On Labour’s Capital Gains Tax

September 3rd, 2014 at 1:00 pm by David Farrar

A parliamentary staffer notes to me:

Not sure how Cunliffe’s attempt to clarify ’s CGT squares with the summary below in their policy document, which doesn’t specifically exclude family homes owned by trusts, and in fact says trusts could not be used to avoid the CGT.

Excluding trust-owned houses from a CGT would seem to raise questions about whether different trustees of the same trust, who live in different houses, would be exempt from a CGT on a number of properties, which would become complicated and costly in terms of foregone revenue.

I also wonder whether Labour’s revenue forecasts were counting on homes held in trusts being included? After all David Cunliffe has said their Capital Gains Trust will lead to families and businesses paying an extra $4 to $5 billion a year in tax.

In Labour’s policy summary their exemptions are:

Exemptions: The family home, personal assets, collectables, small business assets sold for retirement and payouts from retirement savings schemes, including KiwiSaver, will be exempt.

It is not at all clear whether this exemption includes family homes in trusts. I expect the IRD will need to hire hundreds of new staff to deal with such a complex CGT.

I support NZ having a , so long as income and company tax rates fall to compensate. But the CGT should be like GST – with almost no exemptions. Labour’s one is so complicated even the guy who designed it (Cunliffe was Finance Spokesperson when Labour adopted it) doesn’t know how it works.

Rob Hosing at NBR also makes a good point. He states that property speculators are already taxed if they buy and sell property to make capital gains. He gives an example of how someone in Auckland who buys a house for $750,000 and sells it a year later for $900,000 will pay (probably) 33% of the $150,000 profit if they are a property speculator.

Under the current law their tax bill would be $49,500. Under Labour’s Capital Gains Tax they will pay just 15% on their capital gain, so just $22,500 in tax.

Now it is hard to prove someone is a property speculator but National gave the IRD $6.65 million to enforce the current law more vigorously and this lead to an extra $57 million in tax revenue from property speculators.

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57 Responses to “On Labour’s Capital Gains Tax”

  1. Max S (20 comments) says:

    Disappointing that Sir Robert is going to vote for Trevor Mallard. Hutt South desparately needs a new MP.

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  2. Nigel Kearney (960 comments) says:

    It’s a minefield.

    I assume it will not be trustees, but beneficiaries of the trust, that need to be living in the property to avoid the tax. But there may be some beneficiaries not living in the property or people living in the property who are not beneficiaries. And beneficiaries can be quite easily changed. Also, what about cases where the family home is owned by a limited liability company which is in turn owned by a trust, are those people screwed unless they restructure before the change takes effect?

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  3. Ed Snack (1,829 comments) says:

    Sorry for being too,lazy to check, but presumably the policy is for annual valuations and payments (or accruals ?) on increases in value. Are there tax credits for the loss in value of an asset, would be grossly unfair if there was not. Are these gains inflation indexed as they must be to prevent governments simply debasing the monetary system for gain ?

    And I don’t support capital gains taxes, they are simple greed, they morality seems to be “you have money, give it to us or we use violence”, which is a morality of sorts I guess, just not one I could personally endorse very easily. The justification seems to be that there’s money there for the taking so that the government can look generous by distributing other peoples property. Scum is too weak a word…

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  4. Brian Smaller (4,036 comments) says:

    @Max – I saw Mallard handing out flyers at Waterloo the other morning. A hot blonde was handing out National flyers – I think she had a better hit rate. Mallard looked tired and somewhat wan.

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  5. kowtow (8,114 comments) says:

    Property speculation is certainly a tax loop hole here . Just about every economic activity we have is taxed. The answer is not more or new taxes. We should be cutting govt expenditure and then cutting taxes. There should be no tax on savings for example.

    I do not support a CGT. Conservatives should stand for less govt and less taxation.

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  6. Nookin (3,253 comments) says:

    The example that you give about the purchase and sale of the Auckland property is a little simplistic and I am not altogether certain that it proves the point that you seek to make.

    That particular transaction would be taxable if (1) the vendor was in the business of buying and selling properties or (2) the property was purchased with the intention of re-selling (even if the person was not in the business of buying and selling).

