Leveraging the investment using the investment itself as collateral? It may happen for some share investors today but I imagine nowhere to the same extent as happens with real estate.
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That's because of the N.Z. Banks conservative approach to lending. The point I was trying to make is that tax law does not distinguish, but treats shares and property equally. i.e. there is no special treatment for real estate as a class. Just borrow from a rich uncle.
The definition of what is a taxable dividend would also need to be compared with what constitutes current taxable returns from property.
However in relation to CGT I understand. Perhaps the crux of “fairness” lies in real world practice and the comparison of taxes raised per $1 net return on the investment.
I’ve just signed the Labour Party petition on the CGT
labour.org.nz
I have done likewise to Grant Robertson. Specifically pointing out if CGT does proceed and also covers the family home, it would raise meaningful revenue, thus allowing a meaningful drop in income tax - and if it's considered fair to tax gains from property, then treat all property equally rather than just play with it.
Do you think they are crazy enough to give solid weighting to disingenuous advice from property investors FP? The standard household home was never in the CGT equation in any case. And I don't think that would lead to any investor worth their salt, over-investing in the family home, as it would be a waste of good capital. All property is being treated fairly, unless you'd consider not being able to add interest paid and other ownership costs into your annual tax return for your property portfolio.
Other dastardly options for landlords:
https://www.newshub.co.nz/home/polit...ichardson.html
https://www.newshub.co.nz/home/polit...or-labour.html
Renters just have to look forward to increases. Labour has changed how property management fees are charged - so loading up rent. They are insisting on minimum housing standards so cost will be loaded onto rent. Nothing wrong with landlords now wanting to manage their capital risks by cashing up any potential gain by loading up rents.
I can see you have the mantra spot-on, MM. It's only fair that the tenants will pay for every last cent of your investment, and more.
Attachment 10386
In the NZ context, the fact that the principal household home was not part of the TRG’s terms of reference exempts a significant proportion of household wealth. Nothing should have been off-limits. Our political masters would have decided what to ignore in the report anyway. Just as they are going to do with the actual report.
Why shouldn’t those who, instead of investing their equity and the banks money in a house, invest their equity in a business that earns taxable income and employs other people also have their capital gains on their equity exempted?
Why wouldn’t people over-invest in the exempt household residence? It could be more tax efficient (no income tax or capital gains) than KiwiSaver in its current form.
My point is that the household residence isn't such a great investment, on paper. Running a business or property investment portfolio does allow some tax benefits along the way. But I certainly agree that a business has a harder road to success, and wouldn't want to see the marginal tax rate on that gain, unless it was at some quite high threshold, and/or generated over a short time, as Labour proposed years ago.
I disagree in relation to the principal household residence. It is a great investment. Your annual benefit is tax free. By investing in the house it means that you do not have to pay rent out of tax-paid income. You can obtain a mortgage to leverage capital gain or obtain a retirement capital release at reasonable rates, the funds from which enable your purchase of other assets if you want. If there is a CGT and the principal home is exempt, that would be an extra benefit.
Also with asset testing for long-term care, the owner-occupied main home is exempt if there is a spouse not in care. That could mean a substantial nest egg available for the surviving spouse, which may not be available if the couple had invested in financial assets, shares or a business instead and which would not have been exempted from asset testing.
I bought my original residence for $52,000. my Current one is significantly much more than that - and that has been a deliberate plan to buy / sell upwards on the property "ladder". Of course there have been costs along the way. But the capital gain has been huge.
I havent given it a lot of thought yet because I need to see the final CGT policy. But I will look art the option of cashing up some lesser performing investments and trading up to a new "expensive" home and then look at reverse equity loans to release the capital. Who owns the family home will depend on the most efficient tax structure - I may sell it into a company.
In that case, why not do things the normal way, and buy a home first (or get into a leveraged home) and then start a business with the home as security? It would be less flexible and more expensive per week than renting, but maybe it would be better overall, as you say. Would you then think differently about working on that home, constantly improving it with tax-paid income and paying all that interest with tax-paid income, if the capital gain on the home that you also used for business finance security was to be taxed?
It may have been normal back in the day to buy a home when still young and then use that asset as collateral for a business. Certainly in Auckland that Avenue is more for the wealthy family member or for those on high incomes and good luck in trying to obtain a mortgage with sufficient funds available to invest in a business in addition to being able to afford the house itself.
A business or shares bought and added to with tax paid income should have the net income taxed and capital gains taxed but an owner-occupied home that is not liable to tax on net imputed rent should also not be liable for capital gains? I do not see the logic or fairness in that.
Yeh i'll have to agree that the banks are not stupid when it comes to lending. They know it's FAR less riskier to lend on residential homes than on commercial (which only have a business focus and having more risk).
