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10:06 am, October 30th, 2025 - 140 comments
Categories: capital gains, Christopher Luxon, labour, nicola willis, tax, taxpayers union, uncategorized -
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Labour’s capital gains tax announcement has certainly dominated recent political discourse.
Some think that it is too timid, others that strategically it hits the right spot, time will tell who is right. Both from a collective good and a political point of view.
What is utterly predictable is the chorus from the right claiming that the policy is the worst thing possible and will completely undermine the economy, even though CGTs are common throughout the western world and perform the very important role of tempering the effects of untrammelled capitalism.
Nicola Willis is among the loudest of voices. She has this uber confidence in the righeousness of what she says. The problem is that when it is subject to any sort of proper analysis it falls apart.
Ever since the policy has been released she has made a number of outlandish claims. Including these.
From Radio New Zealand:
Willis, National’s deputy leader, told Morning Report the capital gains tax would be “a massive tax on the New Zealand economy at a time when it could least afford it”.
“This will put the economy at risk. It’s a terrible idea.”
While the policy was being discussed as a “narrow” tax, she told Morning Report it was anything but.
“It is certainly not narrow; they have said it would be a tax on every piece of commercial property in the country. That will hit many, many businesses, from a corner dairy to a manufacturing facility. It will also hit everyone who saved and put money into KiwiSaver, because some businesses in their KiwiSaver will now face a new tax.
“And it will hit every Kiwi who saved hard for a rental property or an investment in a commercial business. To call it narrow is completely misleading.”
Talk about hyperbolic overdrive.
The tax is not a massive tax. It will take in an average of $700 million per annum during the forecast period. The current overall tax take is estimated to be $169.7 billion.
And it will not hit every business. It will only be paid on realisation of commerical or rental or secondary property and only on an increase in value experienced since 2027. And a profit from that time has to occur. Owners will receive less of the profit as well as keeping a return of their original investment and also the benefit of any mortgage repayment that has occurred.
Christopher Luxon also went into hyperbolic overdrive.
From Radio New Zealand:
“This is a tax on every single business in New Zealand,” [Luxon] said.
“Think about that corner dairy owner that actually has to operate from premises in a building that’s going to get taxed, that ends up adding cost to that business owner, that ends up putting a cost out to the consumer.”
Despite their claims the proposal is not a tax on every single business. Only those that own commercial or rental properties. And only when the property is sold.
And it will not cause rents to increase. They are determined by market forces, not by the whim of landowners wanting to avoid paying tax on what clearly is a business activity.
The usual suspects also chimed in.
The Taxpayer’s Union, which has never met a new tax it does not want to villify, called the tax a Bach Tax, which it sort of is, but only on the increase in value and only after the gain is realised. It also claimed that the tax was a trojan horse. According to the TPU “[o]nce a CGT is in place, history shows it inevitably expands to family homes, inheritances, and even death duties”. A quick google will suggest that this is not the case.
And Landlords think it is an awful terrible idea.
Matt Ball, advocacy manager for the Property Investors’ Federation, said this:
“If they introduced a capital gains tax, targeted on property investors, and said as a quid pro quo we won’t go back and reintroduce the ban on interest deductibility, I think a lot of people would have said OK fine,” he said.
“But if you have one and the other, it’s a disaster. The loss of interest deductibility makes investing in residential property unprofitable. So people will exit the industry, there’s no doubt about it.”
The problem for Mr Ball’s analysis is that landlords may exit the industry, but the houses will remain. There may be downward pressure on the housing market but this will only improve housing affordability.
They are all practising their attack lines and progressives should be honing their responses.
Ideally the debate is reality based. So far there has been a distinct lack of reality with some of the claims being made.
If landlords were depending on untaxed capital gains in order to keep rents lower, then they should be paying income tax now as one of the purposes of their rental property purchase was to sell at a profit which is taxable income.
Landlords can still use their asset value as something to borrow against. That provides flexibility. An ultimate CGT on sale does not change this, given the rate is not high at 28% of the realised CG.
Leverage was a major reason for the boom in property investment – much easier to get into it when you can borrow 70% of the value of the asset (or 100% if you have a property already i.e. the family home so can borrow against both) and much bigger personal returns if the prices go up since you own the whole amount of the increase (and any decreases but the NZ property market hasn't done a lot of that in the past 30 years).
Thus the reason for the tax change (the interest cost against rent income) designed to stop that investment bubble.
That resolved, onto the international norm, a CGT.
If you make a lose doy you get tax back or credit under a cgt?
Yes.
It is a credit in the CGT liability.