    There are other circumstances that could make the transaction taxable but the point is that in these circumstances, the profit made from the sale of land is not a capital gain in revenue terms. It is taxable income.

    I see no reason why there would be any conflict between the Capital Gains Tax and Income Tax provisions. The CGT provisions would simply have to state that the gains are taxable as CGT unless otherwise taxable as income.

    The imposition of a capital gains tax might well overcome the administrative problems of ensuring that tax is paid on profits from the sale of land where the profits are clearly taxable but are not declared. The government might decide that a uniform CGT instead of the income tax provisions could lessen the enforcement difficulties presently faced.

    On the other hand, there are many instances where people have purchased houses, undertaken some improvements and on sold (sometimes repetitively) and who will still not pay any tax (because of the residential home exemption) simply because of the difficulties in identifying the transaction as taxable.
    I would be interested in seeing how the CGT will apply where somebody with a house on a 2000 square metre section subdivides and sells a 1000 square metre section. Is that an exempt transaction?

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  7. maxwell (52 comments) says:

    It’s not just Cunliffe who doesn’t know their way around their CGT policy – the one they heroically estimate will bring
    in $ 1 billion p.a. by 2020. The one they’ve had 6 years and $150k each a year to sort out.

    I heard Parker on RadioLive with Sean Plunkett this a.m. saying that your parents house will NOT be liable for CGT.

    But from Labours website today http://campaign.labour.org.nz/capital_gains_tax

    “Treatment of Gains at Death: Capital gains on inheritance passed on after death will be rolled over to the heir,
    and not payable until the gain on the asset is realised”

    I read that as meaning that if the children (or other inheritors) are in, say, their late 50’s and live in their own homes, with jobs in other places,
    and don’t want to be absentee residential landlords, then if they decide to sell their parents house they WILL be liable for CGT.

    This is death duties in disguise.

    I have two mates who are going through this exact process right now so it’s not an uncommon situation.

    Remember Mallards instructions to candidates last election not to get into too much detail
    re. the CGT and to say that the exact details will be sorted out by an “expert” committee
    (appointed by Labour of course).

    We need to know much more detail before we can assess the policy, but they’re still at it

    “Expert Panel: An Expert Panel will be established to deal with issues that are technical in nature
    and involve areas where a high degree of specialised knowledge is required before a final decision can be reached.”

    I would like to see an constitutional guarantee that the 15% rate cannot be increased by any future Parliament unless a, say,
    75% majority is reached. Remember GST was never going to be more than 10%.

    The lawyers, accountants and valuers can’t believe their luck.

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  8. Bond (39 comments) says:

    I think Rob Hosing is wrong (but who knows?). I suspect that a property speculator would still be a speculator under Labour’s CGT. And they would still (be liable to) pay 33 percent in the example cited.

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  9. fooman (39 comments) says:

    NK: ” Also, what about cases where the family home is owned by a limited liability company which is in turn owned by a trust, are those people screwed unless they restructure before the change takes effect?”

    I understand the case where property is retained in a trust to prevent pitchfork and torch bearing creditors/ex-spouses claiming a share or forcing a sale after something goes wrong, but why would a family house be owned by a LLC?

    So, are you complaining that a family home as part of a business structure (a LLC) should not suffer the tax obligations of a business because owning a family home is not a business?

    Cheers,
    FM

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  10. mandk (940 comments) says:

    Oh goody! So we will need hundreds more civil servants to try to administer a CGT. But they will be no match for the hundreds or thousands of tax lawyers and accountants who will help people to avoid it.

    The idea that a CGT will raise $4 to $5 billion a year is sheer fantasy. Just like Cunliffe’s idea that you can build a railway system for Christchurch for $100 million.

    CGT is a real dog of a policy. I can’t understand how anyone imagines it would work.

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  11. The Yellow Dart (4 comments) says:

    Labour said somewhere that traders would still be taxed at their marginal income tax rate for trading in property.

    How about owner-occupied property held in other structures? Look through company, limited partnership?

    All very complex, so good luck to the group charged with drafting this piece of legislation.

