Hard News: A Capital Idea?
246 Responses
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Here, although CGT starts a bit further down, it's a long thread so I suggest a bisection search.
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Ok Matt, so that extra $15k is not better off in Kiwi Saver or in a term investment or being spent on a holiday or a car or something that allows others to have jobs - it’s better off with the government.
Sorry, I'll never buy that. *Rich* pricks spend a lot of money too. That spending allows certain businesses to stay afloat and allows students to be employed in restaurants as waitresses etc. But never mind, I’m sure the government can buy a restaurant or 100 with the extra $15k.
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Matthew Poole, in reply to
They only get a tax loss if they can convince the IRD that they a) went into it intending to make money and b) did it on a serious basis rather than just as a hobby. You can't claim losses incurred in pursuit of a hobby (or deduct expenses).
There is copious case law on the hobby/business distinction, and it's not as simple as declaring that you tried out this business and it lost money. The IRD are not as stupid as you appear to believe.
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Matthew Poole, in reply to
Repeat after me: trickle-down doesn't work. It might be a core tenet of your religion, but I have yet to see any real evidence that it's not a false idol. But hey, feel free to find me some peer-reviewed academic research that proves trickle-down.
The Government getting $15k*1 doesn't buy much, no, but $15k*thousands buys lots. It buys whole hospitals, or schools, or railway tunnels to help Auckland's traffic issues. How many of those things can you buy with your $15k?
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BenWilson, in reply to
But never mind, I’m sure the government can buy a restaurant or 100 with the extra $15k.
Or it can balance the books. That would be good for the economy.
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Parnell McMansions
All a 15% CGT does is shift the balance a little away from a capital gain mentality.
But isn't it also just as likely that, unless we can somehow increase supply of the McMansions (or the McMiniMansions) of which you speak, that the Property Prospector, or the money grubbing home owner, will slap 15% on the sale price (or the rent) to claw back the loss in capital gain? They're in 'business' after all. How many of them absorbed the GST increase?
Of course at 40% it would be more difficult to pass on.
And what about inflation?
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Rich of Observationz, in reply to
Apologies for questioning your universal knowledge.
BTW, I'm having a few issues understanding the nature of the Higgs Boson - would you be able to provide explanations?
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BenWilson, in reply to
And what about inflation?
If we follow the Ozzie model, it will be inflation adjusted. So buy-and-holders don't pay much CGT. It really targets trading.
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I'd just like to note, for the record, early in the thread, that the considerable family fortune I will most likely inherit a piece of is all in investment property. I could lose a lot from this tax. But I still think it's a good idea.
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Matthew Poole, in reply to
And what about inflation?
The South Africans just set their CGT rate at 15%, far lower than their income tax rates, and didn't bother with inflation adjustment. Simplifies things, and the lower rate helps compensate for the inflation effect. Or, as Ben suggests, we could follow as and index, but that is rather more complicated.
Exempting all sellers who purchased their property before the CGT comes into effect is a two-edged sword. It really negates the inflation effect, since the really huge inflation of values has already occurred, but it also encourages asset retention for longer than is necessary to maximise the capital gain.
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If Farrar and Coddington don't like it, we should probably order two.
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James Butler, in reply to
But isn’t it also just as likely that, unless we can somehow increase supply of the McMansions (or the McMiniMansions) of which you speak, that the Property Prospector, or the money grubbing home owner, will slap 15% on the sale price (or the rent) to claw back the loss in capital gain? They’re in ‘business’ after all. How many of them absorbed the GST increase?
Well no (in the sale case at least - rent is a different matter), because none of the other Property Prospectors they might want to sell to will pay the extra 15%; if anything they'll want to pay less than before, because with CGT the expected ROI is now smaller. QED.
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James Butler, in reply to
I’d just like to note, for the record, early in the thread, that the considerable family fortune I will most likely inherit a piece of is all in investment property. I could lose a lot from this tax. But I still think it’s a good idea.
Oh yeah, +1 (for some value of “significant” – it sure seems like a lot to me). Except a fair portion of that is in Australia anyway, so I’m assuming Aus. CGT will be payable.
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BenWilson, in reply to
Except a significant portion of that is in Australia anyway, so I'm assuming Aus. CGT will be payable.