I don't buy into the argument of funneling all your $ into your home by buying a mansion size expensive home. That recipe just doesn't work because higher end / pricier homes are far and few and attract less capital gain over the long term. The reality what makes prices go is simply location. The largest house with the largest investment of it's kinds means nothing if it's in a poor location. Even in a new sub-divisions one would be foolish to build extravagant when there's no knowing what the demand will be in 10 or 20 years time (ie. Pegasus area north of Christchurch). While i'm all for home owners to improve the value of their own home, I don't believe CGT exemption on the principle residence would cause many to up-scale their house (especially when it's a common trend for seniors to 'down scale' by selling their 4 bedroom home to a small 2 bedroom 'elderly person unit' type housing). and if you want to get rid of your house by doing a 'reverse-equity' mortgage ; each to their own.
NZ's tax system is not like the US where are no exemption of CGT on the principle residence. But then they're allowed all sorts of goodies like deducting their mortgage interest rate off their income, and capital losses that can be applied forward and back (again something the TWG has not talked about). Therefore, it would be more prudent for NZ to have a more comparable tax system such as in Australia (or UK colonies) where they allow a CGT exemption on the principle residence.
I would not be surprised if Princess Leia is looking for a CGT model like Australia or Canada. The simplicity of NZ's tax system penalises the low and middle class and makes the equality gap wider. I'll reiterate, a simple tax on all people is not just for those that are not able. Those who are disabled clearly have the right to make a decent living and get into their own home without being a rental tenant for the rest of their lives. Those who are more skilled and affluent deserve to pay more taxes but do so by structuring their assets in the form of paying CGT (of course this approach is meaningless if the tax rate on CGT = the person's tax bracket).
Location, or more specifically future demand is the key to the recipe - and it will help ensure the recipe work
A golden rule is to avoid new subdivisions - simply because you dont know who your neighbours are going to be.
People will be wise to put their money in places that secure their capital it the most effective way.
All these people are doing is releasing their own capital for their own benefit
Comparing others tax system is only of academic interest - and not part of this governments agenda. They apparently want a "Fairer" system
Other than trade, we dont need a comparable system. We need one that is efficient - like NZ's GST
A tax system should apply equally to all people - that is fair. The more you profit teh more tax you will pay. That is fair.
They dont have a right at all. They have an opportunity. As does everyone else.No-one deserves to pay tax. It is simply a burden we must all bear and we should all bear it equally and fairly.
One thing is sure in life - we need a roof over our heads when we stop earning - ie retire.
How is it fair I can put my money into an eventual mortgage free residential property and pay no capital gain as I release that capital. Compared with a renter, who ought to be putting their non-housing savings into a Superannuation, Kiiwsaver or other capital investment scheme , only to be taxed when they release that capital to pay for that roof in retirement
I agree. To exempt the family home from CGT and income tax on imputed rent, whilst subjecting other investments, business, shares and KiwiSaver investments to a CGT and Tax on income earned will make the purchase of a family home the de facto tax efficient pension scheme for those that can afford it. How long would it be before the NZX would close up shop?
Two consequences.
NZ'ers will look for capital investment opportunities overseas on, say, ASX.
Second usual supply demand principle will see increased demand for upscale residential housing which will push up prices which will see holders in NZ residential property get larger tax free capital gain.
I don't think they'll use the marginal tax rates with the CGT, and they'll have to be very careful around businesses and share portfolios, as you say.
But the difference between a landlord's rented house and a private dwelling is stark. In the first situation a paper transaction can be made, leveraged against other property, and over the full term the landlord pays nothing to hold that asset, they even derive a small income from each property. Tax losses from earlier years defray their income tax. The private dwelling is more expensive to hold onto than renting something equivalent, for the average household. They might not pay rent, but they have to pay interest and usually some capital too, out of tax-paid income. If you really look hard at all the costs associated with owning a home and redecorating or adding on, in many cycles there really is no return on that spending and effort. But, that home is worthy capital to borrow against for other projects, and it gives the household stability.
The govt cannot undo that incentive to home ownership by imposing a CGT on it.
NZ is in a unique situation. Canada's high taxation throughout the 90s and 2000 created a "brain drain" (i'm part of it). The response was so great PM Harper had created a fast track immigration program to attract expat Cdns (who married abroad with children) that they can easily move back to Canada. NZ doesn't have this problem because residents & wealth can easily move to Australia (no immigration requirement). A move that a Cdn can't do by moving to the USA.
The NZ gov't may be too blind to wealth moving abroad, and looking to upscale into a high end house is not wise when the buyers of those houses have... moved abroad.
It may be easy to move but as a NZ citizen you do not get any of the benefits Australians receive as an Australian citizen. Its all good until things start to go wrong.
The vacuum left by departing high wealth NZ'ers could be filled by high wealth migrants.
As home ownership rates fall (in Auckland it is down to close to 50% of homes) the “incentive to home ownership” tax breaks for owner-occupiers is a form of a benefit for the middle class.
Those who rely on KiwiSaver for their pension fund either through choice (for some, home ownership may not be appropriate) or because they simply cannot raise the deposit or finance to buy a home (and consequent ascent of the principal residence property ladder) end up helping to pay the tax that is not levied on owner-occupiers. So the young and the poor end up paying higher tax on their wages, term deposits and KiwiSaver whilst the old and wealthier enjoy their tax-exempt homes which they are able to trade down or use for a reverse mortgage in retirement?
Perhaps The tax foregone as a result of the exemptions for owner-occupied housing should be costed and published as a subsidy or benefit in the same way as other benefits paid by the government.