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  12. malc (1 comment) says:

    What no-one is asking Parker/Cunliffe is the cost of implementation. IRD is currently looking to spend about $1.5B on a new computer system which I assume will not cater for CGT. Software alone will cost hundreds of millions and take years to develop (remember Novopay?). This doesn’t even start to factor in compliance costs. Lawyers and accountants will be collectively licking their lips. My guess is that there won’t be a positive cash flow for at least 5 years.

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  13. Paulus (2,589 comments) says:

    Where is there an offset for Capital Losses ?
    You are assuming that all liable companies, trusts etc, are selling at a profit.

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  14. Alan (1,087 comments) says:

    “Sorry for being too,lazy to check, but presumably the policy is for annual valuations and payments (or accruals ?) on increases in value. ”

    No, a CGT is only payable at realisation, i.e when you turn it into cash.

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  15. burt (8,174 comments) says:

    I expect the IRD will need to hire hundreds of new staff to deal with such a complex CGT.

    This is sadly standard MO for socialists. Pass endless new rules and regulations requiring an army of public servants – it hides unemployment. Causes massive recessions mind you when we spend a fortune on low value work to pretend the economy is strong… but that’s socialism in a nutshell.

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  16. trout (932 comments) says:

    Can someone enlighten me please. Muldoon’s Spec tax was brought in in the 1970’s (If you sold a property within 10 years of purchase you had to pay CGT). – was this repealed? At the time properties were bought by Companies and the Company changed hands (not the property) thereby avoiding the tax.
    For those that do not think the IRD chases up CGT have a word with the amateur speculators who bought Wanaka sections in a frenzy at the market release only to flog them off later. The IRD tracked then down one by one and hit them with a tax demand.

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  17. Alan (1,087 comments) says:

    “Where is there an offset for Capital Losses ?”

    It’s there in the policy.

    Read thishttp://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11309629

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  18. Nigel Kearney (960 comments) says:

    If people inherit their parents’ home and there is a large differential between the market value and the original purchase price, I doubt very much they would sell it. Probably they would sell their existing ‘family home’ and move into the parents’ home so that would then become the ‘family home’ and they could sell it with no CGT after whatever time period they are required to live there (or tell the the government they are living there but instead rent it out off the books).

    Fooman, there are a number of family homes owned by companies. It used to be the case not long ago that having a rental property owned by an LAQC gave a considerable tax advantage. Quite a few of these properties are now inhabited by the owner without the legal structure having been changed.

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  19. david (2,570 comments) says:

    The thing is that not once has Labour been able to identify even one of these evil speculators who are dodging tax on property speculation profits nor have they identified the amount that any one individual has dodged thereby depriving the state of income. NOT ONE INSTANCE

    Given that they seem to be able to trot out disadvantaged first home buyers, families in poverty, roof painters, families in need etc etc, you would think that they could name JUST ONE person that hasn’t been tapped on the shoulder by IRD already.

    The truth is that they can’t. The rabid speculator creaming tax-free profits is a myth and a lie but he keeps getting shoved in our faces day after day after day after ….

    CGT is an envy tax and an inefficient method (because they have run out of alternatives) of sucking a chunk of cash out of the economy for them to play with. National have made it difficult for them to raise income taxes in any meaningful way and the climate is not conducive for an increase in GST just yet. That one is coming.

    Removing cash from the economy and redistributing it back in, in any way that is not rewarding of productive enterprise can only be inflationary, I’ll repeat – it can only be inflationary in its outcome which then becomes self-defeating end will lead to bracket-creep on income tax, pushing average taxes taken from individual taxpayers to increase and reduce the amount of cash available for productive earners to spend on discretionary expenditure.

    One can only conclude that the long term objective of the two Davids is to reduce the majority of NZ taxpayers to a position where they have little surplus over and above the necessaries of living (food, clothing, shelter).

    What a hell of a way to destroy a fine country.

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  20. slijmbal (1,229 comments) says:

    @Nookin

    “On the other hand, there are many instances where people have purchased houses, undertaken some improvements and on sold (sometimes repetitively) and who will still not pay any tax (because of the residential home exemption) simply because of the difficulties in identifying the transaction as taxable.”

    if it’s repetitive it’s taxable. There is no residential home exception to my knowledge. The IRD are well within their remit to declare that as income and you would be unlikely to win out against them in court. I know of a couple of cases where people got spotted doing that and had to find 6 figures sums of tax with all the punitive add ons from the IRD. Certainly if you use it to get a better home (that you yourself live in), the fact that you have not cashed up would mean IRD would be much less likely to treat it as for income but you would need to repeatedly move between houses and they would have to be your own home throughout.