So he is saying the residential property landlords have no real problem with a CGT itself.
They just want a guarantee of no return to a loss of tax deductability.
Interest shouldn't be deductible anyway so the Commissioner should.be given the power to insist on on an interest claw back where it has been deducted. The claw back would make up for not having a CGT on the books in the first place.
There was a problem of speculation – where investors borrowed against a rising in market value asset to buy up more. This was not good for society – not productive investment and also hardship for first home buyers.
So there was the issue of distinguishing between buy up of existing property and new builds (we want this).
The problem has declined (and the CG will now raise less than then).
The historic CG has increased the wealth of those who profited from it. This can still be taxed via an estate tax.
Around 2/3rd of the OECD have an estate tax (the exemption threshold is around the median family home value).
Why should interest not be deductible?
Why should interest not be deductible?
Business owners raise capital to invest in businesses and the expense involved (interest) is a personal cost to to the owner. It has nothing to do with the business itself.
Business owners
raiseborrow capital to invest in businesses and the expense involved (interest) is apersonalbusiness cost to to the owner. It hasnothingeverything to do with business itself.They can raise funds via capital (share issue) and pay dividends.
Many also have business finance via bank loans (and they pay interest).
Some small businesses raise capital via a mortgage loan against the home (the two in one strategy).
The cost of a business asset, which contributes to the acquisition of taxable income, is charged out as depreciation. Why would you wish to impose an additional charge in respect of the money used to purchase the asset. A rental property in any case is the personal property of the landlord: what he does with that property should be irrelevant from a taxation point of view.
I see your ridiculous attempt to amend my comment as grounds for divorce.
You have a very strange and unusual view on the deductibility of interest. Very few people (including the IRD) seem to agree with you.
A person borrows $1m to purchase a fleet of trucks for their delivery business. In your view the interest is not a business expense!!!!!!!
Can you give a reason why interest should be deductible? Simply because a number of persons (including the IRD) say so doesn't make it so. I think the IRD are misinterpreting the statute: on the one hand they say that interest is deductible, and on the other hand they say that an expense is deductible only if it is incurred for the purpose of acquiring taxable income. However the latter would be the case only if it actually contributed to the acquisition of taxable income. However the revenue from the business would be the same irrespective of whether or not interest is being paid, so what exactly is the interest contributing to ? Ownership ? But ownership is a personal matter with personal benefits.
You answered you own question. I would borrow $1m to purchase a fleet of trucks and then use those trucks to shift goods for people and charge them thus producing taxable income, therefore the interest is deductible as it is incurred for the purpose of acquiring taxable income.
If I borrowed money and purchased a truck but only used the trucks for personal use, then the interest would not be deductible.
I guess the IRD and all the accountants in NZ have it wrong and you are the one person in NZ that is right!
The purpose of borrowing is to raise capital, not to purchase trucks. you may well purchase trucks with the capital you've raised but that that's another matter.
Interest is the cost of borrowing, not spending.
Correct. Landlords/investors aren't a monolithic group who all think the same thing about every political issue. Plenty of our members support CGT, but they would prefer a comprehensive CGT, not to be targeted because Labour thinks our business is 'speculative' and 'unproductive'. Labour's policy document is filled with that language. Which, frankly, is bollocks. Our whole business model is about finding a place that's undervalued, improving it, adding value, increasing cashflow and holding long-term. What's unproductive/speculative about that? (and before everyone jumps in with speculators, flippers, traders etc, they are already taxed & IRD is getting very good at finding the shirkers).
As to your main point, if offered the choice between loss of interest deductibility (which would destroy your business) or paying some tax on whatever capital gain is left when you sell up, most investors would take the latter. Note that after deductions for improvements, and if inflation was taken into account, that gain isn't as much as most non-investors dream. Don't get me wrong, it's worth having, but if you've only got one or two properties like most investors have, you won't be diving into a money pool like Scrooge McDuck in your retirement!
Our whole business model is about finding a place that's undervalued, improving it, adding value,
Those things should be capitalised, which would be reduce the amount of capital gain realised on an eventual sale of the property. However, unless such improvements were carried out on a continuous basis your business could hardly be called productive; though you should probably be entitled to a deduction for interest paid in respect of the work carried out.
The CGT regime has chosen to focus on property (commercial as well as residential) to
1.discourage investor competition with first home owners for properties causing upward value
(the economy needs more investment in job creation, realising well-paid jobs that allow people to afford home ownership)
2.tax the CG
Capital invested will not be subject to the tax, but the inflation component will be (as in business tax) – thus taxing profit at the company tax rate.
