Capital Gains Tax? Keep related posts in this thread, please.

[muppet]

Hi Guys

Now that I have your attention, Muriel Newman, Act MP has started a column in the NZ Property Mag.

In the Feb issue she suggests that teh United Future Party MP Gordon Copeland is in favour of taxing capital gains on residential rental properties.

He says

treating the gain in value of rental properties as income, possibly by assuming that the properties were acquired with an intent to sell.

The Treasury questions whether buildings should be depreciable. If change came about it could have serious consequences for property investors. Especially those who are particulary highly negatively geared.

Appearently according to Muriel Newman the Government is now seriously considering changes to the depreciation regime.

INCOME TAX BILL: This bill is before a select committee.
The clause CB1 states that

an amount that a person derives from a business is income of the person,

and since there is no exclusions for capital, this bill could be used to introduce a capital gains tax in the blink of an eye.

May be couse for some concern.

Regards

[cube]

I guess it depends on when the gain would be taxable. If it only when it is realised on sale, then buy and hold becomes even more attractive.

As for buildings not been depreciable - I don't think that would fly with the commercial property owners who provide the office space for the country, and distinguishing between commercial and residential would quickly become a blurred distinction.

The argument that tax incentives are effectively the government paying investors to provide a social service (housing) that the the government is unable or unwilling to provide itself holds true. If RE becomes massively unattractive as an investment, then rents will skyrocket and the gvt will be left to pick up the bill and/or the people on the streets.

Having said that, only current investors would be disadvantaged - once any rule change is in place, the numbers will still be the important thing - can the rent for this property cover its expenses. Whether that is before or after tax or before or after any contribution from the investor (-ve gearing) is a decision for individual investors to make. What changes is the way the numbers are calculated, and the result may be increased rents to make property stack up as an investment.

Do Aus/UK/US charge CGT - if so, what effect does it have?

Happy taxing

cube

[donna]

I suppose it was expected - both UK and Aus have capital gains tax. In Aus if you hold the property for 12 months and then sell you are up for the marginal tax rate (your personal tax rate) on 50% of the capital gain.

Remembering that income earnt over 60,000 (or it may be 62,000 not sure on the amount) personal income tax rate is 48% so you'd be for almost half so in theory 25% of the total capital gain.

Pays to put the Property into a low income person's name, then the CGT is a lot less!

Cheers,

Donna

[muppet]

Capital gains tax to hit investors

Hi Guys

Will this enforcement of rules affect those Australians who have bought property in NZ and then sold for capital gain?

Capital gains tax to hit investors

23.03.05
By BRIAN FALLOW

Some foreign investors will get hit by a capital gains tax - something New Zealand is not supposed to have - when they pull their money out of the country, under new rules announced by the Government without consultation.

Finance Minister Michael Cullen said on Monday companies that migrated (that is, move their incorporation and head office offshore) would be treated as if they had been liquidated. They will be deemed to have disposed of all their assets and liabilities at market value and paid out the proceeds to shareholders as a dividend.

But tax accountants say the planned law change merely extends an anomalous feature of the tax treatment of liquidations to a whole new set of transactions.

Deloitte tax partner Thomas Pippos said that when the shareholders were foreign companies owning at least 20 per cent of the migrating New Zealand companies they could get hit by a non-resident withholding tax of 15 to 33 per cent. In effect, it would be a capital gains tax.

He said that was unfair when other kinds of shareholders - people or trusts - escaped the tax.

The tax would not apply if the New Zealand operation was a branch rather than a separate company, or if the offshore shareholder sold the New Zealand company instead of the underlying assets or business.

In the search for a comprehensive rule for the tax treatment of migrating companies, the policymakers were merely extending an anomalous, hard-to-justify rule from liquidations to a new set of transactions.

"The rules are a trap for the unwary or those unfortunate enough not to be able to avoid them. They are not a pillar of our taxation system to be protected at all costs," Pippos said.

He also objects to the fact that the law change once enacted would apply from last Monday. Such "legislation by press release" was justified only in exceptional circumstances.

"This migration issue hasn't just cropped up. It has been around since 1993 when the Companies Act came in. You would have thought there would be some discussions before the sledgehammer came down."

KPMG tax partner John Cantin said the change would impose a capital gains tax where there was none before.

"When people are looking to invest in New Zealand one of the headline things that attracts them is that we don't have a capital gains tax," he said. The Government had sprung the change on taxpayers.

"There will be companies caught by this which are in the middle of such transactions, just in the ordinary course of business."

Cantin said it was disappointing that New Zealand was imposing higher taxes on non-resident taxpayers in these circumstances, when the general trend for many years had been to reduce the tax costs on non-residents investing into New Zealand, on the grounds that the economic cost of that tax ended up being borne by New Zealanders anyway.