    There are other elements such as if you get someone to build a house for you, which you then on-sell then every single property transaction you then do is deemed to be taxable. It’s ironic that as it deters mom and dad property investors (the vast majority) from adding new housing stock.

    I used to have investment properties (up to about 8 years ago) and spent a lot of time looking at tax issues. The only true rort was being able to depreciate something that did not depreciate in value. This has since been removed by National.

    There are plenty of ways to end up being liable for tax on property already the issue is that it’s not been policed in the past to any rigour. It just needs to be policed

    Anyway, on CGT – I personally would be severely p****d off if one is brought in having spent decades building up investments on a high income tax rate and investing with tax paid money to then be clobbered with a tax on what I intend to live off on its value alone.

    Also as one who has foreign investments I already get hit with a CGT under the FDR Cullen brought in. Yet another complication on one’s tax return.

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  21. Michael (3,340 comments) says:

    When I subdivided and then sold my lifestyle block my accountant advised the Inland Revenue. So far as I can remember I would have had to pay some sort of extra tax if I had only owned it for a short time and if I had sold all the subdivided sections in the same year. I sold them over two years. The Inland Revenue were ok with that, but I know of others who have had to pay tax on the sale, specially if they have only owned the land for a couple of years or so before they subdivided and sold it.
    And if you don’t tell the IRD and they find out later on you can get hit with penalty tax as well.

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  22. Nookin (3,253 comments) says:

    slijmbal

    Legally, you are quite correct. From a practical perspective, however, I would think that a majority of taxable transactions miss the net because they are not declared.

    Trout:
    The Property Speculation Tax was repealed.
    The IRD activity in Wanaka to which you refer is, in my view, the exception rather than the rule. When you say “amateur” you are hitting the nail on the head. Developers were able to sell land even before subdivision consent. Many subdivisions were sold out within days of marketing. Contracts changed hands, sometimes on numerous occasions, from the time of original signing until settlement. There were instances where there were queues at on-site sales. People would purchase a property and sell the contract on their way to the back of the queue.

    It was a relatively straightforward process for the IRD to require each of the agents to declare all transactions that went through their hands. Once IRD was unable to identify transactions and decide which were taxable, the onus fell on the taxpayer to prove that it was not taxable. It was probably one of the best things that IRD could have done for the market at the time. It added more stability and sensibility. There was a lot of disquiet, locally, about the feeding frenzy driving prices up.

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  23. Alan (1,087 comments) says:

    “Anyway, on CGT – I personally would be severely p****d off if one is brought in having spent decades building up investments on a high income tax rate and investing with tax paid money to then be clobbered with a tax on what I intend to live off on its value alone.”

    You personally wouldn’t be impacted at all, historical gains are off limits. It would only relate to gains in value from after the date of the implementation of the policy.

    There’s a solid case to be made against this policy, but people don’t seem to understand how it works and are spreading FUD about it instead

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  24. artemisia (235 comments) says:

    Capital losses – these are to be carried forward and offset against future capital gain liabilities. That won’t help the accidental landlords and property investors with only one rental who make a capital loss (unless they have other CGT liable assets). A third of all LLs have only one rental. They don’t all live in Auckland.

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  25. alloytoo (522 comments) says:

    “• Capital losses: Losses can be carried forward and offset against future capital gains.”

    Couldn’t we just carry capital gains forward to offset against future capital losses?

    This is a bad tax because it’s an overly complicated tax and intrinsically unfair tax.

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  26. slijmbal (1,229 comments) says:

    @Nookin

    I think we’re agreeing the issue is policing rather than the rules.

    @Alan – I would still be severely p****d off as I would be taxed on any capital gain during my retirement years. One can expect to live about 20 years once you hit 65 as a rule of thumb. So, any investment strategy should still include a significant share element, where much of the gain is in capital value.

    I would very definitely be impacted.

