax has to be paid on sale of primary residence (with certain concessions).

But need to be realistic as Australia exempts family home so we will be shooting ourselves in the guts if we tried to implement US capital gain tax regime on family home here!

But there is a crying need to level the playing field out there for the betterment of NZ as an economy & as a society.

What is lacking is political leadership and that lies at the heart of all of NZ’s tax issues.

[777]

mistaTea

Good point but buying shares as an investment is different to buying a house to live in. You can sell shares but not need to maintain the same level of investment whereas if applied to the family home would mean eventually I could only have enough to buy a tent if I sold a number of times to maintain the same living standard.

And tax is already required to be paid if you are a share trader.

I actually support a CGT but I don't have much faith in the introduction of it, especially if the Greens or Maori Party have any input. Nor David Parker for that matter.

Balance
I am not sure of the detail but I believe interest on the mortgage is deductible from your income.

[Aaron]

So the answer is yes - their paper reclassified items as income that are not currently taxable per the Income Tax Act. So the report is at best conjectural, at worst disingenuous.

If you are keen for a non-inflation adjusted CGT you are welcome to lead by example and make voluntary contributions to the NZ tax pool by adding such 'income' to your self assessment each year. Let us know how you get on with that.

So what is your point?

Capital gains might not be the same as income or earnings but neither is consumption but we tax it through GST (note legislation was written in 1985 to do this. Laws are not set in stone). When you have a monetary system which benefits asset owners don't you think it would be good to tax their gains, especially as a lot of investing these days seems to focus on the potential for earnings increases and more importantly the resultant capital gains. Think Nividia and the magnificent 7. Would landlords need to keep pushing up rents every year if they had brought their investment at a decent yield or are they more focused on increasing the capital value by boosting earnings through annual rent increases.

Where are the biggest gains in wealth being made currently, in earnings or asset price appreciation?

Your suggestion to make voluntary contributions reminds me of when Republican senators suggested the same to Warren Buffet after he suggested their tax system needed changing.

"It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that can't be solved by voluntary contributions,"

He made those Senators look like a bunch of selfish morons.

As far as inflation adjustments are concerned, if inflation is always and everywhere a monetary phenomenon perhaps we should be looking at inflation targeting.

[mistaTea]

mistaTea

Good point but buying shares as an investment is different to buying a house to live in. You can sell shares but not need to maintain the same level of investment whereas if applied to the family home would mean eventually I could only have enough to buy a tent if I sold a number of times to maintain the same living standard.

Well, you would find that if a CGT applied to everything (including the family home) it would change behaviours. The amount of $$$ you needed to pay to the govt would impact your decision as to when to sell. I expect a CGT would probably be inflationary on all asset classes.

So more people would sit tight until they could clear their $1M (as per my earlier example) in order to keep themselves in the lifestyle they have been accustomed to. Less houses for sale, means prices go up.

So, over time, in reality it will be the purchases of property who effectively pay the CGT not the seller.

And tax is already required to be paid if you are a share trader.

You say true, though I believe there are all sorts of loopholes. Not a tax expert though.