Tax Working Group Report & Related Matters

[Perry]

Another media item on the matter.

Confusion reigns.

[Bluekiwi]

Adapt or die, is the only way.
We all just have to accept the system and make do with what happens.

From my way of thinking.
National will lose next election as they did the best they could and still lost as the other 3 ganged up on them.
A bit like the Allblacks losing the competition as Ausie and South Africa and Argentina got to add all their points together.
They can never get 50% and NZ First are on the gravy trail express they are not changing trains.

The AXIS of evil is firmly in control and capital gains tax will be recommended and come in 1/4/2020.
Their will be a lot of mum and dad investors and smaller investors who this will too much for, especially with the socialist laws being brought in to favour tenants.

I am getting ready from an equity and finance perspective to be able to buy rental properties of the desperate hordes trying to exit.
Purely yield based rentals and look to never sell, just pass on the children.

Property investors and land / capital owners are the people in NZ who drive the creation of new rental supply, do the heavy lifting.
Auckland council and red tape and compliance costs and finance restrictions will further limit this.

Their will be increased rental short supply all through Auckland.
The more professional investors will not sell, they will buy up more, and their will be this massive lock in affect of a smaller number of rentals.
Rents are going to sky rocket.

This is regardless of salaries or what people can afford as people just move in together.
Or AIR BNB part of their house, or get homestays to afford mortgages, the number of people per square foot of property will increase.
And rents are just going to go up and up due to short supply in auckland.
Look at what you can get for larger houses in south Auckland with big families and 3 or 4 income earners.

Adapt and work the system.
If you are not agile enough and prepared you will get trampled.

[ScottSI]

Will a CGT really make that big a deal?

I assume (but won't know till legislation is drafted) that they will have to draw a line in the sand to start CGT and every smart investor will race round locking the highest value for their rentals for this date. This will basicly lock in all tax free capital gains as made by 2020 ish.

People will still buy property as the bank will loan 65% for it and can use equity of own home. While you can borrow money against your own house for shares, bonds, private equity funds, syndicates no leverage is available so capital growth is reduced.

People have a love with bricks and mortar and after reading another group of investors being ripped off by a ponzi scheme in CHCH today, I don't see that love disappearing.

Say they do a flat 15% CGT with no inflation allowance etc, if you hold a house for 10 years and it inceases by 500k and you have to part with 75K in tax (less any accumalated losses) it is still a great way to make 425K and hopefully some income along the way.

Would be more interesting if they made capital gains to be declared as straight income and taxed at your nominal tax rate. That would cause a stir!

I do think the ring fencing of losses will slow the market especialy in the mid to high market but the losses will still accumulate and off set profits and CGT in the future.

It might slow the growth in Auckland a little (maybe for 5 minutes) but most of that heat was taken care of with the LVR changes & brightline test and Auckland (& Welly) aren't shrinking.

In my section of the market where everything is CF+ it will actually increase the prices of these houses as I feel as people will shift away from heavily NG properties (which we have been seeing over the last 18 mths).

For the investors that have been in a while, I don't think overall they will bat an eyelid as new purchases if NG, will be offset by CF+ properties and after the current prices rises everyone I know has equity coming out their ears.

I think if a CGT comes in only for residental property a bias towards commercial properties (which may include boarding houses) will occur and as the LVR (so leverage) & interest rates are the same for commercial as residental it will be interesting to see what happens in that sector.

So I agree with Paul that people will have to adapt but that's just what you do if you want to invest in anything.

[Bluekiwi]

I think its 33% tax, that's what they used in GRA's webinar this week.

[Perry]

Adapt or die, is the only way.
National will lose next election as they did the best they could and still lost as the other 3 ganged up on them.

We seem to have a choice between bad and terrible.

Perhaps the gNats will adapt?

Or maybe NZ constituents will? Or will have to?

The Labour comrades still have plenty of time to make a total mess of things.

They probably wont disappoint us.

Winston First will fade away along with its leader, after he's had his taste of acting PM while Taxcindarella is on maternity leave.

Almost an anyone's guess future.

[Bluecoat]

So why do people buy a house and rent it out at a loss? Not just to save tax (I'd sooner pay tax on a profit than lose money on a loss). It's because they have an expectation of a capital gain. Remove the capital gain either through price stability or through taxation and you remove this incentive. Right now, many Landlords are subsidising the living costs of their tenants, sometimes by hundreds of dollars per week. Very generous of them.

Capital gain is perceived as a bonus - a desirable outcome for the risk and the loss they make in the early years. Remove this and the investors take risk elsewhere. Is that what we want - to force them to be a burden on the tax payer in their later years.

Mum and dad investors who are the majority, once they have paid their own home, use the property as a vehicle as a savings to retirement fund and improve/better quality of life.

About time Landlords charge enough rent to make a profit - as the law is intended. It's a business after all isn't it ?

