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

[Wayne]

If by that you mean you think people will change their investing habits isn't that one of the aims of their policy ?
IE: reduce the incentive for people to buy existing lower priced rentals ?

I am not sure that the policy has an 'aim' really. Have they stated that they want to do anything other than level the playing field?
I have been on holiday for 10 weeks so haven't followed anything.

[Bluekiwi]

I am not sure that the policy has an 'aim' really. Have they stated that they want to do anything other than level the playing field?
I have been on holiday for 10 weeks so haven't followed anything.

Showoff !!

Want to tell us your secrets and how you have put yourself into a position where you can go ... on holiday for 10 weeks..........

Sounds very nice.

[Wayne]

And another month off in 2 months time!

Secret?
Learn to balance the long term and the short term. I don't want to die rich or live poor. And I don't know when I will die so best to spend a little now.

[PC]

Labours only coherent policy seems to be tax and then dish a fraction of that dosh out to some of their mates.
Instead of sour puss policies of envy - perhaps they could try a bit harder and come up with something positive for workers?
How about same tax laws for individual workers & companies? etc.

[JamesE]

We'll all be traders!

Of more concern to me is no account taken for improvements that may be made. How about you brought a house for $100k because it was run down and spent $100k doing it up. Sell 10 yrs later and you get taxed for the $100k you put in + the increase in value you created.

You make an interesting point. If you'll get taxed on the improvements anyway you'd best claim expenses as you go. So I'm thinking we'll just end up declaring all our buy and holds to be trades so that we can expense everything we currently capitalise. AFAIK there isn't an upper limit on when you must sell a trade.

Now I realise that the 15% tax on the CG is lower than the 28-33% rate that you'll get hit at. However, if its a buy and hold, the time value of money comes into play, with money in 10 years time worth less than half it's current value (on average). Plus you can invest your refund now and earn a return on it that should dwarf the marginal tax you'd pay by following this strategy!

Note: I am not an accountant, just an amused investor who thinks that meddling politicians should not mess with this stuff just to win votes.

[speights boy]

!!!!!!!!!!!!!!

The tax will be applied to net capital
gains.

The CGT is a net tax.

It is calculated on the net gain, which is the gross gain after the costs
associated with buying and selling the asset are deducted.

Such costs include: stockbrokers‟ fees,
legal fees, valuation fees, advertising costs to find a buyer
or costs associated with improving the value of the asset.

[Bluekiwi]

Okay lets look at this in practical terms.

National win this election, Cunliff is replaced by Grant Robertson and John Key retires and Stephen Joyce takes over.
Election is held in late 2017 and they bring in the CGT 1.4.2018.
Or maybe longer as the valuation industry and accountants / solcititors will be swamped.

And this is about when Infometrics and everyone else expect GDP and the rebuild and Immigration and the economy to be suffering a big hang over.
I am thinking late 2016 and into 2017 when the dark horse of auckland property arises.
So cant see much capital gain happening for the first 3 years.

Plus it gives everyone from 2014 to 2018 to really think about what they want to do when the new tax comes in.
People likey quit any properties at market peak in 2016 / 2017.
And then once the law comes in just not sell any rentals, and pass them on to their kids.

In affect a Capital Gain's tax does not affect long term investor's like me as I dont intend to ever sell.
And the longer I have the rentals before passing them on to my kids and the more time they have them and capital gains add up.
They will never want to sell as it just wont make economic sense.

You buy a house for 300k, and have a mortgage of 250k, the value goes up to 1,200k over 20 years.
You sell to reduce a 250k mortgae and get hit with 135k tax ?

Its just going to make property investor's and their family's hold on to rental property longer.
And this reduction in supply will just push prices up even more, and eventually rents will start tracking up as well.

If investor's need access to funds they will just take a new RV to the bank and get more funds in the RC account.
Ye good old three R's, renovate recycle and revolving credit.

When the CGT and labour finally make it in, I will just do more trading of property (taxable gst reg entity) and reduce debt on the rental properties.
And keep them and pass them on to kids.

But if people are wanting to exit rental properties and not pay this new capital gains tax then they have till at least 2018 to get their affairs in order in my book.

[speights boy]

You buy a house for 300k, and have a mortgage of 250k, the value goes up to 1,200k over 20 years.

"The greatest shortcoming of the human race is our inability to understand the exponential function."
- Prof. Al Bartlett

[PC]

When has more tax made anything cheaper - ever?
House prices will just increase some more.

[speights boy]

^ How many rental properties are sold per year in Auckland do you think ?

[artemis]

No way a Labour government coming in after the 2017 election could have a CGT up and running April 2018. Maybe 2019, but even once the 'expert panel' has reported and the policies are tied down they will need legislation, IT and business system changes, so even 1 April 2019 would be a stretch. If they can't make 2019 it will have to be 2020. Residential rentals might not be the most complex part of it all (not simple though esp if trusts are used) but rules around sales of businesses and farms will not be straightforward, and would need a decent lead time for affected parties.

It'll be fascinating to watch when people start to realise that mansions, boats and pricey artwork are exempt, but the local plumbing, auto repair and corner dairy businesses are not, except in very limited circs.

[Wayne]

Its just going to make property investor's and their family's hold on to rental property longer.
And this reduction in supply will just push prices up even more, and eventually rents will start tracking up as well.

Sorry why will holding on to rentals reduce supply? They are still rentals whether you or someone else owns them (as rentals). If others want a rental then they will have to buy something else or build.

[speights boy]

When has more tax made anything cheaper - ever?
House prices will just increase some more.

The majority of properties sold would not be subject to this tax.
An investor buying a rental will offer their "numbers" price.
The vendor may well say...."you must pay my tax bill, you must pay my agent's commission"
The purchaser simply says..."Nah, don't think so sunshine"

[PC]

So investors don't actually influence sale prices?
Pheeww - problem solved then.

[speights boy]

So investors don't actually influence sale prices?

Yes they do.
They buy on the numbers.
That's why they'll tell you to pay your own tax bill.