Wealthy people that move don't look for benefits. As Charlie Munger recently talked about at his Daily News AGM 2 weeks ago, paraphrasing that "Why would you not want rich people in your neighbourhood? They're not a burden to society, they don't fill up the jails.... they don't line up for gov't hands outs...". Many NZ citizens use private medical insurance for faster and better care despite - how would that be different to NZ citizens paying for private medical insurance in Australia?
High wealth migrants moving to NZ? That boat was long gone pre-2000 when overseas assets and equities could be sold tax free by a NZ resident. We have a ban on non-residents buying real estate in NZ (with exception of Sg and S. Korea). Vastly different to how Aus or Canada treats non-resident ownership of real estate. Australia allows foreign investment into NEW development and newly built houses. Canada's door is wide open as a trap so they can tax your overseas income if you make too much of a presence / tie with the country. But there's no need to just read the news, just ask the real estate agents on where are the high net worth individuals coming to NZ? We have a Thai neighbour down the street that has chosen to put their house up for sale (after all they spent most of their time in Thailand). But deep down, the reason is they can't form a tie in NZ anymore from the real estate ban and decided to just simply stay in Thailand.
Just look in the past 2 years where global capital outflows have gone? Brexit and EU issues... they've moved their wealth to the USA because they're the friendliest to foreign investment. (it's apparent by the strong USD currency).
A bach may also be subject to CGT under the new regime, in that case there is no imputed rent really (and assuming it's not rented out at any stage). I did some numbers on ours, and based on the last 13 years, with a paper transaction to kick it off, if we sell it now at a new market high it has still cost us the thick end of $80,000 in cashflow plus the use of all that money over the years (interest we could have accrued instead of paying). We don't use it much and haven't spent a lot on renovations. I wouldn't want to pay a CGT on the so-called capital gain in that situation. If we'd decided to just rent the place out fulltime we'd have a cashflow positive situation plus the use of the money that was tied up, and tax benefits.
I think I'm coming to the conclusion that when you run a business with these assets, be it shareholding, commercial or residential property, a general business, then a CGT is likely and appropriate in some form. In other words, an effort is being made to have someone else pay off or cover the costs of that asset. But the bach, principal home, other personally owned assets can be a lot trickier to justify.
Is my understanding correct then, you are suggesting that if I:
1) Buy a property in Auckland to use as my bach and don't rent it out it is all good and regardless of any gain I pay no tax
2) Buy a property in Auckland to use as my bach and rent it out occasionally and cover rates, insurance and some maintenance, I now pay tax on any gain
3) Buy a property in Auckland and run a business as a residential landlord renting that property I immediately turn into a 3 headed monster that has to be taxed within an inch of my life, not to mention a continual raft of legislation around running that business
You would be liable for CGT as its not the family home
you would be liable for income tax on any rental profit and CGT
you would be liable for income tax on any rental profit and CGT on the rental property. And if you claim home office expense liable for CGT on your family home
Death duties are easily avoided by holding assets in a trust.
Sure the value of the owner’s use of personally owned assets can be more difficult to assess than if the owner actually charges a third party for the use of those assets.
The owner of a Bach or second home already enjoys the benefit of its use tax-free. After all the owner’s imputed rent does not have to be paid for out of taxed income. So baches already have a tax advantage to that effect. However the Labour government did not extend the primary residence CGT Exemption protection to other owner-occupied real estate.
Unless there is other major more general change to the NZ tax and investment environment, We will have to agree to disagree on the justification (or lack of it) of excluding the primary residence not only from income tax on the net annual benefit of owning the equity in the home, but also excluding it from a CGT. In my opinion This double tax efficiency would be a major reason why household wealth would be further diverted from other investments and KiwiSaver.
it sounds like your equity has been used inefficiently. Many others would be in your position too I guess. A CGT could deter such inefficiency and hopefully it would benefit the country and the owners of equity too. Plus who knows maybe land would become more affordable for those wanting a principal home to live in.
I have to agree, we used our capital very inefficiently, it was a dog of an investment really, but we did enjoy the holidays. I was making the point though, that once I figured out all the interest and other costs, I saw it for what it was. But many people just say they've made money because the resale value has gone up. Not true in many cases. A CGT on the bach would fix it for me, we'll sell it in advance, and if I wasn't a leftie I'd have brutally rented it out every chance I could over the previous years. So is a CGT justified on a family bach like ours? Probably, because it was an inefficent asset and in any case the capital gain has been low historically, so it's not that important if it kicks off in 2020.
All those situations are very different, aren't they? So maybe a flat rule would be a bit cruel. Option 2 is not much different to 1, as the interest cost can swamp out other costs. But in Option 3 the effort is being made to have the tenant cover all costs for the landlord over the term of ownership.
I guess we thought that the capital gain alone would cover interest and costs, and that didn't happen with this bach to date. Average of about 2.5% gain p.a. over 13 years but the interest rate was a lot higher. Any CGT regime should try to be fair in all the diverse situations, if that is possible. We were of course lucky to have the bach at all, it wasn't too much of a drain ultimately on our finances, but there is no true leftover capital gain, it is a loss so far, but how would the IRD see it?