The alternative is adjusting the value as at 1 July 2027 + future capital invested + CPI money inflation each year and taxing the CG at the personal income tax rate.
It is my opinion that residential rentals should enjoy the same status as family homes: i.e. no capital gains tax and no deductibility of interest. However, I have no problem with capital gains taxes in respect of commercial properties if the interest they have paid has been deductible.
A case can be made for deductibility of interest in the productive commercial sector if it keeps production costs down.
Too much to ask the media to actually do a job and push Willis to back up her claims.
Nicky no boats had zero credibility yet still gets to shriek from the always provided soapbox and walk away.
A somewhat informed perspective here
from Jenée Tibshraeny the Herald’s Wellington Business Editor.
The only dissent proffered is allocating half the money raised to spending when we have budget problems.
https://archive.li/Li7NE#selection-4477.0-4477.161
National's comments as to commercial property are unusual.
One can tell that Willis (Fonterra) and Luxon (Unilever and Air NZ) have a particular form of "business" experience. More administrative management.
The consequences of this we can see in the economy around us.
1.Businesses pay a 28% tax on their profits now. That would include property disposal.
2.There are individuals who invest in commercial property, rather than residential property. They would now be covered.
3.Property dependent businesses (those that do not lease/rent their premises) tend to only sell the property when they sell out to a new owner.
1.Businesses pay a 28% tax on their profits now. That would include property disposal.
Accountants don't consider asset disposal "profit". It usually only the excess depreciation on the asset that is considered taxable.
All assessments end up contributing to the total profit – taxed at 28%.
AI
The profit or gain from the disposal of a depreciated asset is taxable income, not just the excess depreciation. The statement likely confuses the accounting concept of "gain on disposal" with the tax concept of "depreciation recovery income".
Accountants define income as that which can be removed from an entity without reducing its asset base. This definition clearly separates capital gain from operating profit: the latter being the proceeds of goods intended for sale, with a margin added, while the former is comes from the increase in value of an asset.
You may consider this an arbitrary distinction, but nevertheless it is very real and so you cannot claim that that CG should taxable "because it is income". You cannot use a factory to pay for your groceries, for example.
Of course No boats Willis and Luxury Luxon are ramping about Labour….its a classic look over there distraction from the actual fucking mess we are in right now !
Re the landlord's losing their minds with issues (havent they always?) and the CGT….I have linked these before, often, but again….
Also if you are a Tenant with landlord problems..fuck the TPU..contact TPA ! Auckland
There is more to help Tenants.
Bomber has put up a post on TDB concerning the $600,000 Luxon has gained from the sale of some of his properties, criticising the fact that it is untaxed; and of course $600,000 is too egragious an amount to remain untaxed. However it is usual to tax the yield on capital -interest, rent etc. – but not the capital itself, and the $600k is surely capital rather than income, so I would prefer to see it taxed as part of a wealth tax, which would tax all wealth rather than just the CG component. This I think would a better way of addressing inequality..
After all many who might be caught by a CGT may not even be particularly wealthy.
However it is important to get Labour back into power and a CGT may well be an easier sell than a wealth tax.
People on the MW pay income tax.
$15,601 to $53,500 17.5%
$53,501 to $78,100 30%
Only two nations, Mexico and New Zealand do not tax CG – it is unusual not to.
Only two nations, Mexico and New Zealand do not tax CG – it is unusual not to.
CGTs represent a path of least resistance, I guess, when comes to dealing with in inequality. Ineffectual as that path might be it probably keeps their electorates happy inasmuch as they can see that "something is being done".
A cynical view perhaps, but that's politics for you.. And just because a number of other countries have is not a reason for us to have one.
Two thirds of the nations have an estate tax as well.
And progressive income tax rates.
Only two nations, Mexico and New Zealand do not tax CG – it is unusual not to.
CGTs represent a path of least resistance, I guess, when comes to dealing with inequality. Ineffectual as that path might be it probably keeps their electorates happy inasmuch as they can see that "something is being done".
A cynical view perhaps, but that's politics for you.. And just because a number of other countries have one is not a reason for us to have one.
A capital gains tax should be taxed at the individual tax rate of the vendor
If so, then the argument would be to have inflation adjustment before assessing CG.
Applying the company tax rate avoids that (such things are not inflation adjusted)
AI
“If so, then the argument would be to have inflation adjustment before assessing CG”
Why?
https://www.thepost.co.nz/politics/360867391/how-labours-proposed-capital-gains-tax-would-work
Simplicity would favour compliance too.
You say “should” but make no compelling argument!?