Only if you sell. Hold it, take the rents. It's a good system - it's not like there aren't heaps of people in Oz who have made a mega fortune in property.
If Farrar and Coddington don't like it, we should probably order two.
The upsize would be to make it impossible to claim interest as an expense. That actually would precipitate a market collapse, IMHO. But it could be phased in gradually, reducing the proportion that can be claimed every year. Then we'd just have a neverending recession, probably followed by an amazing period of growth. It's neva gonna happen.
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Bart Janssen, in reply to
the general issue of whether that $15K is better left in the hands of individuals
Yeah nah. I get allowing folks to make decisions for themselves. But really? Even the US of A uses capital gains tax. It really really isn't that big a deal.
Capital gains is a way of making money - in most societies the govt takes a bit of any money you make to manage shit, shit you want. Why should there be a huge loophole where folks can make money - serious money - without paying tax?
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Craig Ranapia, in reply to
If you sit on an asset for long enough and it goes up in value, you pay no tax on that unearned income when you cash it up.
That’s not fair.
Sorry for sounding like a broken record, but would someone come up with a simple answer for this bear of little brain why it is "fair" when that asset is the "family home"? Come on, a haiku would do.
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recordari, in reply to
I’d just like to note, for the record, early in the thread, that the considerable family fortune I will most likely inherit a piece of is all in investment property. I could lose a lot from this tax.
FTR, apart from our own house, none of the family... 'investments' are in property. Property investment is generally backed by servicing debt, which, FWIS, is a false economy. And, as Russell has described, is a non-productive investment.
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Matthew Poole, in reply to
Everyone has to live somewhere.
How's that?
Expanded, if you sell the home in which you live, you're probably going to buy somewhere else. Or you're going to a retirement home. There aren't too many other common options. In either case, whatever you make on the sale is a) retiring any remaining debt on the sold property, and b) going into your future living arrangements.Alternatively: To tax the home in which you live is to tax something that is not a source of income for you, and that is not fair within the wider taxation context.
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James Butler, in reply to
Alternatively: To tax the home in which you live is to tax something that is not a source of income for you, and that is not fair within the wider taxation context.
Well you could argue it is a net income, because it negates the cost of renting a home from someone else.
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Bart Janssen, in reply to
why it is “fair” when that asset is the “family home”
It cannot be fair
No haiku needed for this
Only politicsIn the long term it would make no difference if the family home was subject to CGT, but it simply isn't possible to implement politically. Which you know very well, so raising it as a criticism is disingenuous.
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Yeah what Bart says - it's a political compromise - it means that most ordinary people don't need to deal with CGT or planning for it during their lifetime - unless they make investments that pay of through capital gains.
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Bart Janssen, in reply to
I disagree.
There is no real difference between CGT on investment properties and CGT on family homes. You could think of it essentially the same way you can think of GST. It would require some juggling of other tax numbers to get the total tax take where it was needed to be.
However there is a huge political difference between taxing investment properties and family homes - especially for a society unused to CGTs.
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As I mentioned up-thread in the US you carry forward any capital gains in the family home as you traded up, so no payments, just some behind the scenes tax accounting - and they used to allow you a once-in-a-lifetime exemption near retirement (when the kids had moved out and you traded down) up to a fixed ceiling - so people do have CGT in theory on the family home except in only that one transaction - the exemption is a special deal you have to request by filing a special tax form rather than an as=of-right sort of thing)
(Bush et al changed it recently, I guess to help fellow elephant lovers cash out of the bubble - at the moment it's something like $500k every 5 years which I think is plain wrong)
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Nick Kearney, in reply to
Why should there be a huge loophole where folks can make money - serious money - without paying tax?
There's no loophole - there is a CGT now.
Why can’t folks just make money, keep it and decide whether to save it (good), pay off debt (good) or buy a TV keeping a Harvey Norman salesman(person) in a job (good)?
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Steve Barnes, in reply to
I know the latest Tax Working Group didn’t.
Scoop, Monday, 8 June 2009
Key was quizzed on the issue at his weekly post-Cabinet press conference about work under way by a government tax review advisory group, and comments last week by the Treasury Secretary, John Whitehead, who advocates a capital gains tax on investment property.He also said something else that day...
He also slapped down suggestions of a higher rate of GST, which Whitehead also appeared to favour
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