That is true. However on a national scale, if the banking system prefers the lending of funds for investment in real estate, on the collateral of the real estate itself, this helps inflate land values and the build up of investment in non-efficient real estate such as baches.
Add to that the tax system that taxes wages and investment income but not the capital gain then the untaxed build up of land values and non-efficient investments diverts investment away from productive income producing investments.
if you had rented the Bach over the same period - what would that have cost? You have had the exclusive use of that Bach - to use whenever you wanted. That was a valuable annual benefit to you. Your annual interest expense would have been deductible from your imputed rent if it had been taxable.
For me the issue with CGT is that there are no definitive plans, no one is in charge, the governing coalition is incoherent with no visible competent manager.
I have always found an architectural argument such as "it would'nt look right" extremely difficult to counter with logical argument.
Justifying an expensive to implement complex new CGT tax on the argument of a move to a fair system ignores the option that existing tax GST and Income Tax rates can easily be changed if the Govt is desperate for revenue.
IMHO We do not need new taxes and the increase in Govt costs.
Only for the amount that is in the top bracket in the year in which the asset is actually sold and any gain realised.
As any CGT is supposed to be neutral on the total tax take. Those “poor” people with little capital* may well be better off overall - taking into account tax reduction in other areas. So they could well pay less income tax if income tax rates are adjusted down. In addition they may benefit from other taxes being reduced.
* Maybe they have a multi-million dollar principal house that will still be exempt from a CGT under the TWG’s proposals.
As at today IRD isnt interested as you have held the property for too long to be covered by Brightline.
Will be interesting in the future though. If you hold the property as a family bach you cant claim expenses. But if it increase in value over time at the same rate of inflation then under the proposed regime you would be liable for tax on any gain. So in your scenario, going forward, you would be liable for CGT on the 2.5% inflation related gain. So about $12,540 in tax on a $38,000 gain on a $100,000 property. Or to put it another way. You will be loosing another $964 a year, on top of interest and expenses. Might be financially wiser to simply book-a-bach for the time you want to be away.
Sure - their top bracket. Someone with few non-exempt assets will probably end up paying less tax under the TWG proposals.
Besides If the TWG’s are ever introduced and CGT receipts become meaningful then maybe those tax bands will be more generous and the top rate of income tax may be dropped to 28%...However our “poor” taxpayer may have already shifted all his equity into his over-capitalised multi-million Dollar exempt principal residence by then.
I thought you were concerned about the poor taxpayer with little capital?
Under the TWG proposal, If you are rich with a valuable principal house and lots of income producing equity, I don’t imagine the overall effect will be much different (given the stated parameters)
If you have a big expensive house and a high income, you could see a tax reduction.
If you have currently no principal house, minimised taxable income and lots of investments which have relied on capital gain things may be different if capital profit is treated the same as income.
Poor tax payers investing in their MM$ home? First you need to find where the buyers of these high end homes? Have we forgot there's a ban on foreign / non-residents buying real estate in NZ? Kiwis are not use to investing into their own home as the focus has always been through property accumulation and NOT property improvements. This is evident in how N. Americans view home ownership with multi-generational living vs NZ's change the house as often as "changing cars" point of view.
Is it me or the media is slow at releasing more news about this CGT? Beehive isn't talking much about CGT and isn't the reporting deadline in April?
I disagree - Many kiwis improve their main residence by adding rooms, renovating, landscaping etc.
As for multi-generational living in the same residence, that may be a cultural or affordability issue for many. I would have that would have applied in all the states of the USA including British Canada and French Quebec as well..
It is true - buying then selling the principal residence and borrowing to leverage your way up the property ladder is the de facto tax efficient way to accumulate the kiwi nest egg or fund for old age!
CGT in the form as released by the majority on the TWG is a political non-starter. A NZ CGT is like orthodontistry on Ken Dodd’s teeth*. Most people know work needs to be done to fix the teeth but nobody wants to be the one to have to do it and possibly stuffing up his act.
* or Cilla Black being gender equal! You have to be a certain age to appreciate those references (they were popular here back in the day. Did they make it to N.America?)
Actually as a population whole, no they don't look to improve their homes. After countless of trade shows in building, and with what mass group builders tell me, the focus on the typical NZ resident is not to improve the house by pouring $ into their own home. Let me elaborate.
In NZ residential building, they've never gone off to systematically build houses to scale and allowed for use of active ventilation (which requires a exceeding higher order of skill and requirement for 'air tight' construction) - not that such feature is important but it is a major cost in countries that do have these systems. It's been argued NZ's climate never warranted for such high performing homes. I mean insulation was not a code requirement until the late 90s. So what the architects continue to tell me is that if a person wants a better home, they don't pour $ in it to improve the home they live in but rather, they sell it and buy a NEWER home for the features they're after. There's a stigma that NZ houses are built poorly and that holding them too long creates problems = excessively higher maintenance costs.