Set at 28% hurts those on a lower bracket harder
So you say simplicity, I say fairness. Labour opted for simplicity over fairness. Not that being taxed at the individual tax rate of the vendor is that more complex
As for compliance. The tax is difficult to avoid.
Nevertheless, the unfairness won't encourage those in a lower bracket to be compliant.
There is this from 2019, by Kirk Hope – then Business New Zealand, voice of business.
His objections included
1.saying there were good grounds for not including the family home.
2.but then said the burden would then fall on business, as there was no tax on the family home.
3.he correctly noted the impact of the tax on a business was largely on the owners at its sale. His concern was at the loss of some of the CG to tax, as it would reduce capital for further investment.
4.he opposed the inclusion of both businesses and shares in a CGT.
https://businessnz.org.nz/capital-gains-tax-not-supported-by-business
AS far as I know only business property would be taxable under Labour's proposal. Shares and businesses themselves would not be.
Sure. Which makes the comments of Willis look naff.
It’s just an inclusion of commercial property bought by investors.
Some invest there rather than residential property, such as Bob Jones – pre formation of his company.
There could be an issue where business property changes hands, but I doubt if it would be the major Willis makes it out to be.
Partly incorrect.
From the OP:
He was raising the matter of the sale of the business itself to a new owner.
This like CG on shares appears exempt.
Nope, the keyword is “only”; Mikesh was partly incorrect.
CG of shares are exempt under the proposed policy.
He said business property only, as per the proposed CGT impact on business.
Neither sale of shares in a business, or a business sale are covered by the Labour Party proposal.
This is an important point, as Willis and Luxon are trying to scare some small business owners.
Labour’s policy proposal covers both commercial and residential property; shares are exempt. Not all residential property that would be captured under this policy is ‘business’ property.
You do not say.
Phew, that’s sorted then; what a waste of time, not in the least thanks to Mikesh!
I think if the business owned its own premises then those would be taxable, though plant fixtures and fittings would not be. Goodwill would not be taxable either, though if there was capital gain on the property the parties might be tempted to call that goodwill in order to avoid tax.
A business would not sell its own premises while still operating.
There does not appear to be any tax on the CG made by owners/shareholders with any sale of the business.
In the case of an (unincorporated) rental property, the landlord is the owner of the property and would therefor be liable for CGT on its sale.
A registered company is deemed a fictitious "person" for legal purposes and would therefor be liable for CGT on any property it owned and sold.
The same rule would apply to a sole trader or partnership, if only for reasons of consistancy
I like CGT. I hate Chippy's CGT. Too narrow (estimated 1 house in 10). Too many exemptions (we're not married so it's not a spare house it's his personal house). Why include factories and shops? (aren't we trying to grow the productive sector). And the pathetic 'oh but you'll get 3 x free doctors' carrot. (Aren't CGTs supposed to relieve income tax?). My doctor problem isn't cost (it costs me $15) my issue is supply. I cannot make an appointment for tomorrow or next week for my 6 monthly physical. I have to call after 8am to see if there's an opening that day… not helpful when I have to organize a relief teacher before 7am.
The CGT does not include factories and shops.
Only the CG from the sale of commercial property. Some businesses lease and rent premises from such investors.
Marriage status has nothing to do with it.
Going from one extreme not taxing CG on investment property, to having a CGT including family homes would be rather bizarre. No other nation does this.
DPF once used this as a tactic to scare people from the idea of a CGT.
Now he says we should have a comprehensive one including farms, share sales and business sales for the same reason.
Re marriage status.. I was referring to how vague 'not including the family home' can be. Ie what is a 'family home'? If two people live together, in one house, and have another rental, the other rental could be the one person's 'family home'. All taxes work best when there are fewer exemptions (like fruit & veges).
Residential property is where the owner lives.
If two people live in the same house and one owns another property, that would be called an investment property. Renting it out would be evidence of this.
Residential property where the owner lives is called the family home, which is exempt (as it is now under IRD’s bright-line test). Any other residential property, be it rental or secondary home, etc., will be subject to the proposed CGT – it doesn’t matter if it’s occupied or not.
It would in a dispute.
Such as where one of the two people living in one place claims the other is their separate residence, thus exempt from any CGT when sold.
Renting it out would be evidence someone else is using it as their place of residence.
The CGT does not include factories and shops.
I would think that the land and buildings which house factories and shops would be included. Plant, fixtures and fittings, etc would not be included.
Wrong. They need such assets to operate the business.
It is not an investment to derive CG.
I think that Labour's proposal implies that they would be subject to CGT if they are sold.