    Removing my personal circumstances, if one could implement a decent, simple CGT that allowed for inflation and reduce income tax correspondingly it would certainly be less distorting on behaviour than an income tax alone but I cannot such a beasty ever existing.

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  27. lolitasbrother (621 comments) says:

    CGT and Family Trusts, and the David Cunliffe Family Trust

    Family Trusts are quite straight forward in requirement.
    A Settlor gives assets to Trustees who hold it in Trust for Beneficiary. These things must be proper and true

    The trouble was that the business of actually gifting the asset was so complicated , and the deeds and so on, that everyone went to lawyers and Accountants.
    These people then contrived incredible things like double blind trusts and basically :
    • The Asset had not properly been given away
    • The costs were enormous and
    • the trustees did nothing
    • the Trust was invalid, and
    • The legal and accountancy profession people were often incompetent in this regard

    Now the previous Labour Government worked with IRD to tighten things up, and make Trusts less attractive.
    And they succeeded . Try filling in your IR5 or whatever it is ,and you are going to sweat.

    It was a good move by Labour, Trusts are stupid, and antiquated nonsense and it took me five years to see what was happening.
    Each year the forms got more difficult . I think the tax rate is about 35% , which to a high income earner may be OK .
    but my Family trust is not worth a tinkers arse..
    Labour quite properly wanted to get people back to basics again.

    But the voting block of people with Trusts is now not just Nat voters.
    Many hard working New Zealanders took this expensive course in the belief it would benefit their children,
    and that their assets would not be taxed, or taken from them.
    That was the fundamental value for the sacrifice these parents paid.
    Now lets put the flame torch on.

    Will you tell us here Mr Cunliffe that you with your safe trusts, blind and double
    Will you tell us about your Trusts
    How will you determine what a family is.
    Can my husband stay in the family home him, Can he buy a new family home.
    Can my daughter stay in the family home with her friends?
    Your manifesto says you are going to screw us but we will see, we will see

    Any CGT at all will result in resettlement of Trusts, exemptions, skulduggery,
    we will have a good time and name new beneficiaries.
    The whole trust thing which you were trying to dismantle will grow

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  28. OneTrack (2,965 comments) says:

    Maxwell – “We need to know much more detail before we can assess the policy, but they’re still at it ”

    It’s all part of the plan. If we got more detail, then we wouldn’t vote for it.

    So they take the SledgeHammer approach – “Trust me, I know what I’m doing”. Bang.

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  29. PaulL (6,013 comments) says:

    There are a few problems with the analysis – going both ways.

    Firstly, it is clearly not the case that a CGT is impossible to administer, as many countries around the world have one, and many have exemptions for the family home. Yes, there are bureaucrats involved, but if it collected $1B per annum it could pay for bureaucrats.

    Secondly, it’s a solution looking for a problem. It’s touted as a way to reduce house prices through cooling off “speculation.” But the reality is that every house is lived in – there aren’t houses that are sitting empty whilst people speculate on them. If house prices go up, but every house is lived in, then either the “speculators” are losing a fortune on the different between rent and interest costs, or the reality is that the houses are actually “worth” that much money given relative scarcity. In other words Labour is attempting to apply a demand side solution to a supply side problem. And more importantly, their demand side solution doesn’t actually reduce demand – since the real demand comes from renters and owner occupiers, the “speculators” and landlords are just middlemen.

    Thirdly, NZ is a small country, and we don’t have all the regulations, taxes and rules of larger countries. We can’t afford them, and this is a good thing. Their new tax system including CGT will either:
    – raise the same revenue as our current tax system at a higher compliance cost (more taxes to administer, tax cuts in other areas to maintain same tax take), OR
    – raise more revenue than our current tax system, which means a tax increase.

    If the latter, then they need to justify why govt’s share of total GDP is too low currently and NZ would be better off with a higher tax take. They’re trying to sneak through a gap where the media paint it as a tax on bad people, and therefore ignore that fact that in aggregate it’s a tax increase, and that that tax comes out of the overall economy somewhere. The dead weight cost of taxation will have impacts.

    Bottom line, we should have two separate discussions:
    1. What % of GDP should be appropriated by the government for running govt services
    2. What is the most effective tax system for obtaining that money, having regard to economic efficiency, incentives to tax avoidance, administration costs, and political considerations (i.e. people like to feel that they’re not paying tax, even if tax incidence theory says that a tax on landlords ends up actually being paid by renters).