Then there's the aspect of renovations that require lots of compliance from local councils, such as changing the plumbing around and electrical. It's a major headache. I'm not speak about putting up a conservatory or adding one of those 'Archgola' awnings. I'm talking the performance of the house in living comfort. New houses are far more comfortable than the state built, uninsulated homes despite how such old houses may have a certain appeal.
The worse part about NZ's old stock of homes is that no amount of $ you could pour into it would beat the performance of a newly built house at today's building code (well to within reason). A lot of $ can be spent on changing the windows, insulating the sub-floor, adding heat pumps, etc. but all these costs have paybacks well beyond the owner's anticipation of keeping the home. So the end result is houses on average change hands every 5 - 6 years.
On average that's probably correct, SBQ. There are exceptions of course. Plenty of younger developers who spent too much doing up a place, and others who have done fine, because they're right in the trade sector with suitable experience.
I found this survey result interesting.
https://www.newsroom.co.nz/2019/03/2...-cgt?preview=1
My thoughts is that Labor don't need to get it past Winston, they will ride high in the polls after the terror attacks where they could govern alone. Wait for the bad news next month from them which will hopefully trip them up and allow the gloss to wear thin
They do need to get it past NZ First if it is to be legislated before the next election. After that election they need to be elected as the next government to implement. NZ First may agree to a watered down CGT. That would help elect a Labour-led government in 2020, and the watered down version would be a basis to extend a CGT. Because, mandate.
https://www.newsroom.co.nz/2019/03/2...-cgt?preview=1 44% in favour 35% opposed, thats decent majority.
“Professionals and senior government officials were the most in support”
Would that be because they would profit from the extra compliance costs that will be inevitable? Or, that they would be better placed to find and benefit from the inevitable loopholes?
I would like to see the level of support from the high income subset with an exempt yet very expensive house but no other assets.
It was an ommision that the poll breakdown into owners of assets did not include the support level of those with an exempt principal home asset. Owner occupied housing is a significant class of asset ownership in NZ. They could be well be beneficiary of the proposed TWG scheme.
There is the TWG report and its recommendations. The ToR were provided by the government so we the people could assume some or all of the recommendations will inform the policy to be announced in April. We could all keep quiet and accept what we are dished up. Good idea?
In practice there has been some seriously robust debate on the TWG report, and the government might take a bit of notice.
Tax Justice Aotearoa NZ. Read their ad in the herald this morning and agree with a lot of what they say but the name and colours make them sound like a cross between the Greenies and Maori parties. A lot of "out there" people in that crowd.
Campaign supporters include the Public Health Association, New Zealand Council of Christian Social Services, Council of Trade Unions, Public Service Association, Hui E! Community Aotearoa, Equality Network, Closing the Gap, Poverty Action Waikato, and UCAN (United Community Action Network).
Of course not, but so much of what I have read is simply blind criticism containing all sorts of wild assumptions, as though it was all done and dusted. I can't see anything wrong with constructive discussion on CGT or any other subject. To repeat my original statement 'With no details of a CGT scheme available yet, it's hard to see how anyone can be for or against it.' That does not preclude constructive comment.
Gone!
Looks like jacinda does not have the stomach to roll the dice on an early election.Would have been interesting to see the results.I suspect winnie would have picked up a stack of votes from the nats
Don't see your reasoning here. Winston has lost votes since the election which probably never went to National, since they have also lost votes. So they will just come back from where they went which is likely Labour due to the fact they are the only party to have increased their votes in the polls.
https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12223514
Lizzie Marvelly: Forget capital gains tax, we need a new plan
https://www2.deloitte.com/nz/en/page...ns-tax-nz.html
Is a capital gains tax right for New Zealand?
https://www.stuff.co.nz/business/109923112/capital-gains-tax-whats-fair-for-one-person-may-hurt-another
Capital gains tax: What's fair for one person may hurt another
https://www.marketwatch.com/story/why-raising-taxes-on-the-rich-isnt-so-crazy-2019-12-09
Wealth taxes wouldn’t destroy the economy — they’d make it better.
The economy would benefit directly from a more equal distribution of income because middle- and low-income families spend a greater portion of their incomes than the very rich do, so more money would recycle through the economy.
Inequality of wealth creates other problems. The top 1% are socking away a greater share of the nation’s wealth; so much so that regular Americans are starved for the capital they need to buy homes, invest in schooling and start new businesses.
Are taxes on the rich unfair? The poor are constantly being reminded that life isn’t supposed to be fair. Get over it.
The US already has already addressed taxing the wealthy. It's called the Estate or Death Duty tax which kicks in on amounts over $11 Million USD.
Article says the top 1% need to pay more? I agree they do. But in NZ, let's be real, how wealthy are the top 1% of NZ residents? I would say.. not so wealthy, definitely not when you compare income levels of the upper middle class in the US. There would be only a handful of NZ rich that are in the $500K/year income? Whereas in the US in that 1%, you're going to find a lot more earning that kind of money.
If CGT is implemented, then the NZ gov't & IRD need to consider removing existing taxes such as FIF (on those with overseas assets). The biggest impact CGT would have is the Kiwi Saver scheme ; it would mean NZ's tax code would look more and more like how the IRS and Australia and most other nations with CGT, address taxation.