Not when selling the business.
Not even when closing the business down and selling off its property assets – as they were not "investment property" in the first instance.
It appears that interest costs won’t be deductible from CG, as they’re considered holding costs, as per Tax Working Group recommendations. Labour will have some explaining to do.
AI
From the Policy document [once you can find it]:
https://www.interest.co.nz/sites/default/files/2025-10/Labour%20CGT-oct25.pdf
Why does Labour not link to its own policy documents is beyond frustrating and it seems that they themselves are not on top of it either, which helps creating chaos, confusion, and gossip by the usual suspects.
BTW, AI output is next-to-useless, particularly without providing & scrutinising the (primary) source material – why do commenters cite it here on TS as Gospel??
AI got it right.
Undoubtedly!
You can thank your AI on behalf of the Labour Party for explaining it in such clear terms and answering the vexing question that so many are grappling with about deductibility of interest – all sorted.
This is because such costs are used to reduce liability to tax on rent income.
Except when they were not, under the former government.
Thus National allowed the interest amount involved to be added to the property value for CG assessment – as AI explained.
Labour has to establish whether it will allow the interest cost of property held in those years of the Labour regime to be added to the value as at July 1 2027 or not.
As AI stated
100% of interest cost is used to reduce tax on rent income.
This was ended for a time by Labour. When National changed policy they allowed landlords to add their interest cost of that time to the cost of building – this when assessing CG for bright-line test purposes.
It seems some want the right to carry/add this cost over to the July 1 2027 valuation.
That argument may hold up if you were selling the business as a "going concern". I don't know the answer to that situation. It may depend on whether the business is incorporated or unincorporated, though I suspect that the IRD would have"see through" powers which would enable the tax to be applied in both situations.
Shorter Willis statement: "We're very dependent on property speculation to give the impression of economic growth. Discourage that and NZ's low productivity will become obvious."
He used insider knowledge to divest his properties?
Labour's press release says shares will be exempt from the CGT.
Does that mean a share trader will pay no tax on earnings from share sales? Or will the current law that applies income tax to property dealing remain in place? How will CGT mesh with the current rules?
The distinction would be between investment and trading, so IRD will still grab some of it.
No. The proposed tax legislation does not apply to shares so the current shares setup will continue to apply.
I don't mind the idea of a capital gains tax. But, in a pure as possible way.
I think a capital gains tax should include the family home. I don't really see why income from appreciating values of private assets should be treated any differently than commercial ones. Just in the way that private income is taxed as is business income.
Also, I think that tax should be against realised gains not paper gains. Otherwise there will be huge churn and God's gift to valuers and accountants. Plus an army of public servants required to ensure that there is not cheating.
And, I think capital losses should also be able to be carried forward and applied against future capital gains.
And, I think that adjustments need to be made for inflation. People should be taxed on real gains not inflationary ones.
Then, there would be a strong, fair universal capital gains tax that should generate the financial and economic objectives of such a tax.
Purity & perfection don’t gel with politics, which is a dark art of practical, popular, persuasion, and compromise.
I’d agree, but this has to palatable & acceptable to the electorate.
This is already in Labour’s policy.
This is already in Labour’s policy.
Labour wants to keep it as simple & easy as possible, so No.
Almost there – you’ll be quite happy then with Labour’s proposed tax policy, won’t you?
I’d love to assist you with your bias & ignorance but my time is precious today.
In the meantime, you may want to read up on Labour’s Tax Policy and educate yourself, which might help diminishing your ignorance (but not your bias, which is likely to only get worse). Obviously, there’s more to come from Labour on this, as well as other policies that together hopefully will change the narrative for enough people to change the Government next year.
I don't really understand where bias and ignorance can be found in my comments. Perhaps you could assist on that. It seems to me that all I have done is proposed a CGT that is broad, fair, and actually achieve something meaningful, and which you largely agree with in principle yourself. In your earlier comment you said (in respect to including the family home):
"I’d agree, but this has to palatable & acceptable to the electorate."
And, I think criticising the Labour policy because it doesn't go far enough in that direction and misdirects benefits to include those that don't need them can hardly be called biased (not in a right wing direction anyway).
No, I don’t “largely agree with in principle”. Your confirmation bias is showing (aka you’re projecting).
Your continued ignorance on matters that you comment is galling; have you read Labour’s Tax Policy yet?
Why would anyone want tax reform to be revenue neutral, when
1.there are decades of deficits forecast?
2.an existing underfunding of the health system?
3. forecast costs in aged care and aged care housing yet to be provided for?
You say you want to move investment from property speculation to the real economy.
