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

[Keys]

Business get purchased and sold.

A run down business gets purchased by a good manager and improves. Nothing is actually introduced into the business except good management. It has no actual increase in stock or plant but turnover has dramatically increased.

It is now sold with a large "goodwill" value to it.

Is this goodwill a taxable increase?

[drelly]

Is this goodwill a taxable increase?

No, but what it your point?

[Perry]

Stupid example. Learn Maffs! Assuming you bought on 100% finance and pay interest
only for the 5 years, you walk away with a $600k capital gain. Feel free to add in
inflation and maintenance etc... still a big capital gain.

Learn the tax code. If bought with the intention to sell, that's taxable.
If sold because of job re-location, requiring another PPOR to be bought
in similar market conditions, there will be no gain, as Mary points out!

If I buy a house for $400,000 and sell it the next day for $1,000,000, obviously
I have made a capital gain of $600,000. But if I buy an average house for $400,000
and sell it in five years for $1,000,000 and average houses cost $1,000,000, I have
not made a capital gain because my proceeds still only buy an average house.
I haven't made any real capital profit.

It's a bit scary, really. Agreeing with Spaceman is quite a shock. Agreeing
with Mary as well, well, that's just over-the-top!

I have a solution. All you pro-CGT people voluntarily self-tax and start sending
off lots of dosh to the IRD / Shonkey, Blenglish & Co. Call it a conscience don-
ation for their cause. Do let us know when you start and how much you pay.
I.e. put your money where your mouths are.

The rest of us will abide by the tax code, as usual. I presume. Shouldn't
speak for the others, I suppose.

[drelly]

Learn the tax code. If bought with the intention to sell, that's taxable.
If sold because of job re-location, requiring another PPOR to be bought
in similar market conditions, there will be no gain, as Mary points out!

The tax code is not relevent as to whether or not there was a capital gain. Capital gains can be taxed or un-taxed. Your argument was that the house didn't give any real capital profit and there obviously was.

[Keys]

No, but what it your point?

The bigger fool theory.

Personalised plates, art, gold bars, coin collections. All are purchased for the capital gain or to invest spare money expecting that the purchaser could get a return. The cost of new housing drives exisiting housing.

A new house increases in cost then ..................

What causes new housing cost to escalate?

Where, exactly, is the value in housing? Is it the bigger fool theory. Are purchasers of businesses with large goodwill buying the expectation of income produced from the business simply because of the goodwill?

[drelly]

Where, exactly, is the value in housing? Is it the bigger fool theory.

It's not about value, it's about price... driven by monetary inflation mainly.

Are purchasers of businesses with large goodwill buying the expectation of income produced from the business simply because of the goodwill?

From what I hear, goodwill is declining in value and as a factor in valuing businesses.

[spaceman]

When a business buys plant and equipment, it pays tax on the income earned, less costs. That plant and equipment depreciates and has little value at the end of it working life. When an investor purchases a property, they are mostly making a lost day-to-day and the profit is made on the capital gains on the appreciating asset, which is tax free.

Both operate under the same rules, but most people would say that is a significant tax advantage to the property investor.

If most people would say there is a significant tax advantage to the property investor, they would be wrong.....the IRD tell us so.

Why don't you show us one real tax advantage IP has over any other business.......If you can you'll make a better tax lawyer than Harvey and prove the IRD wrong

Cheers
Spaceman

[Keys]

Easy to show Spaceman.

The tax advantage that property has over other asset classes is the ........................

P E R C E I V E D

Advantage

[spaceman]

^



Cheers
Spaceman

[Eugene]

I like Harvey's posts and agree with him. I like the article he posted.

While businesses other than property have the same key advantages, namely deductibility of expenses, leverage, and tax free capital gains that property has, most other businesses actually produce something. Unlike property investment which is passive investment. Yes sure you need to manage stuff and treat it like a business, but by and large it is a passive investment.

[Bob Kane]

Unlike property investment which is passive investment. Yes sure you need to manage stuff and treat it like a business, but by and large it is a passive investment.

lol
You've got a dollar each way?
If it's passive then you do nothing.
If you manage stuff and treat it like a business then you're doing something.
If you're doing something then it can't be passive.
Or did I misread your post?

Moving on, does it matter if it's passive?
Or should we apply CGT on passive investments but not active investments?

[eri]

I like Harvey's posts and agree with him. I like the article he posted.

While businesses other than property have the same key advantages, namely deductibility of expenses, leverage, and tax free capital gains that property has, most other businesses actually produce something. Unlike property investment which is passive investment. Yes sure you need to manage stuff and treat it like a business, but by and large it is a passive investment.

so is a bank a business?

does it produce stuff?

if not should it be allowed tax deductibility of its operation costs?

banks, watercare, landlords provide essential services

should they be penalised for this?

the last financial crisis was a banking crisis

perhaps we have too many banks

why don't we change the tax laws, make banks less profitable

and shut some down?

be crazy right

like going after the people who put roofs over other peoples heads?

what the country needs

is better productivity

so people can be paid more

and that means working, harder and smarter

eg taking productive education more seriously

[Keys]

what the country needs

is better productivity

so people can be paid more

and that means working, harder and smarter

I detest this philosophy.

I assume you drive a car?

Be it a manual or an automatic.

Put it into low gear and run it up to 100k/h for your trip to the next town which is 100km away. The car is now working harder and smarter (faster)

How long do you think your car will last under those conditions? It will wear out faster, break down more often and require a more frequent maintenance schedule. Treating people with the thought that they should work harder and smarter (faster) is similar. Yes, some people are lazy but, I suggest, most are not.

To get a reliable car (worker) then they need to be treated well and maintained well to enable them to run at maximum efficiency for their lifetime. You can get peaks of effort out of them at times but this peak needs to be kept in reserve. They won't peak constantly and have a long work life. With rising fuel prices (wages) you get the same productivity (volume of fuel) for more money.

To those who put rents up. What extra do you offer for the extra cash required?

Inflation is part of our lives. Deal with it.

My son reciently went to his employer asking for a wage rise. Upon hearing the boss ask "what do I get in return?" My son replied "you get to retain my services". Tendering his resignation at the end of that interview, my son is happily employed by someone else who values his expertise. (rant over)

[PC]

Sort of like a "free" market.
If you don't like it - move.

So if LL puts up rent and tenant doesn't like it - move.
Oh but there is no where else to go cause no houses are being built...etc.

[Wayne]

Productivity isn't all about working harder or faster Keys.
In your analogy the car will probably last longer than the car that is driven for 100km around town in stop/start traffic.

Anyway, back to productivity.
Productivity is all about giving the workers tools that allow them to be more productive. Produce more in the same time for the same effort.
Computers can do that. So can machines. An excavator is generally more productive than the same person on a shovel.

Increased productivity can have a downside - reduced employment. If a machine allows a person to do the same work of 3 people then we may end up with 2 unemployed.

In NZ, in the past, it has been cheaper to employ another person than buy a machine. It has been seen that productivity increased when there was a labour shortage - you have no option but to get the processes smarter.