Can you verify that "only a handful"
The previous govt took away the kiwisaver tax credits and original 1k contribution. This would have had more of an impact on KS
The tax free status hasn't done much to encourage domestic savings and foreign ownership picks up the "huuuge" NZ investment shortfalls.
Once again you spew misinformation or straight out lies. Are you paid by the Labour Party to do this ? You should disclose if you are.
The KS tax credits are still in place but at a lower level than they were.
The Government should in my view totally stop contributions to people´s KS accounts now that the Government´s books are in such a serious negative state.
He/she has been called out several times in the last little while with straight out misinformation, making statements that are simply not based on fact. Yet it continues. It doesn´t matter whether I agree or disagree. His/her statement is simply not factual.
Edit: But I do take your point moka about my post being unnnecessarily harshly and personally worded, which is something I always try to avoid in comments on this site. Pointless editing it though as I can not edit your quote of it !
I've found not data for NZ but not surprisingly, the US data here:
https://www.investopedia.com/persona...ou-top-1-5-10/
Annual Wages of Top Earners
The latest data from the EPI show that in 2018 annual wages for the top 1% reached $737,697, up just 0.2% compared to 2017.
I think it's fair to say when it comes to the top 1% of earners, NZ's 1% wouldn't be near this US figure.
Not sure about the tax free status of KS. Tax unfortunately isn't a well discussed topic among NZ financial advisors. I don't see how they can provide any meaningful advice to clients without breaking down the tax that listed corporations pay, and the tax on dividends that shareholders receive (if not partially input credited), and FIF tax if the shares are foreign based. If there's one thing certain, Kiwi Saver has been a landfall money maker for IRD. This is very different to the tax approach to share investments in the US & Canada where on most part, small investors have the ability to invest tax free (ie ROTH IRA):Quote:
The previous govt took away the kiwisaver tax credits and original 1k contribution. This would have had more of an impact on KS
The tax free status hasn't done much to encourage domestic savings and foreign ownership picks up the investment shortfalls.
https://www.youtube.com/watch?v=q63F1pBrUHA
Neither gov'ts in NZ have proposed what assets would have CGT - nor how it would impact other investments - Kiwi Saver? it's not that easy of an issue to clarify because NZ has come form an unusual stance of having no form of tax on capital gains.
There is a portion of Kiwisaver, maybe the majority, where tax isn't paid since its a capital gain.
Also keep in mind that it cannot be retrospective which means that you keep all of the existing gains to the current date which is quite fair.
If we are talking about capital gains tax or taxing the wealthy then we should be looking at wealth not income. Apart from a few well-paid CEOs the way you get wealthy in NZ is from capital gains, not income. And yes Estate or Death Duty tax should be re-introduced.
https://www.stuff.co.nz/business/mon...-will-tell-you
It shows the top 1 per cent of individuals owned around 20 per cent of the country's wealth at the end of June 2018, and the top 10 per cent owned 59 per cent of the country's wealth.
I don't really agree with either. The gift duty can be changed though so people can't switch between structures to avoid tax as easily. sadly its another legacy item from sir john and sir bill to resolve.
Move to stop all the tax avoidance so people pay what they should be paying here instead IMO.
Managed KiwiSaver funds pay taxes in the same manner as paying corporate taxes (this is what a financial advisor told me at a neighbourhood gathering). If this information is wrong then I stand corrected. The shareholders have a RWT to account for dividend payments which is treated differently than taxing of the gains. To bring in a CGT, there needs to be consideration of already existing taxes on gains in different asset classes. For eg. if a person is day trading shares (or frequently buy / sell like managed funds do ; with the INTENT of profit), then the gains are taxed at full income / corporate rates.
What's the most compelling issue i've found with financial advisors in NZ is a lack of consensus on advice. This is very different to what i've seen in Canadian afternoon TV hosting 'Finance Talk' programs to educate the public, and what these financial advisors say is pretty much widely accepted. Here's one perspective of a NZ advisor:
https://nestegginvestments.co.nz/ind...-always-taxed/
"This different tax treatment is sub-optimal, and unfair for NZ based funds. But until this situation changes, from a tax perspective only, it is preferable to hold international shares via foreign-based funds (or direct investments in overseas companies). "
Of course no financial advisor gets a commission telling clients to invest directly by themselves or choosing the lowest cost option of owning shares 'outside of a managed fund'.
So the issue whether CGT is taxed 'retrospective' or not is of no difference, the NZ investor is already paying taxes on their investments in so many different ways. Perhaps Jacinda Ardern didn't realise this and at the time she looked at making a decision to bring in CGT or not, she found out she couldn't arbitrarily single out CGT on the residential property market.
While i'm not against taxation, why is it no one really addresses 'how much taxes' should a person pay in NZ? In my recent post here I made the comparison of the top 1% earners in NZ vs the 1% in America. What NZ politicians seem to miss out is how much more is expected out society to pay in taxation?