[ScottSI]

The TWG paper on capital tax talks about making it add to income through to taxing at 33%. GRA may have used 33% and have a stronger basis for this, I do go a bit glazied donut reading TWG documents.

Even at 33% still 67% gain before any deductions.

Looking forward to the details, wonder if they will have fair market pricing rules or might I be selling assets cheap to the kids! Trusts live for 80 yrs so who knows what the tax rules will be then (but I guess trusts will be next on Labours hit list).

[Perry]

(but I guess trusts will be next on Labours hit list).

Supposedly, too many of the Wellie woodenheads have Trusts for that to happen.

[Don't believe the Hype]

Would be more interesting if they made capital gains to be declared as straight income and taxed at your nominal tax rate. That would cause a stir!

Coming in at 15% wouldn't be a huge deal. In the short term I would simply add 15% to the price i want to sell my property for. If i'm not in a hurry to sell i wait to get my price.

If they follow the Aus model there are a few things to consider:

1 - Grandfathering - any property bought before the introduction of CCT in 1986 (i think) is not subject to CGT - this means people who hold property from before that time are reluctant to sell as they lose the tax advantage - why sell propety A which is CGT free to buy property B that now has a tax

2 - The tax treatment of CGT is that the gain is added to income and taxed at your marginal rate. They apply a discount for Aus tax payers of 50% so you take half the gain and add it to your income. If you're a foreigner (or even an Aussie living overseas for work) you lose the 50% discount.

3 - They tax on WW income and employ a concept of deemed disposal - If you own property anywhere in the world and you're planning to leave Aus as a tax payer to work or live overseas the ATO give you the option of
i) Assessing the value of the asset on the day you leave Aus, calculate the paper gain and pay tax on that gain - pay real money for a gain that may never eventuate.
But the ATO aren't all bad... they give you a second option
ii) Don't pay the gain now. Pay the gain when you do sell the property in future ... on the full value of the gain. I.e. you lived in Aus and bought a property in NZ. Left NZ and headed home to NZ. 20 years later you sell the property and make $1m gain on the property. The ATO come knocking and want their CGT cheque.

I have no idea how they enforce payment of this bill but I'm sure if you ever wanted to visit Aus again after that you'd be hard pressed to avoid the tax

4 - The no CGT on your family home ruling in Aus has only encouraged Australians to improve their family home to a level not seen in NZ. Think pimp my car for your home. If i do up my family home and then sell it no CGT but if i do up the house next door and sell it CGT payable - it's a no brainer

http://www.news.com.au/finance/real-estate/melbourne-vic/kew-mancave-with-hydraulic-drive-sold-in-private-preauction-auction/news-story/3a98d90b92cc62d641b659f578bf2db1

5 - ATO recognise capital losses as well as capital gains - if implementing CGT at a market high they might be in for a whole lot of accrued capital losses. In Aus Capital Losses can only be off set by capital gains (not regular income) so if implementing CGT delivers a slow down in the market the IRD might just be seeing a large number of Capital Losses racked up against future CGT

[ScottSI]

DBTH - thanks for that, didn't know about the 50% discount they give Aussies.

Wouldn't grandfathering be GREAT if they adopt that method, everyone will just add value to their existing portfolio. If they are smart I would base it off accepted value of all assets in the net at time of legislation but that would be more complicated and they don't like complicated.

The other funny thing is if grandfathering is brought in it will lock all that tax free wealth to entire generations!

The crazy thing is limited additional tax only would be caught for 5 years due to the brightline affect anyway as the CGT as new property sales transactions occur.

I agree that if owner occupier houses exempt, pimping the hell out of them will increase as great advantages when you sell, I would.

Lot of talk about wealth / inheritance tax lately as I wonder if they are trying to look to mitigate some of the limitations of CGT.

[Perry]

You two need to check your dictionaries.

What you're describing is primping, not pimping.

The miss R changes the meaning hugely.

[eri]

2. [COLOR=#878787 !important]informal[/COLOR]

make (something) more showy or impressive.

[COLOR=#878787 !important]"he pimped up the car with spoilers and twin-spoke 18-inch alloys"[/COLOR]

[Bluekiwi]

Lol now we have Winston on the bandwagon with his speech today, unusual for him to be making so much noise when its not election year, he must be enjoying himself getting ready for his time in the sun.....

Well, you were talking Pimps right ?
He and Shane backhander Jones has pimped out NZ for their own gratification.

It is the age of discontent...

Brexit

Trumpit

Taxjindit

Winnyit

[ScottSI]

Nothing wrong with loving your house, there was that documentry about

Mechanophilia

, house is just the next logical step.

[Don't believe the Hype]

Perry - here is the background to the pimp reference. What these guys do to cars a CGT will do to houses

https://en.m.wikipedia.org/wiki/Pimp_My_Ride