News source:

http://www.nzherald.co.nz/index.cfm?c_id=3&ObjectID=10116702

Regards

[CJ]

Re: Capital gains tax to hit investors

Will this enforcement of rules affect those Australians who have bought property in NZ and then sold for capital gain?

I wouldn't thing this would effect overseas investing into NZ property. This is target at companies like BIL (Brieley) who migrate to burmuda for some strange reason. A lot of multinations would do this to their NZ sub if pulling out of NZ if it is going to raise NZ tax issues when winding down.

Question - why aren't Australians subject to Australian capital gains tax on gains made in NZ. Is it only limit to gains on property held in Australia? Or is it a matter of the ATO cant touch what they cant see (I am sure NZ ahs a strong info staring agreement with the ATO)?

[kickass]

Tax the skippies

[Julian]

I think you will find Australian taxpayers, just like NZ ones, are obliged to declare overseas income. In most cases they earn credits for the tax they have paid in the country the income was earned, and have to make up any shortfall if there is any.

This is obviously meant to mitigate any tax advantage of operating from another country.

Julian

[MarkS]

Lol

Kickass "Tax the skippies"

yeah and bring back the dole for NZ migrants in Oz from the first day they arrive!!

[muppet]

Slippery slope to capital gains tax

Hi Guys

Article in this morning's NZ Herald:

Brian Fallow: Slippery slope to capital gains tax

29.06.05

The people who write our tax laws really need to make up their minds. Do they want a capital gains tax regime or not?

Yesterday's package of proposed reforms to the tax treatment of investment suggests that they do - and that they don't.

Capital gains tax on investment in NZ companies via actively managed funds is to be eliminated, as long urged by the savings industry and endorsed by Craig Stobo's review.

But that measure sugar-coats the bitter pill of a new capital gains tax on outbound portfolio investment into countries which are traditionally exempt and which receive about 70 per cent of such investment.

New Zealand is unusual in not having a capital gains tax.

In principle it is not clear why a person should be taxed if he increases his wealth through working, but not if he increases his wealth through owning a property or the right form of financial asset.

Some years ago then-Reserve Bank Governor Don Brash, appearing before Parliament's finance committee, made the case for a capital gains tax on investment properties.

The MPs shrank back in their chairs as if to distance themselves from this politically radioactive proposition.

But to broaden the tax base through capital gains in exchange for a lower tax rate on incomes and/or consumption is an arguable proposition.
Creeping, piecemeal moves towards more capital gains tax without any such trade-offs, on the other hand, are objectionable.

Where does it end?

In five years time will we hear the argument that it is distortionary and economically inefficient to have a capital gains tax on foreign equity investment but not the local kind, so we should extend it to the latter?

And then will we hear the argument (again) that it is wrong to tax capital gains on financial investment but not residential property?

It is a slippery slope.

News source:

http://www.nzherald.co.nz/index.cfm?c_id=3&ObjectID=10333220

Will Brash, now that he might win the election, continue to do what he suggested needed to be done when he was governor of the Reserve Bank?

Regards

[muppet]

Hi Guys

More on Capital Gains Tax:

Capital Gains Tax In Summary
WHAT IS CAPITAL GAINS TAX (CGT)?
When you sell or dispose of asets, you either realize a profit or a loss on such disposal. CGT is a tax that will soon be levied on these profits and,or losses. If you sell something for more than you bought it for, you have made a Capital Gain. Previously only income (salaries, rental, co,mmission) was taxed, and unless you were actively trading in property for profit, gains in the value of all property was exempt from tax. CGT will tax capital gains as income.

DO OTHER COUNTRIES HAVE CGT?
Most countries have some form of CGT. The G7 countries as well as OECD (Organisation for Economic Co-operation and Development) countries, have implemented CGT some time ago. The proposed South African model for CGT is based on the models in Australia, Canada and the United Kingdom.

HOW DOES IT WORK?
Anytime you dispose of an asset by selling it, giving it away, swopping, scrapping or destroying it, the gain or loss realized in the process is then included in your Annual Income Tax Return.

It is proposed, (but not yet finalized), that individuals be granted an annual exclusion on the first R10000 of the gain (or loss) and pay tax on 25% of the remainder, according to the individuals Marginal Tax Rate.

Companies wil be taxed on 50% of the gain. The previous advantages of property ownership in legal entities therefore becomes less attractive.

For example: If you buy a holiday home for R300000 (including all expenses) after the introduction of CGT, and sell it a year later for R350000 (nett of all expenses), your capital gain will be R50000. After deducting the R10000 exemption, the taxable gain will be R40000, and of this R10000 (25%) will be taxed at your Marginal Tax Rate.