Perhaps question why NZ Gift Duty and NZ Estate Death taxes were removed in the past? I think the answer was more along the lines of NZ's failing brain drain and flight of capital overseas. You had NZ charities that struggled because of the Gift Duty that limited donors from achieving anything (I recall Jane Cameron ex-Katmadu wanting to make a generous gift in NZ but ended up moving to Australia). We live in a global world and there are no laws 'yet' that stops a person from declaring non-residency in NZ (so easily achieved by just flying to Australia). Where I grew up in Canada, a decision to declare non-residency is not so easy achieved because one can't simply say they just want to move to another country. A green card or residency visa is required in the US if a Canadian wants to live there. It's not so simply as a Kiwi hopping on a plane and flying to Australia when ever they want to.
So this brings back to my original point, if you want to compare the top 1% of the people in NZ, look who they are? Are they really make a lot of money or wealth? More importantly, are they the LAST egg left which Jacinda Ardern has been cautious about imposing CGT (or any new tax) to them? Believe me, Canada has had it's fair share of wealth leave the country throughout he 90s and 2000s (mostly due to brain drain and the wealthy sending their assets abroad).
As I said before, what level of taxation is acceptable? NZ gov't has to be very cautious about this because again, we live in a globalised world. Residents will find out that they had enough and will leave. The US has all of the above (gift tax, death duty, etc..) but like their income tax brackets, the thresholds to be paying a lot of tax is way way up there. To be in the 1% top earner, one needs to be well over $500K a year income, in addition to also having capital gains tax. But for the vast majority, and i'm talking those that have enough after-tax disposable income to pay for medical insurance, they can structure their finances so they pay very very little taxes.Quote:
@ Panda-NZ: I don't really agree with either. The gift duty can be changed though so people can't switch between structures to avoid tax as easily. sadly its another legacy item from sir john and sir bill to resolve.
Move to stop all the tax avoidance so people pay what they should be paying here instead IMO.
So I ask again, how much taxes should a NZ resident be paying? More specifically, how much should the top 1% should be paying in NZ? Because these groups of people are the most likely to move to more tax friendlier places like in the US (as what we've recently seen from the EU's hunt for taxes).
I guess the FIF regime is supposedly an “income” tax. Even if in some years the use of the 5% “Fair dividend” rate is in effect a tax on imputed income, where there has only been a increase in unrealised capital gains without any dividend paid during the year. I guess this may result in the taxpayer selling down their overseas investment to pay the tax levied on unrealised returns on the investment. Would CGT be in addition to that when it comes to FIF investments?
NZ is on track to reaching the American levels of wealth and income of the top 1%. Disparities are growing. We currently have no death or estate duties, plus no stamp duties, comprehensive capital gains or capital taxes. Wealth is increasingly becoming concentrated in the top circle of families....
Every country will be looking to raise taxes soon. These views are pretty out of date, you may not have noticed the huge numbers of skilled people busting down our doors atm to come in. It will be even more in the future as climate change causes resource and water shortages. Taxes are way down the list.
We need a fair return from these people.. How much should they pay? more than 0% for a capital gain.
Yep, this was the issue I brought up last year when Jacinda had this TWG discussion - what would be done to the existing NZ investments made in pension funds etc that already paid taxes? It was clear what the public wanted in NZ (the Labour voters) was a tax on residential properties. Too many of the rich had come from owning large portions of real estate in NZ but Jacinda, in her mind I suppose just couldn't do it. As the TWG suggested it could lead to political suicide or worse, a huge flight of NZ capital to abroad - if NZ's real estate market collapsed, it would have huge repercussions on NZ's bond rating and monetary / fiscal management on the global level.
I do agree in NZ, the disparity gap between the rich and poor is growing. A good proxy is look at all the private schools and how much they charge rich families that send their children there. It's an issue and commitment i'm not use to as I grew up in Canada. Private schools in primary & secondary are rare and only for the ultra elite and they still ended up attending the same universities around Canada. The compelling distinction I learned was Canada having the top 1 or 2 rank of 'attainment' levels in the world (ie. those carrying on to post secondary education) ; it's not the result of being rich or poor but rather, their public education must be doing something right.
That may be true - but I would put my $ on it that America would be the place to raise taxes the least for the simple reason, they have the buffer room. Places like NZ and Canada, if they impose more taxation, the result would be quite devastating. Remember the laws around gifting and moving assets around? Don't forget, the US has the advantage of bank secrecy laws (absence of CRS and impenetrable of NZ's FMA regulation laws).Quote:
@Panda-NZ-: Every country will be looking to raise taxes soon. These views are pretty out of date, you may not have noticed the huge numbers of skilled people busting down our doors atm to come in. It will be even more in the future as climate change causes resource and water shortages. Taxes are way down the list.
We need a fair return from these people.. How much should they pay? more than 0% for a capital gain.
Who are the people that are busting down the doors to get into NZ? From what I can see, they certainly are not the rich. It's already been proven that of the elite Chinese wanting to get of China, their top destination is the US or Australia:
https://youtu.be/qP-lnn-kwPA?t=154
Just like in the education wrap, those that don't get accepted into Cdn or American universities, they work their way down the list to the next country - NZ gets the left overs.