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  30. OneTrack (2,965 comments) says:

    The Yellow Dart – “All very complex, so good luck to the group charged with drafting this piece of legislation”

    Labour and Green Party MPs. What could go wrong.

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  31. rouppe (960 comments) says:

    Exemptions: The family home, personal assets, collectables, small business assets sold for retirement and payouts from retirement savings schemes, including KiwiSaver, will be exempt.

    My rental properties ARE small business assets (intended to be) sold for retirement.

    I really resent being labelled a speculator when I’ve held these properties over 10 years and pay annual tax on the income they generate

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  32. simpleton1 (174 comments) says:

    So many promises
    will mean a deficit,
    so balance the budget, (aha a responsible government)

    Raise more money, taxes, not enough?
    so print some money,for any shortfall, and everybody will have money to pay the taxes.

    What is a little inflation, as after all it is the oil of the economy, “raising or lowering the boats, so we all float equally”
    Whoops; Exception, but people with assets gain, so lets tax them, at least kindly at a lower rate.

    Never mind too much, as we will have full employment as the civil service bureaucracy employment numbers will increase, IRD, valuation department, inspectors, judges etc.
    Too much government??,,, the asset holders will have enough money to keep the private business bureaucracy going too, sure will be an increase of accountants, valuers, lawyers .

    Great life for every one will be well paid in little old NZ., so now no poverty stricken people or children, below % of median wage.

    Have not I simply solved all the problems in NZ??,,, with a tax on inflation.

    Control inflation, so capital gains will not go up so rapidly

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  33. rouppe (960 comments) says:

    Capital Losses

    If they are going to be carried forward then this is different to the FDR rules Cullen brought in. Under those rules if you spent $10,000 on USA shares and they appreciated over a year to $11,000 you paid tax in the capital gain of $1,000. If the following year they fell in value back to $10,000 there was no ‘credit’ or loss carried forward. Then in the year after that if the value of the shares went to $11,000 again, you were charged tax on the $1,000 AGAIN.

    So you paid tax on the $1,000 gain from $10,000 to $11,000 TWICE

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  34. david (2,570 comments) says:

    simpleton1 Like you I have been tempted to call it a tax on inflation but if it is anything like Australia’s CGT, there is an annual inflation index that is used to lay off some of the $ increases. Of course it is never set to equal real inflation (or more particularly any sector inflation as measured) but then that would totally remove anything other than super profits (losses) brought about by special one-off factors like a school rezoning or the announcement of a new motorway or airport.

    So profits cannot be allowed to be indexed out of inflation-adjusted existence so as to guarantee that the envy quotient can be satisfied and rich-prick, rapacious, evil speculators can have assets removed from their tight grasp.

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  35. Nookin (3,253 comments) says:

    David.

    Some years ago, a Timaru subdivider, faced with a heavy tax load following subdivision of a market garden for residential purposes, argued that some allowance should be made for inflation and that it was inappropriate for the tax liability to be increased because of inflation. The matter went as far as the Privy Council. The expert witness for the objector was a gentleman by the name of Donald Brash. Regrettably, his evidence was not persuasive.

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  36. david (2,570 comments) says:

    Thanks Nookin – so it is an out and out tax on inflation

    EDIT: add the following
    So it is in the Government’s best interest to stoke along inflation to increase the tax take. My what a perverted world we would live in if that happens.

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  37. 103PapPap (131 comments) says:

    What we really should have is this:
    Capital Gains Tax of (say) 15% over ALL property and share transactions (no exceptions),
    GST reduced to 10% (no exceptions),
    Tax on interest removed,
    Income and company taxes simplified (perhaps even flattened).

    This would completely change the country.

    CGT is inflation adjusted, so the CGT only applies to the profit made.

    Everybody is better off from reduced GST; and the high income people only payCGT taxes on actual profit.

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  38. nickb (3,686 comments) says:

    I’m to the right of Genghis Khan but there is some serious deficiencies in the right wing attacks on a CGT.

