Hard News: A Capital Idea?
246 Responses
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recordari, in reply to
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
Thanks, I was wondering how this might work. You’re not exactly ‘gaining’ if you just briefly realised the equity in your house and then borrowed more against it to move on somewhere else.
You could think of it essentially the same way you can think of GST.
I’m trying, but so far I can’t. AFAIK, unless you are a ‘property trader’, or buying commercial property from a GST registered seller, you don’t pay GST when purchasing property.
Although I didn’t find this explanation by the Investment Property People very helpful either.
Do I pay GST?
If you claim GST on the purchase price, you will pay GST on any rent received and pay GST when you sell the property. Your purchasing entity would need to be registered for GST.
We will be paying GST on the sale price of the property to you. There is no GST payable by the investor on the price we sell to you for.
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Gareth Ward, in reply to
There's no loophole - there is a CGT now.
That's a pretty broad (incorrect) statement. There certainly is no CGT, rather there is an Income Tax Act that very loosely includes some forms of gain as income - but certainly not in the usual Commonwealth manner of explicitly stating capital gain as income. That very looseness has created significant loopholes and a horribly complex legislative and accounting environment to get around it.
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James Butler, in reply to
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)?
Because on the whole they weren't - they were using it as collateral to secure more debt (bad) on more property, thus driving up the prices on property so that fewer people could afford to own their own home (bad).
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Idiot Savant, in reply to
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.
Its not. Its a messy compromise to pass the thing - which is why we all love and hate politics.
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Fuck it man I want one of those "family home" things, they sound great. Maybe we could flick them around a bit more, all have a bit of a stay.
Top writing RB. Deb Coddington was sadly out of her depth again, let's be honest economically the depth of the 2012 right wing is appalling ;and potentially suicidal.
Look at the U.S , the Tea Party politicians are talking about shutting down basic economic machinery.Our media are slowly realising the bullshit of the dream that the current private sector model has the smarts to decide matters efficiently and with long term positive implications.
It's just not a reality. In fact we are stung by the fallout of the poor strategies made behind the perfectly clean smoked glass boardroom doors of the dull inarticulate and socially challenged biznessman of the last few decades
Talk economics that apply to this universe or go home, it's 2012, I want a family home kinda thing .
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Heather Gaye, in reply to
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.
I presume it concedes the need for a roof over your head. If you own a family home and want to sell, you’ll be needing another family home quick-smart (primary examples are either looking for a larger one, or one in another city). All other things being equal, if you have to pay tax on the capital gain, you no longer have the full value of a (new) house. I think that's reasonable.
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James Butler, in reply to
Our media are slowly realising the bullshit of the dream that the current private sector model has the smarts to decide matters efficiently and with long term positive implications.
Wishful thinking. One might hope that New Zealanders are slowly realizing that; the best I can say about the media is that they will "realize" whatever they think people will buy, which tends to drag them along in the wake of public opinion. Eventually.
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Jeremy Eade, in reply to
I do, do a lot of wishing , true , but it's a pretty good story, the sham of the economy. It's not going to go away until it gets fixed.
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Bart Janssen, in reply to
All other things being equal, if you have to pay tax on the capital gain, you no longer have the full value of a (new) house. I think that’s reasonable
No. It only applies if your home gained in value and then only carves off 15% of that gain.
So you buy a $500k home, live in it with your insignificant other, 2 cats, miscellaneous lazy children for a while. Then you sell it and someone pays $600k for it, woohoo you're rich! Govt takes $15k. Real estate agent takes ~$20k.
You now have $565k to buy a new home. No you can't afford to buy the home you just sold. Unless you've earned some money while you were living in that home or paid off some capital from the mortgage.
But the trick is everyone else is in exactly the same position. Every home seller and buyer is in the same position and the market price will reflect that. That's why applying CGT to every home is fairer than only applying it to additional properties, but hey you do what you can.
Or you can stay put in your $600k home.
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Kumara Republic, in reply to
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)?
You might want to try justifying that to Grant Straker.
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Craig Ranapia, in reply to
Everyone has to live somewhere.
M’kay. I need to phrase my response to this very carefully because any suggestion that residential property is an emotionally-weighty but rationally flimsy (IMO and YMMV, of course) fetish object tends to get, well, not exactly troll-ish but definitely troll-adjacent (“panoramic views of bridge from generously proportioned balcony”). I think I’m just from a background and generation where home ownership isn’t really the be all and end all of my life. And I certainly don't see why the taxpayer should choke the cost of protecting the value of my inheritance from the better half if I happen to be living in the property I decide to liquidate.