The question should be "what sort of country do we want". If you value health, education, a clean environment, well trained police officers, minimally corrupt officials etc it must all be paid for. And if you think outsourcing things is cheaper note that the US Govt still spends a lot per capita on health (cant remember the figures but more than some OECD countries where health is free). So the answer is probably something like tax needs to somehow reflect spending and if residents decide they dont like paying "too much" tax despite enjoying the benefits and depart then good riddance.
Which does nothing to address the issue of the proportion of tax that should be paid by individuals. What rate for each individual represents a "fair share" of the burden for these services? Let's put aside the separate and very subjective argument of which specific services and what level of services are essential.
Au contraire, context is everything otherwise no need to step outside the poll. CGT is expensive to administer, burdensome and relatively easy to fiddle. To expand the existing CGT it begs the question "why?" If it is merely revenue, increasing GST is far more efficient and its difficult to (legally) avoid. Plus it hits the wealthy harder if that is one's goal. Alternatively rolling out user pays might achieve the same goal (and negate the need for any new taxes). The Q how much an individual should pay absolutely, via what means and how much relative to another person, or corporation, is thus very much linked to what an individual gets/expects in return (micro and macro). It obviously gets very philosophical.
One simple line of code:
Sale_price - purchase_price * tax rate.
It's almost too simple which is why every country has it in place. for comparison the IRD's GST guide is 100 pages and nearly every business is required to know how to fill in the seperate form (sounds complex), know what to include in it as a taxable supply, what they can claim, make a number of adjustments, maintain their invoice records which have a company's GST number on it for multiple years somewhere.
This raises admin costs when you have to file two monthly rather than once for income. More of the economy is shifting towards capital and less income so it's also needed from that perspective if you are to maintain a tax base.
The fair share to be paid by individuals is determined by how much they earn e.g. PAYE on wages and salary, or tax on interest or how much they spend i.e. GST. Tax is paid on what you receive in income and capital gains.
Tax is not calculated on what a “fair share” of the burden for these services.
It sounds like you are trying to rewrite the tax laws. The more you receive from the “common wealth” of a country, the more tax you pay. The “common wealth” is what every citizen in a country inherits from the efforts of our forebears over the years. If you accumulate income and wealth then you should pay tax on it. If you are in business you benefit indirectly from all government funded services that support your business, your employees, and your customers. It is not just what you as an individual use. You are an individual and you are also part of a community. The community provides services such as education, health, social welfare, justice etc which all provide the infrastructure for a healthy society, which enable you to run a profitable business.
...just like AirNZ's spreadsheet is revenue-expenses * tax rate.
Devil is in the detail.
We have a half decent CGT that charges people at their top rate, not the usual 15-20% mooted. It's just tricky for IRD to prove intent... a tweak to move onus onto the tax payer to prove intent (or lack thereof) would go some way to addressing that without too much political hoo-ha.
I agree with you. That's not the point I'm making though. What I am questioning is the all too often repeated orthodoxly that everyone must pay their fair share of tax. What is this fair share? How do we calculate it? It's completely subjective and those that repeat the line invariably can't come up with objective measures. It appears to be a line used to bludgeon those who believe others have accumulated too much wealth.
How do you know CGT is expensive to administer? Put that question to every other OECD nation that has CGT?
As I mentioned before, you have to assess the FULL tax impact in NZ. Everything from how much corporate taxes are paid, how much tax on dividends and interest, how much income taxes are paid, and how much consumption taxes like GST is paid. I still find for many posters here, they don't know the difference between taxes on 'consumption', taxes on income, and taxes on gain in asset value such as shares and hard assets like real estate. They are NOT all the same.
The wealthier have 2 choices to level the disparity field. Pay more taxes or give their portion of wealth back to society. Many would agree, the former is not nearly efficient as giving to charity. Gov't bureaucracies always creates inefficiencies. After all where did the money come from? No one questioned how the wealthy obtain their wealth from? If it originally came from society, then it's more fair to for them to contribute it BACK to society. I'm not saying they should give ALL of it back, but it's very fair that since they obtain a larger portion of wealth, they have a duty of care to give a larger portion back to society.
How does gst hit the wealthy harder. I would have thought that the Wealthy save and invest a much greater proportion of their income. Consequently a financial transaction tax/stamp duties would be the way to go and perhaps easier to administer than a GST. Stamp duties on the sales and purchase of investment properties and/or a land tax would perhaps be the easiest to administer and would help relieve the burden from those who rely solely on salaries/wages/dividends/interest.
I guess what is “fair” is determined by “the people.” If people consider that some segment of society is benefiting excessively from the “common wealth” then governments will be voted in to change that - or - if governments refuse to change the status quo revolution will occur. Obviously at the moment the status quo means that income and the cost of subsistence is taxed heavily and leveraged long term land-based investment has a less onerous tax burden. How long that lasts depends on how long “the people” will put up with it. For how long will “the people” accept the shift to a greater concentration of wealth at the top?
It's definitely subjective as you say and it seems to me that a lot of people deem it to be 'fair' when the burden falls on anyone but themselves. For all that I find it hard to argue with a flat rate - i.e. every dollar earned is taxed at exactly the same rate - double your income will double your tax. That's my idea of fair. It also has the added advantage of not being a major disincentive.