ARE YOU AFFECTED?
YES- If your property (whether inside the Republic or not) is in your name, or in the name of a Close Corporation, Trust or Company and you reside in South Africa. (Justified by residence)

YES- If your property, or that of any legal entity is in South Africa and you are a non-resident. (Justified by source of the Capital Gain).
NO- If you do not own any other major assets other thsan the property that you use as your primary residence. (Your primary residence is only affected if you make a Capital profit in excess of R1 million)

WHAT IS AFFECTED?
Included in CGT profits: Second or more homes, shares, unit trusts, coins held for investment, boats, caravans and aircraft.

Excluded from CGT profits: Vehicles, the contents of your home, Lump sums from pension, retirement or provident funds and any lottery, casino or Horse race winnings.

WHY HAS IT BEEN INTRODUCED?
Government say that not taxing Capital gains is unfair on people whose entire income is taxed because they do not make Capital gains - YEAH RIGHT!

It believes that the absence of CGT encourages taxpayers to convert taxable income into tax-free capital gains, therefore Capital gains discourages capital investment and entrepreneurial activity. The real reason is that it is expected to boost the taxmans coffers by R1 Billion to R2 Billion per annum.

Capital gains tax does not take inflation into account. In real terms, if the value of an asset doesn't outstrip inflation there has been no real gain, even if the value increases in Rand terms.

VERY IMPORTANT NOTICE TO PROPERTY OWNERS
Only gains made after the introduction of Capital Gains Tax are taxable. One of two methods can be used to determine gains after the introduction of CGT.

1. You can have all your assets valued when CGT is introduced and use that as the base cost.
2. You can use the time apportionment method to calculate the deemed value of your assets at the time when CGT is introduced. For example, if you bought your holiday house one year before CGT was introduced for R250000, and sell it one year after the introduction for R350000, only ½ of the total profit will be subject to CGT.

Remember that the base cost in calculating CGT includes all expenses when aquiring a property including transfer duty, bond registration fees and many other incremental cost. It is important to retain records of all these costs for calculating the CGT payable after it's introduction.


Ha ha thought I would give you guys a fright.
News source:

http://www.sahometraders.co.za/news/news_article.asp?nid=1

Regards

[Kimberly]

I wouldnt mind CGT if we didnt have every other tax known to man, running at the same time.
It would be interesting to see some figures on 'the real tax rates" in NZ (petrol, income, alcohol, etc)
What is the consensus in this forum about rates being a tax and should be GST free?

[artemis]

I wouldnt mind CGT if we didnt have every other tax known to man, running at the same time.
It would be interesting to see some figures on 'the real tax rates" in NZ (petrol, income, alcohol, etc)
What is the consensus in this forum about rates being a tax and should be GST free?

According to Rodney Hide 'real tax rates' are around 50%:

[CJ]

If they want a CGT they should bring in a broad based system rather than the small ones they currently have.

Flat rate of tax (income and CGT) of 15%.

Brash wouldn't do it till at least second term (if at all) as it is a death blow. Once in though, no party would abolish it.

[Julian]

The Aussies brought theirs in in about 1975 (I believe) and it only applied to properties purchased subsequently - so if you had (and kept) a pile of properties you purchased prior to this when you finally do sell there will be no CGT. New Zealand tends to follow Australia's lead so those with a good few properties might not be taxed on gains. Also Aussies only pay tax on 50%of the gain if it is their personal residence (in their personal name) and they have owned it for more than one year. Perhaps this is how it will eventually happen here.

The trouble with introducing a CGT in NZ is the pollies are so hopeless with the money they already steal off us that it would be foolish to entrust them with any more.

We have girls on the dole not getting enough free taxpayer money so they have a sprog, then it's still not enough ('cause cigs and booze and drugs are so bloody expensive) so they have another - entitling them to an automatic rise in earnings, then another, then another. By this time they are getting a free house, free whiteware, free everything. We have tertiary education systems with no accounting prodeedures in place. We have a treaty gravy train that seems to be going on forever.

Meanwhile Jo/e worker is rushing from first job to his/her secondary one, gets a speeding ticket for doing 62k on a 50k arterial route, pays secondary tax on his second income and comes home too buggerred to even think about having a family, and after all his/her tax still can't scrape up enough deposit to get a house in anywhere but a slum.

Less tax, and less socialism would be a good deal fairer. The social safety net has become a hammock for some while others struggle under the burden of excessive taxes.

Julian

[Ted]

Dang I have to agree with you Julian on a few things youve said but your still a hard man

Some people have said to me lately that the current government is crap, but who would we vote for in their place? I dont mind paying tax but it hurts more and more every year

The trouble with introducing a CGT in NZ is the pollies are so hopeless with the money they already steal off us that it would be foolish to entrust them with any more.

Here here!

Ted