    First:

    Under the current law their tax bill would be $49,500. Under Labour’s Capital Gains Tax they will pay just 15% on their capital gain, so just $22,500 in tax.

    No they won’t. Speculators and dealers have been taxed under ordinary taxing principles since the inception of income tax. CGT applies to all assets, and not just property.

    Mr Patel at the corner dairy won’t start paying “capital gains tax” at 15% instead of regular income tax at 33% if he makes a gain selling an ice-cream, so why would a property developer that was already taxed be able to start paying tax at the 15% CGT rate? It’s not a capital gain in his case, it’s part of his ordinary income.

    Sure there will be tough issues deciding what is a capital gain and what is a fully taxable business gain but there is already that difficulty now (c.f. what is taxable and what is non-taxable).

    I’d expect someone of Rob Hosking’s ability to do better than this.

    A CGT is vital to broaden the tax base and stop artificially boosting investment in housing stock. Lack of a CGT increases investment in rental properties because:

    a) People can claim tax deductions in the pursuit of tax-free gains, in other words they can make losses for years on end in the knowledge they will make a large non-taxable gain at the time of sale. In what other type of business apart from renting property and farming would someone willingly make losses year after year with no prospect of profit in sight?

    When you think about it from this perspective ordinary taxpayers are in effect subsidising the tax deductions and tax refunds of landlords, and then the tax revenues get nothing back on the properties’ sale.

    b) The ability to gear up property and the banks’ eagerness to assist investors in doing so.

    I don’t believe a CGT will reduce house prices, in fact my opinion is it will do the opposite. But jesus wept there are some appallingly retarded arguments being circulated against a CGT.

    If you want a real reason National opposes it, just look at the latest pecuniary interests register.

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  39. Lance (2,614 comments) says:

    @nickb
    “A CGT is vital to broaden the tax base and stop artificially boosting investment in housing stock. Lack of a CGT increases investment in rental properties because:”

    So why not just a CGT on (extra) houses?
    Most other CG should be the kind of productive investment this country needs.

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  40. nickb (3,686 comments) says:

    It needs to be across everything or just distorts things more.

    For that reason I don’t agree with exempting the family home. But then Labour are trying to appease the typical self-interested “centre” voter whilst being seen to smack it to rich landlords.

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  41. burt (8,174 comments) says:

    rouppe

    I really resent being labelled a speculator when I’ve held these properties over 10 years and pay annual tax on the income they generate

    If you joined the Labour party and had crooked teeth the Labour supporters would praise you for owning rental properties. ;-)

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  42. Lance (2,614 comments) says:

    @nickb
    “It just distorts things more”?

    The problem decried by one and all is the housing speculation and that NZ needs investment in productive things like innovative companies etc.
    Said innovative companies struggle away for years developing underlying IP until finally the IP pays off. Usually a larger company with the channel to market and capitalisation is able to make the product a success.
    Then you want to tax the original owners heavily for finally making some money?

    Why would anyone bother, might as well just have bought a few renters?

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  43. emmess (1,416 comments) says:

    Any one just hear Cunliffe on Larry Williams show?
    His tone sounded like ‘who the hell are you to be questioning me?’
    What an arrogant bastard.

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  44. itstricky (1,761 comments) says:

    I expect the IRD will need to hire hundreds of new staff to deal with such a complex CGT.

    Is that exaggeration of the millennia, or just of the century?

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  45. itstricky (1,761 comments) says:

    His tone sounded like…. What an arrogant bastard

    Sometimes (but not always) I think the same thing when I hear JK. Is it true that your “feeling” is more factually correct than mine, or just that both of them could be arrogant b*s most of the time and that we’re equally right?

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  46. adze (2,057 comments) says:

    nickb:

    a) People can claim tax deductions in the pursuit of tax-free gains, in other words they can make losses for years on end in the knowledge they will make a large non-taxable gain at the time of sale. In what other type of business apart from renting property and farming would someone willingly make losses year after year with no prospect of profit in sight?

    Would the application of a CGT simply put pressure on rents? They at least have not kept pace with house pricing; if they had, a great deal many more people would be screwed.

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  47. OneTrack (2,965 comments) says:

    Alan – “No, a CGT is only payable at realisation, i.e when you turn it into cash.”

