It works overseas with exemptions.
The family home & Maori land should be the only exemptions.
It's not that hard as proven in most Western Countries.
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I know the UK has a system with lots of exemptions and different rules.
Not sure it works that well or how effective it is.
If we are going to broaden the tax base (I agree we should) then I don't understand why I should be able make a large capital gain on my Auckland property and not kick anything into the tin.
Yet my local hairdresser would have to fork out up to a third of her gain to the govt if she sold.
If you want it to work efficiently, ideally no exemptions. In the real world you probably need some, but they should be the absolute minimum.
One exemption you would need is Maori Land. Taxing that land is a big no-no given land tax was a way previous governmets used 'legal' means to confiscate land. So let's not even go there :t_up:
I suspect for places like the UK, they have come up with these difficult to administer systems because that was the only way they could get it over the line (not because it is the best/most fair CGT system).
Both of those sentences are both correct as well as incorrect - depending on the intention and a bunch of other factors. Legislation currently exists to tax both of these gains in NZ, under certain circumstances. And in other circumstances, both transactions could be on capital account and not subject to income tax.
Any discussion around taxing such gains should also take into consideration adjustments for inflation, and also retrospectively spreading the gain over the tax years any such gains were accrued, rather than in one year at punitive personal rates.
Keep in mind, you are allowed to make voluntary declarations of such income to the IRD. If you feel you should contribute then there are no legal impediments.
As I understand it...
Australia used to apply inflation but gave it away due to its' complexity. They replaced it with charging full tax on capital gain if sold in first year and taxed 50% of the gain if held longer. US use a the same method.
mistaTea if you bought your house for a million dollars and then were transferred to another city getting two million for your house, then you would have to pay tax on the million profit. When you arrive in the new city and wanted to maintain the same standard of house to what you sold then you would have to take out a mortgage to pay the tax on the earlier house. Would that be ideal?
Could you not argue the same if I wanted to sell shares of X Ltd to buy shares in Y Ltd?
Geez govt, now I have to take out a loan to pay the tax on X Ltd to keep me in the same $$$ ownership of the new company?
I am not really trying to debate the fairness of CGT. There are arguments for and against.
I just point out that if you are going to have one, the more complex you make it the less effective it is and more difficult to enforce.
What Cullen proposed was complicated.
Exempting the family home is little to do with fairness and is all about political expediency in my view. And that’s ok, but I just want to separate the two.
If kiwis were not property obsessed and were shares obsessed instead we would not be talking about the ‘need’ to exempt the family home. We would be squealing about the ‘need’ to exempt the share market from CGT!
Good point, MT about primary residence. In the US, capital gains tax has to be paid on sale of primary residence (with certain concessions).
But need to be realistic as Australia exempts family home so we will be shooting ourselves in the guts if we tried to implement US capital gain tax regime on family home here!
But there is a crying need to level the playing field out there for the betterment of NZ as an economy & as a society.
What is lacking is political leadership and that lies at the heart of all of NZ’s tax issues.
mistaTea
Good point but buying shares as an investment is different to buying a house to live in. You can sell shares but not need to maintain the same level of investment whereas if applied to the family home would mean eventually I could only have enough to buy a tent if I sold a number of times to maintain the same living standard.
And tax is already required to be paid if you are a share trader.
I actually support a CGT but I don't have much faith in the introduction of it, especially if the Greens or Maori Party have any input. Nor David Parker for that matter.
Balance
I am not sure of the detail but I believe interest on the mortgage is deductible from your income.
So what is your point?
Capital gains might not be the same as income or earnings but neither is consumption but we tax it through GST (note legislation was written in 1985 to do this. Laws are not set in stone). When you have a monetary system which benefits asset owners don't you think it would be good to tax their gains, especially as a lot of investing these days seems to focus on the potential for earnings increases and more importantly the resultant capital gains. Think Nividia and the magnificent 7. Would landlords need to keep pushing up rents every year if they had brought their investment at a decent yield or are they more focused on increasing the capital value by boosting earnings through annual rent increases.
Where are the biggest gains in wealth being made currently, in earnings or asset price appreciation?
