Capital Gains Tax

[fungus pudding]

Yes there is, the interest on private properties is an after-tax expense and not partly reclaimed in a set of books. Nor are any other costs like rates, insurance and upkeep/maintenance covered. Domestic and commercial rent/leases generally cover most or all of these costs. People living in their own homes may also spend any savings on house extensions or regular renovation, unlike rentiers. So their real capital gain will be minimal in most situations.

Their real capital gain has hardly been minimal. You know as well as I do that it would be political suicide to tax the prime residence - that's the only reason to exclude it. You also know that home owners have a massive advantage over those who rent over time. Of course they face costs while they have the tax free benefit of a roof over their heads, while landlords receive an income, but are taxed on their profits.
A CGT that is poorly designed is no good to anyone. Properly designed and it would be hard to argue against, provided the revenue was used to lower income tax - the worst tax of all.

[Bjauck]

...
A CGT that is poorly designed is no good to anyone. Properly designed and it would be hard to argue against, provided the revenue was used to lower income tax - the worst tax of all.

I agree it makes no sense to exempt the owner occupied primary residence. There is already no stamp tax in NZ. And it already has a tax-preferred status anyway.

The TWG has squeezed down the definition of the primary residence. So they may well have substantially scrapped the exemption of the primary residence for many people anyway.

The government insisted on the exclusion in the first place because it would have been political annihilation for them if it had been included. So Cullen made exceptions to the exclusion!

[elZorro]

Their real capital gain has hardly been minimal. You know as well as I do that it would be political suicide to tax the prime residence - that's the only reason to exclude it. You also know that home owners have a massive advantage over those who rent over time. Of course they face costs while they have the tax free benefit of a roof over their heads, while landlords receive an income, but are taxed on their profits.
A CGT that is poorly designed is no good to anyone. Properly designed and it would be hard to argue against, provided the revenue was used to lower income tax - the worst tax of all.

Pretty disingenuous of you to constantly say that private dwellings should be subject to CGT when you realise it's not politically possible, and for good reason. Here's a discussion on the benefits of home ownership vs renting.

https://www.nzherald.co.nz/personal-...ectid=12019370

The point being made is that if a renter used the extra cash surplus each week to invest elsewhere, like in the stockmarket, they'd probably come out at the end in a better position than if they'd paid interest and capital, and have flexibility in their living arrangements the whole time. I think many of us follow the old thinking and buy a home if we can, because we're not especially good at saving. That's what I did, anyway. It doesn't mean that I made a massive capital gain on any property, I'm sure I didn't, unless money earned elsewhere paid it off quickly, saving interest. But equally I could have invested that surplus elsewhere. Inflation, interest, rates, insurance, upkeep and renovation expenses would surely take away most of the gains, without even adding in your own time upkeeping the property, which also has a value.

The example above doesn't look at it from the rentier's side, but on average I would expect most rentiers take a long time to get to cashflow positive situations, so they don't pay a lot of income tax as you imply, unless they are also paying off capital in their costs. There would be no need in most cycles, as inflation will pay it off. If, in the end, tenants have covered all ongoing costs from the bank and external costs associated with the property, there would be the difference between the original capital and the current capital value, less an allowance for inflation, which would be the true profit from the whole exercise, if any.

However the interesting point is that the risk of the borrowed money was held by the property as security, and covered ultimately by the tenant(s). If the rentier paid off no effective capital over the duration, their profit in this case is on a paper transaction that involved no real expense on their part to start with (leveraged against other property). So maybe Dr Cullen's idea of the CGT rate being the marginal rate, wasn't such a crazy idea.

[Bjauck]

Pretty disingenuous of you to constantly say that private dwellings should be subject to CGT when you realise it's not politically possible, and for good reason. Here's a discussion on the benefits of home ownership vs renting.

https://www.nzherald.co.nz/personal-...ectid=12019370

...

Just because something is “not politically possible” at the current time does not mean that those who support a policy should keep quiet. Surely the essence of a free democracy would be then be lost? So many reforms were politically impossible when first mooted.

Besides as home ownership rates fall, the vested interest of home owners may also become less compelling. Add to the mix a continued divergence of ownership of wealth in NZ and social expediency may well dictate a re-examination of the possible.

[minimoke]

Just because something is “not politically possible” at the current time does not mean that those who support a policy should keep quiet. .

CGT is politically possible on the family home. Its just that, in the absence of any more compelling reasons to vote, it would be political suicide.

[elZorro]

Just because something is “not politically possible” at the current time does not mean that those who support a policy should keep quiet. Surely the essence of a free democracy would be then be lost? So many reforms were politically impossible when first mooted.

Besides as home ownership rates fall, the vested interest of home owners may also become less compelling. Add to the mix a continued divergence of ownership of wealth in NZ and social expediency may well dictate a re-examination of the possible.

Even back in the day it was more expensive to slowly pay off a house each month, than rent. When you add in all the other risks and costs with home ownership, it's not altogether rosy, as that article said. Plus, this investment is by and large the family's only major investment, it's out of their tax-paid savings, and they cannot reclaim any of the costs.

The rentier is in an entirely different situation, where a paper transaction has been made using the property security and free capital from other sources like their own home, tax claims can be made offsetting other income, and the net amount of cashflow invested is low per month, dwindles away and quickly or eventually goes positive with rent increases. These same rentiers can be heard saying amongst themselves how easy it all is, they're smarter then the average bear. The big payoff is at the end years later, where all the inflation and any true capital gain on the property is theirs to have, free of any tax.

[Bjauck]

Even back in the day it was more expensive to slowly pay off a house each month, than rent. When you add in all the other risks and costs with home ownership, it's not altogether rosy, as that article said. Plus, this investment is by and large the family's only major investment, it's out of their tax-paid savings, and they cannot reclaim any of the costs.

The rentier is in an entirely different situation...

The home owner cannot reclaim costs as they are not assessed for IT on the net annual benefit of occupation and they are not assessed on the capital appreciation of the equity in their asset.

I agree, their situations are different. As is the situation of owners of shares and businesses. The owners of all assets face uncertainty and risks to greater or lesser extents.

The owners of shares have also paid for their investment out of tax-paid savings. They are less likely to be able to leverage to the same extent their investment on the collateral of the investment itself. The share prices are more volatile than the value of housing. The business in which they invested also pays tax on the net income generated (unlike the imputed rent or tax-free net benefit of the owner-occupied principal residence.)

[fungus pudding]

Even back in the day it was more expensive to slowly pay off a house each month, than rent.

Only if you overlook that part of the regular payment was reducing the capital of the loan. IOW - paying yourself.

[artemis]

Only if you overlook that part of the regular payment was reducing the capital of the loan. IOW - paying yourself.

Agreed, and with amortisation over time 'paying yourself' exceeds the interest component.