Mitigating the effects of a potential new capital gains tax

[Bjauck]

The fairness argument is laughable wrt exemption
If 2 people have 1 million dollars NTA currently - one in Auckland has a family home for the average million dollar price, one has an average family home in Dunedin at 400k and 600k in the share market - the Dunedin person already pays more tax (on dividends) and now they want capital gains as well?
While the Auckland punter sits pretty on their exempt family home gaining capital and selling at a later date - no cost thank you.

Exactly. It only becomes “fair” if all individuals stuff all their earned and inherited money (if they are lucky enough to afford home ownership) into their own homes.

[Bjauck]

Me too... As a younger person I personally prefer living in a nice suburb close to work and let my landlord subsidies my rent while I grow equity in other investments. However if this tax comes into effect it will make more sense to buy a house I can afford further out which I don't really want to do.

I don't really mind a capital gains tax but it needs to fairly applied to all assets, don't ring fence the family home! This is of course political suicide and would never fly with the electorate.

Have you been able to leverage your capital gains from the equity in your other investments in the same way that your landlord may have done with the equity in his rental property? Plus he may have been able to negatively gear his investment and offset his income from other sources.

[allfromacell]

Have you been able to leverage your capital gains from the equity in your other investments in the same way that your landlord may have done with the equity in his rental property? Plus he may have been able to negatively gear his investment and offset his income from other sources.

No I haven't... The landlord very may have been able ofset losses but I belive the goverenment's stepping in now to stop this.


I can see there are many benefits to owning a house and the leverage flexibility it gives you but there are plenty of risks and disadvantages associated with that level of debt too. Personally I prefer the freedom and instant positive cash flow equity investments have given me. I can go overseas for several months without worrying about massive mortgage repayments, I can live where I want to live instead of buying in the only areas I can afford such as the south of Auckland. This is a probably a discussion best suited for another thread anyway...

[minimoke]

Exactly right..
And if you are old enough when you need liquidity, you could take out a reserve mortgage with Heartland,while the value of your home keeps increasing..

That will be the forefront of my thinking when I come to trade my house in the next 5 years or so. Might need to get me one of those flash apartments.

[Timesurfer]

I don't really mind a capital gains tax but it needs to fairly applied to all assets, don't ring fence the family home! This is of course political suicide and would never fly with the electorate.

That is the approach Gareth Morgan was pushing. I don't think he thought it through properly. He was suggesting this on the one hand (to tax him and his rich mates more) but on the other hand he was trying to drive more money into businesses. Good for tech businesses etc with little capital investment. However, it would have put a lot of small business with high capital investment out of business. People like myself with a truck and digger that get used part time - no incentive to keep that lying around. A caravan used as a spare room would go. A boat that would be written down in value pretty quick.

If I am being taxed on capital then I might as well have all my money in stocks pay tax on my gains from the comfort of my bed - own less toys and rent them when needed. Hard to see it growing the economy.

[Jay]

Could be growth in the renting Toys business ts :-)

[davflaws]

There's a lot of talk about creating a "fairer tax system". Which presumably means "the wealthy should pay more and others should pay less" . If that's what they mean, fine, but they should just say so.

The way I understand it from Michael Cullen's explanation is that they are widening the definition of income to include income derived from capital. The following illustration is simplistic - but I can't see what is wrong with it - either in theory or in practice. Allan is in IT. His salary is $100k. Bryan is a semi retired accountant. His Personal Drawings from his small practice are $50k and his shares and bonds provide dividends and interest totalling $50k.
A fair tax system would see Allan and Bryan paying the same tax.

[Lewylewylewy]

Not ring fencing the home would be very bad. It's not just political, it's economical.

If you buy a house, then it goes up in price, then you want to move to another city, if you sell the house, you won't be able to afford a similar house because you'll be taxed. Moving house will mean a downgrade.

This will make people disinclined to move. This makes the labor market imobile. Bad for busines and economy. This will also be bad for employees who can't get a better job in another city because it costs them too much. Bad for people.

Taxing the family home is bad for everyone.

Separate note: nz tall poppy syndrome = high chance of cgt for investments, without thought to all the impacts. Especially with labor and greens in power. I doubt your average kiwisavers understand the correlation.

[mondograss]

I vaguely recall (and someone who's been there more recently might correct me) that in the UK you still pay CGT on the family home if you've just bought it to do up and flick, but otherwise you don't normally. In deciding whether the property was bought for profit they look at how long you owned and lived in it for I think.

[Bjauck]

Not ring fencing the home would be very bad. It's not just political, it's economical.

If you buy a house, then it goes up in price, then you want to move to another city, if you sell the house, you won't be able to afford a similar house because you'll be taxed. Moving house will mean a downgrade.....

If it is bad economically not to ring fence the family home then it is even worse economically not to ring fence productive assets such as shares. Your arguments would equally apply to businesses and shareholding. In the absence of tax-free investment schemes, A Partial CGT that excludes the home could be a disincentive to investing in productive assets.

Besides if a cgt were introduced on the family home, Prices would probably drop quickly so there would be precious few taxable capital gains from the valuation point of when the tax were introduced - at least for many years. Cheaper land could mean greater affordability for first home buyers.

The main objection to a cgt on the family home would be political and from existing baby boomer home owners who have had massive leveraged capital gains over the past couple of decades.