    Is that Labour’s CGT, the Green’s CGT or some other CGT?

    It is quite conceivable that Labour’s “expert team” will decide that an annual valuation and payment will be implemented. We just don’t know. Hmm, should I vote for something hidden behind the darkened curtain? No bloody way. The arrogance of Labour is breathtaking – they have scribbled CGT on the back of a beer coaster at the BackBencher, that’s their “policy” and they will work out the details later? No thanks.

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  48. OneTrack (2,965 comments) says:

    Lance – “Then you want to tax the original owners heavily for finally making some money?”

    Then Labour and the Greens WILL tax the original owners heavily for finally making some money? And for being evil neolib capitalists.

    But then half of the original owners will have seen the writing on the wall and moved their companies, and themselves, offshore.

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  49. OneTrack (2,965 comments) says:

    “Would the application of a CGT simply put pressure on rents? ”

    In lefty unicorn land, no, of course not. Those evil landlords that we have been demonising since forever wouldn’t do that.

    Meanwhile, in the real world, what would you do if some of the gains you were planning on receiving get legislated away. You would try and make it up somewhere.

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  50. nickb (3,686 comments) says:

    @nickb
    “It just distorts things more”?

    The problem decried by one and all is the housing speculation and that NZ needs investment in productive things like innovative companies etc.
    Said innovative companies struggle away for years developing underlying IP until finally the IP pays off. Usually a larger company with the channel to market and capitalisation is able to make the product a success.
    Then you want to tax the original owners heavily for finally making some money?

    Why would anyone bother, might as well just have bought a few renters?

    The problem is you are now wanting to use value judgements and use the tax system to favour one group of people over another.

    All I am saying is the playing field should be equal between different types of investment. Currently it is tilted in favour of residential property because bankers vastly prefer that over your hypothetical entrepreneur.

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  51. Sublime (205 comments) says:

    Matthew Hooton’s Twitter exchange with Andrew Little over this = comedy gold :D

    https://twitter.com/MatthewHootonNZ/status/506968361423495168

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  52. dog_eat_dog (772 comments) says:

    Nickb – then that’s a matter for the Government to sort out with banks, not just by taxing all and sundry to prove a point.

    I love seeing non-accountants argue about this.

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  53. Gravelroad (106 comments) says:

    All been said, apart from the effect on investment and the NZ economy.
    A CG tax is designed to lower the price of assets, houses land and business enterprises.
    This will mean that peoples’ existing equity relative to their debt will also be reduced.
    This will reduce confidence and the ability to invest in business ventures and property.
    It will also mean banks lending activities will be constrained by loan to value ratios and falling equity.
    All this = an economy in free fall.

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  54. simpleton1 (174 comments) says:

    david

    As the most borrowed entity in NZ, the government has the most to gain from inflation, and then at last resort can always book it to the people with “haircuts” and government necessity/austerity, and then rationing of services to user pays or means tested.

    So right do away with inflation indexing,

    Also I see that the rezoning effect, as you have mentioned and that may seem a way to tax super profits.
    Changed zoning does cause Rates to really rise in such situations as the valuations soar up compared to the rest. We can see that council bank on this, for the wish list of council spending, and even the people who do not sell are hit with the increased rates ! ! ! , and simply told if they can not afford to pay then to sell up and go somewhere cheaper. Now to get whacked with a capital gains tax.
    Will that include the rezoning in all of Auckland, all of New Zealand farm land and surrounds as the government allows unlimited easier wealthy criteria immigration, or investment money from overseas.

    Basically as overall government spending increases for the so called good of supporting all the people, particularly below % of median, then yes taxes will undoubtedly increase, and so will the pressure come to print/devalue the $, which will cause massive inflation.

    At the bare minimum there does have to be checks and balances

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  55. Mark (1,467 comments) says:

    CGT has just become inheritance tax. Cunliffe making it up on the run again.

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  56. nickb (3,686 comments) says:

    I love seeing non-accountants argue about this.

    I love seeing self-interested landlords argue about this.

    (BTW, I’m a tax lawyer with a masters degree in tax policy)

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  57. you reap what you sow (35 comments) says:

    what Labour proposes is daylight robbery. nothing more nothing less. they’re a bunch of bungling robbers too.

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