A focus on investment property CG does this the best. And you object to it.
You infer you want to be fair to those who do not own homes, yet seem to want no specific rise of CGT revenue to help them – just a general cut in income taxation.
That is not to say taxes overall can’t go up. Just that if it is to be politically acceptable I think it needs to be seen as a transformational change. Not a tax grab.
You do not determine politically acceptability.
For one, encouraging a move from speculation in property to other productive investment is transformative change.
And it is patently obvious that meeting the governments need for more revenue without impost on the majority of voters (who pay tax on all their income) is likely to be advantageous in politics.
And finally taxing such CG income is no more than a move to greater fairness.
No nation places CG taxes on every family home (some jurisdictions tax a few to catch those who invest wealth in homes to avoid a CG).
Have you ever wondered why?
This is because
1.people need a place to live (have to find a new residence to replace the sold house), thus
2.a CGT reduces equity for investment in a new residence, then
3.this acts a disincentive to labour mobility.
A necessity, residence, is not a discretionary investment of wealth/capital to derive gain/income.
Such a CGT would discourage home ownership and undermine capacity for people to retire.
The money raised would have to go into a fund to provide public housing for the aged no longer able to work.
However, certainly in NZ, house-flipping is a real thing. People buying houses (in theory to live in), doing them up (often a minimal paint and decor job), and selling for capital gain.
It does require a rising housing market – but was a significant driver of house price gains during the last decade.
While, in theory, the IRD could look at them, and claim that they were chasing capital gain, rather than housing – the reality is, that they all got away with it. Proving 'intention' is inherently difficult.
The black market is a thing.
Taxing CG derived from economic activity labour is legitimate.
IRD can be assisted by a rule whereby a repeat pattern (without cause) of flipping demonstrates intent.
Or, sale of 'family home' within 5-10 years attracts CGT…. unless you can demonstrate a legitimate hardship reason to the IRD.
Unlikely. The time period is too long to demonstrate evidence of flipping, let alone a pattern of it.
My proposal is that if you sell the family home within 5-10 years you're assumed to be flipping for capital gain (unless you can make a specific hardship case to IRD). I fail to see why that period is "too long to demonstrate evidence of flipping"
All it does is reverse the current situation, where the IRD have to investigate and assess you as liable to CGT; to a situation where you have to pay the CGT, unless you can make a case under hardship reasons for being exempt.
I'm thinking hardship might be marriage break up, or mortgagee sale.
It would be correctly seen as a way to include the place of residence in the CGT orbit. Thus monumental over-reach.
Yep. That's me of infinitesimal faith when it comes to people willingly paying tax.
Feel free to pay it forward. I'm sure the IRD would be happy to accept unsolicited donations – if you think that you should be paying more.
Thanks B – I do, in a modest way. Hope you feel free to do the same.
Really B – really? Must be a mindset – that unscrupulous, greedy IRD!
Thanks to PAYE, I never gave tax a second thought – still don’t
But….. surely….. you've just said you got a "really good deal" – so your PAYE must have been substantially less than you feel you really should have been paying.
Not too late to pony up now…..
That's a revealing take on "a really good deal" – life as a ledger
I feel I've paid what the IRD expected of me, and didn't begrudge it. Some Kiwis pay tax/rates very begrudgingly – believe it or not!
In hindsight, I'm grateful for the taxpayer-funded education that nutured an enthusiasm and aptitude until I had the skills to secure good positions overseas, which led to further up-skilling.
Never tried to put a price on my state education, and the personal returns from that education extend far beyond the modest financial ones, but, as a teacher in Aotearoa, I like to think I've made a small "pay it forward" contribution – my "pony up" if you like.
That is because politicians everywhere are basically cowards. The system would adjust if the CGT was applied universally and in the end people shouldn’t be worse off.
What system would adjust?
Homeowners would lose equity with every house sale – and buy back into a higher value market.
The impact would be to increase mortgage debt with foreign owned banks.
This would make paying off a mortgage by the time of retirement more difficult.
People would be worse off.
See my post below. The answer is to index gains to inflation. Otherwise people aren't being taxed on real gains. Those buying and selling in the property market shouldn't be affected if they are buying and selling in the same market.
You neglect to note that house prices go up by more than inflation (as do stocks by the way – thus the value of Kiwisaver).
So people will be worse off if a CGT included the family home (even with inflation adjustment).
Depends on the period you're measuring. Over the last decade, sure – we've had a period of unparalleled inflation of house prices.