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I or buy a TV keeping a Harvey Norman salesman(person) in a job (good)?
Or maybe the government could make T.V's and the dude could become a highly paid international modern tradesman. Big Store Retail is hardwork and poorly paid.
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Matthew Poole, in reply to
Or maybe the government could make T.V’s and the dude could become a highly paid international modern tradesman. Big Store Retail is hardwork and poorly paid.
In a thread where Nick Kearney has raised his head, I think that borders on trolling.
Keep up the good work :P
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giovanni tiso, in reply to
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)?
On this logic, why have taxes at all?
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BenWilson, in reply to
On this logic, why have taxes at all?
I think that actually was the question. And it's just too big for this thread, really a non-sequitur. Nick, given that we have taxes on income/profit in NZ, what reason is there for a strange loophole in this for property investors?
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Matthew Poole, in reply to
On this logic, why have taxes at all?
See my comment above. That'll answer your question.
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Sacha, in reply to
On this logic, why have taxes at all?
now you're singing to the 2% neolib choir :)
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giovanni tiso, in reply to
See my comment above. That’ll answer your question.
Yes. I see. I don't normally follow links to kiwiblog, but I'm glad I made an exception there.
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I don't disagree; I/S. I just think it's generally a bad idea to try and pick moral winners through tax policy, I mean, Jordan Carter referred to housing as unproductive, which is absurd (and I have to assume he meant to say the -bubble- was unproductive, which is again wrongish, it was miss-allocated productivity.) Housing is a perfectly productive sector of the economy. The reason that a CGT is a good idea is not that we should punish housing; it is that we shouldn't punish everything else by comparison.
On the other hand, I would support raising the top tax rate, and introducing another band above it at 43-50%, so yeah.
(PS. why does the government need to tax people? Because we've got to pay for things. When discussing details of the tax mix, it is important not to get sidetracked by discussions of spending, given that they are two separate issues.)
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bmk,
I think in terms of tax policy we should have both a capital gains tax and another band above the top rate. Both of these are things that Australia have and while National keep going on about catching up with Australia they oppose any measures that might bring our policy closer to Australia's.
But a capital gains tax is long overdue and should be implemented regardless of what other (if any) changes are made elsewhere in the tax system.
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I agree, exempting the family home is inconsistent. My best attempt to explain it in terms of fairness is that up until now, New Zealand folk wisdom has been that the family home is a crucial asset in the domestic portfolio and a form of savings that you ought to prioritise. Thus immediately bringing it into a CGT regime penalises people who made capital allocation choices based on that folk wisdom. Idiot/Savant is right, this is more political expediency than principle.
Perhaps in future, governments will incrementally tidy this up.
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giovanni tiso, in reply to
I think in terms of tax policy we should have both a capital gains tax and another band above the top rate.
Labour will announce that soon as well, or my name isn't Hugo Z. Hackenbush.
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I think the point of labeling housing as an "unproductive" asset, when clearly, it does indeed provide shelter, which is not just desirable, but actually essential... is the point that investment in "productive assets" produces further income...
If you buy some machinery or plant that makes widgets... it keeps on making widgets, and you can sell them for profit, enhancing the economy (and your pocket)...
A house that increases in value by 20% doesnt provide 20% more shelter... you cant suddenly fit more people in it...
Investing in productive assets, or research, enables further production above and beyond what's currently produced... they are growth making...
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giovanni tiso, in reply to
I think the point of labeling housing as an “unproductive” asset, when clearly, it does indeed provide shelter, which is not just desirable, but actually essential… is the point that investment in “productive assets” produces further income…
Keir's point I think was that the sector that surrounds our housing stock is itself very productive. People don't periodically renovate their widget making machines, or if they do it's not as big a contributor to the national GDP by a long shot.
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bmk,
But if you replaced 'widget making machines' with Information Technology for example you would find that businesses constantly maintain, improve, upgrade and replace it. Providing an ongoing boost to the economy (like renovating houses) but also boosting productivity.
I think if you people were to invest in businesses who in turn would use that money to invest in technology that boosted productivity as a country we would be much better off than we would be from buying houses, doing them up and then selling.
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