Your suggestion to make voluntary contributions reminds me of when Republican senators suggested the same to Warren Buffet after he suggested their tax system needed changing.
"It restores my faith in human nature to think that there are people who have been around Washington all this time and are not yet so cynical as to think that can't be solved by voluntary contributions,"
He made those Senators look like a bunch of selfish morons.
As far as inflation adjustments are concerned, if inflation is always and everywhere a monetary phenomenon perhaps we should be looking at inflation targeting.
Well, you would find that if a CGT applied to everything (including the family home) it would change behaviours. The amount of $$$ you needed to pay to the govt would impact your decision as to when to sell. I expect a CGT would probably be inflationary on all asset classes.
So more people would sit tight until they could clear their $1M (as per my earlier example) in order to keep themselves in the lifestyle they have been accustomed to. Less houses for sale, means prices go up.
So, over time, in reality it will be the purchases of property who effectively pay the CGT not the seller.
You say true, though I believe there are all sorts of loopholes. Not a tax expert though.
Yeah, and in truth I am not such an idealogue about a purist CGT that I cannot accept there would need to be some give and take. Some exceptions.
After all, it is pointless to introduce a CGT that the general public hate and feel is too 'radical' because they will just vote in another crowd next time to undo it.
Like all policy, we want any changes to our tax regime to be enduring.
So you probably end up with things like exempting the family home so that we don't spook the horses.
I would just always caution that for the CGT to be effective, you need to have any exemptions to the absolute minimum. Otherwise it becomes a compliance and enforcement nightmare and fails to meet its objectives (effectively and efficiently broadening the tax base).
I also think that any attempts to be 'clever' like Cullen by calling it Capital Income Tax instead of Capital Gain is an absolute no-no. If that were to be implemented, then high salary earners could be paying 39% of their capital gain to the govt. How would that incentivise kiwis to invest in anything other than the family home which would be exempt?
You call it what it is... a gain on capital... and you bring in a nominal tax of, say, 10%. This enables investors to kick some money into the tax tin, while also recognising the risks they take inherent to investing and also the need to ensure people are not turned off making investments in NZ business etc.
My point is that 1) you are advocating for a CGT so go for it and 2) that report is out of step with current tax legislation. Start making voluntary contributions if you truly believe this is the right thing to do. Lead by example. Practice what you preach.
As for Warren's quote, the counter reply was:
Quote:
"Senator McConnell says that Washington should be smaller, rather than taxes getting bigger. And since some, like President Obama and Mr. Buffett want to pay higher taxes, Congress made it possible for them to call their own bluff and send in a check," said Don Stewart, McConnell's deputy chief of staff.
Source: https://www.reuters.com/article/idUSTRE80A24X/
So was Mr Buffet just virtue signalling and not willing to put his money where his mouth was? You don't get to complain about low or no taxes and when offered the chance to cough up then say "I will if you will". That's imposing your expectations on others who are not advocating for the same position. I'm not the one complaining about a lack of CGT here. Feel free to update us on your voluntary CGT contributions.
Based on your logic Ferg why aren't all taxes voluntary?
Perhaps I am more selfish and self centred than you and would struggle to pay any tax if I didn't have to. Or perhaps you are a little too trusting of others and perhaps a little naive.
I have no doubt that if all taxes were voluntary you would be putting in plenty.
Somehow I am not surprised you have a lot more respect for the views and actions of Mitch McConnell than Warren Buffett.
Although your advice to switch to voluntary taxation is at best conjectural, at worst disingenuous.
I didn't read Ferg's posts to be in favour of totally voluntary taxes, as you suggest. He is simply pointing out hypocrites like Buffet, Stephen Tindall, Ian Taylor, Sam Morgan and others that have claimed publicly that they want to pay more tax. Why don't they ? I think there is something seriously wrong with a tax system where something like 80% (from memory) of "taxpayers" receive more from the state than they pay in tax.
Taxing the other 20%? even more is hardly the solutions. Your claim that lower income earners generally pay higher marginal tax rates than high income earners is simply a load of rubbish. They don't. Look at the whole picture after the various payments from the state. Most lower and middle income households in NZ receive more from the state than they pay in tax.