Over the last three years? Not so much. House prices in Wellington are up to 30% down.
https://www.rnz.co.nz/news/business/572821/wellington-homeowners-who-bought-at-peak-prices-now-face-steep-losses-when-selling
Personally, I don't want to have anything that would encourage governments to think that ongoing house price inflation is a good thing.
Careful now RNZ.
Oh, so you have two lines to run.
1.create a fear of the family home being included via IRD.
2.raise the issue of a CGT resulting in the government getting more money, if there is inflation.
Well no more than now – with wages adjusted for inflation.
Whereas you seem to be entirely comfortable with house prices rising – so long as the government gets their cut.
Thanks for clarifying what your narrative is
1.to oppose a CGT that made no inflation adjustment in the CGT valuation for the tax purpose.
The thing is that is the rule applying at the company taxation rate.
Those who want the tax to include an inflation adjustment, then have to wear a move to tax assessment based on their personal tax rate (for most would be higher – as they say pick a lane).
2,to change the narrative from including CG from investment in property (non productive sector) in taxation to the government, to it getting a cut of the inflation component.
Governments are also affected by inflation.
All of that comes out of your own head, not from anything I've said.
flip side of that is more stable and coherent communities.
If there was a disincentive to own, if one was intending to be career mobile, less people would buy. More owned by landlords.
Doesn't happen now – and there is no reason that it would happen in the future.
People who have planned hyper-career mobility buy in a city (typically a home one, or one they plan to settle in) – and rent it out. Or they just rent – because home ownership is too much of a pain to bother with.
People who have a plan to live in one city – but get an unexpected job in another – typically rent out the current home, and rent a new one – until they're certain that the change is going to be long term.
In both cases, people tend to become unintentional landlords.
A person moving to a regional area to work in a council, hospital or school would not buy there if there was a consequence (loss of equity from taxation when moving on).
I'm ok with people renting. People buying and selling houses all the time is part of why we have a housing crisis. The way to fix the problems with renting, is to via tenancy rights.
If we instead encourage people to move around a lot, not just those who have a career that want to do that, but the large number of people that that get economically coerced into it, then we support the housing crisis and undermine communities.
The old main argument used to block a CGT to date has been it would be a barrier to the expansion of capital invested to grow the local productive economy.
However when Labour accounts for this, in its more limited CGT proposal, the landlord class complains that the focus on unproductive investment in property/singled out for capital gain taxation is unfair.
They claim to want it to include all CG, so that they can hide behind the old arguments against a CGT used in the past.
That old, if there is to be a CGT let us find a way to make it either less popular (include the family home), or find an economic benefit reason to not have one.
https://www.thepost.co.nz/business/360868809/property-investors-were-being-singled-out-labours-capital-gains-tax-proposal
I think the answer to those who say the family home should not be included is just to index capital gains to inflation. Then those who are buying and selling homes in the same market won't be affected much.
True gains and losses should be indexed to the inflation rate. Otherwise, people could be losing money in real terms. Say property prices have gone up by 1%, but inflation has gone up by 3%, then those being taxed will be losing money in real terms.
If house prices (land) had not gone up by more than inflation, who would have invested in them for CG?
People will buy houses to live in regardless, there in lies the difference.
People do buy them for capital gain. In fact, I have a relative who does that. Not that I approve of their tactics. They target people in poorer areas who often don't know what their property is worth, and offer them prices below the going rate and make profit on the sale.
But, also, people often by a dooer upper and spend as little as possible to make it saleable and then flick it on at a profit above their costs.
Those sort of gains should definitely be taxed. But, gains in line or below inflation shouldn't be. That is the difference between capital gains and other income that is taxed. Capital gains can be apparent not real.
The Labour Party agrees that houses bought and sold for CG should be taxed.
IRD agrees that those who live in the houses they intend to quickly flip on for CG should also be taxed.
These taxes can be at the company tax rate (and include inflation gain) or otherwise at the persons tax rate (then inflation adjustment is made).
Labour excludes the homes people buy to live in. And rightly so.
If a commercial entity purchased a property 30 years ago for $100k and the now sell it for $600k in principle should they be taxed in the difference ($500k)?
Are you really unaware what value as at 1 July 2027 means?
Do you understand what "in principle" means?
If you want, start your 30 years on 2nd July 2027.
If you want to cite, “in principle”, then use the term.
Do you understand that a "commercial entity" pays business tax now (and its taxable profits include any CG).
The CGT proposal is about a tax made on those (not businesses) who invest in residential and commercial properties.
I think it would fall outside the brightline test in the example I described. And, so long as the entity isn't in the business of buying and selling property, I believe it would be a tax free capital gain in this example.
In fact, we have this situation in business now. If a business purchases anything, be it a car, or a piece of equipment, and sells it for more than the depreciated value but less than the purchase value, that is depreciation recovered which is taxable. But, if it sells the equipment for more than the purchase price, it is a tax free capital gain.
AI
The statement likely confuses the accounting concept of "gain on disposal" with the tax concept of "depreciation recovery income".
If the "gain on disposal" exceeds the “depreciation recovery income" then the difference is not taxable. The extreme example is land, which is not subject to depreciation; and this being the case any increase in the value of land is not taxed, at least not at present.
In other words if the the excess depreciation is less than the capital gain then, because capital gain is not taxable (at present), the extra capital gain is not taxable. But if the excess depreciation is greater, then the extra depreciation is not taxable.
If a company purchases a company vehicle for $40,000 and and depreciates it at $10,000 per year for four years, and then sells it for $15,000 the accountant will say "we have charged too much depreciation because the vehicle in fact has cost us only $25,000 over its four year life, and we will have to account to the tax department for the $15,000 excess depreciation". Of course all or part of that $15,000 may in fact be capital gain, but there is no way of knowing.
If a business sells a property asset such as land and makes a CG it is taxed as part of business taxation now – at 28%.
The costs of interest, rates, insurance and maintenance are deductible against rent income.
Over 30 years there would/might be capital improvements to sustain the desirability of the property, these would add to its value cost.
A 600% increase in value over 30 years.
$1M house to $6M.
The CG could be up to $5M.
If there was adjustment for inflation at the RB 1-3% range – say average of 2% pa (easy count 20% per decade and 60% per 3 decades). Say compound to c$1M inflation.
Then the CG under that system would reduce down to $4M
So tax the 5M at 28% – Labour's plan
Or tax 4M at the owners personal income tax rate.
Actually your estimate of 2% pa is a bit light.
According to the article over the last 30 years house prices have been rising at an average of 5.9% pa outside Auckland and 6.5% in Auckland.
So, say 6% pa would be 1.06 to the power of 30, which would be over 5.7x the starting value. Hence, the gain would be mainly due to inflation and nothing else.
So, I think inflation should be allowed for in a CGT so that actual gains are taxed, not nominal ones.
Here is a suggestion for you. Let us assume property has increased at 6% pa over the last 30 years for that asset class. But, money has only inflated at 3% per year.
So the property purchased a $1 million 30 years ago as your example now sells at roughly $6 million.
Money inflation would have the initial $1000000 cash now worth $2.427 million (1.03 to the power of 30).
So, the taxable value would be $6 million minus 2.427 million making a taxable amount of $3.573 million (assuming no capital improvements over that time).
Why should the “cost” go up above the average CPI over the period?
The real value of the “money” invested.
“Why should the "cost" go up above the average CPI over the period?
The real value of the "money" invested.”
Because the value of money at the end of the period is effectively the rate of inflation of money. So, if $1m at the beginning of the period is now worth $4m at the end of the 30 year period, then the value of that money is essentially neutral. There has been no real monetary profit.
If an asset appreciates faster than the value of the money, then it is a true profit, and hence taxable.
The costs of interest, rates, insurance and maintenance are deductible against rent income.
Rates, insurance and maintenance are not deductible against rental income but the landlord pays them anyway and passes them on to the tenant as part of the rent, deeming them to be the tenant's responsibility as the occupant of the property. Of course the tenant would not himself be entitled to a deduction for these. However interest should not be passed on since the tenant, whilst he should pay a fair rent, should not have to pay for the landlord's property as well, although depreciation would also be passed on if depreciation was something the IRD allowed.
All of this may look like splitting hairs, but accuracy makes for clarity of thought.
Are taking the piss?
Undeniable fact.
The cost of interest, rates, insurance and maintenance is deductible against rent income.
Are taking the piss?
No. That should have been obvious from my final sentence.
The cost of interest, rates, insurance and maintenance is deductible against rent income.
But in making those deductions and passing them on part of the rent,a the landlord is merely reimbursing himself for expenses he has paid for on the tenant's behalf; and of course that doesn't apply to interest but only to the other expenses.
The fact that they are the tenant's expenses rather than his own still entitles him a seductions for tax purposes.
PS: It is my belief that, in the case of rental properties, expenses should not be deductible, because the properties are being used for residential rather than commercial purposes. This puts landlords and other home owners on an equal footing.
PPS: However landlords should still be able to deduct expenses which they are merely passing onto tenants, i.e. reimbursing themselves for expenses which should be met by the tenant as the occupant of the property.