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

[Perry]

Capital gains tax: Winston Peters holds all the cards on changes
22 Feb 2019

The elephant in the debating chamber.

The Tax Working Group's recommendation for a broad-based capital gains tax will test the strength of Labour's coalition with NZ First. Without NZ First it hasn't got the numbers to get the legislation through Parliament. The party's leader, Winston Peters, is on record as a strong opponent of a CGT. He has said it doesn't work in other countries and won't work here. Labour's in for a tough time, because Mr Peters will play this for all it's worth.

He'll want concessions, and his demands will be focused on NZ First's voter base in the regions and among older people. He'll almost certainly insist that farmers are exempt, and perhaps small businesses as well. We've seen it before with the changes Labour had promised to employment law, which NZ First watered down to a level that greatly reduced their impact. If Mr Peters goes through a similar exercise with a CGT he'll be a hero to those he has saved from it and his party could reap the rewards at the ballot box.

[motivated]

I also wonder about money spent on improvements and how this will be accounted for
Lets say you own a property and spend 50000 on major renovations or additions then say 17000 5 years later then another 55000 7 years later--- how on earth are they going account for several rounds of capital expenditure at several different times--- its a big can of worms
The property has not had the face value capital gain by any stretch of the imagination


Below is the post im expanding on-----

this question probably been asked but I cannot find relevant post so I will ask again here:

Let's say I bought an investment house for $500k with mortgage, spent another $50k renovating the house, say the market remains flat so the house value is $550k after renovation after a year and I decided to sell the house at $550k. Now I have $50k is subject for CGT, but that's the money I invested in, in the end I will be worse off if this is not deductible. Not to mention any maintenance and mortgage interest etc etc.

Could someone please advise?

Cheers in advance.

[Bob Kane]

I also wonder about money spent on improvements and how this will be accounted for
Lets say you own a property and spend 50000 on major renovations or additions then say 17000 5 years later then another 55000 7 years later--- how on earth are they going account for several rounds of capital expenditure at several different times--- its a big can of worms
The property has not had the face value capital gain by any stretch of the imagination

As I understand it ... all expenses will be deducted from the gain in value - and pay CGT on the balance.
It doesn't matter what year the expenses were incurred.
You might want to make sure your expenses were as high as possible to reduce your liability for CGT.

[motivated]

So if your expenses exceed the capital gain???? No Doubt they will make a payment to you for the loss --- yeah right

As I understand it ... all expenses will be deducted from the gain in value - and pay CGT on the balance.
It doesn't matter what year the expenses were incurred.
You might want to make sure your expenses were as high as possible to reduce your liability for CGT.

[flyernzl]

So if you hire a painter to paint the house, pay him $20,000 for the work and hold an invoice for that, you can deduct it.

If you do the same work yourself . . . . ??

[Bob Kane]

So if your expenses exceed the capital gain???? No Doubt they will make a payment to you for the loss --- yeah right

Tax refund/credit if your expenses exceed the gain - Grant Robertson was saying all the small businesses which go bust can claim a refund.
It might be ring-fenced though.

[DazRaz]

But Peter, that would be fraud.

[Bob Kane]

So if you hire a painter to paint the house, pay him $20,000 for the work and hold an invoice for that, you can deduct it.

If you do the same work yourself . . . . ??

The person who got the $20,000 would pay income tax on it.
So maybe no advantage.

[Wayne]

So if you hire a painter to paint the house, pay him $20,000 for the work and hold an invoice for that, you can deduct it.

If you do the same work yourself . . . . ??

Sounds a bit silly to pay over the odds for anything in the hope of recovering 33% of it.
Also, I'm not sure that maintenance would count - the devil will be in the detail.
Given we are talking about rentals (investment) then the painting (maintenance) would have been expensed already so you'd get a double credit.

[klauster]

It's my understanding it would be deductible as it is a 'gains' tax so it's a tax on profit.

cheers,
Donna

Well, nice speculation! And what is with selling costs e.g. 25k paid to the agent???

[semaj_nil]

So if you hire a painter to paint the house, pay him $20,000 for the work and hold an invoice for that, you can deduct it.

If you do the same work yourself . . . . ??

If it's 100% deductible then why not get someone to do it? Also you are only required to keep docs for 7 years IIRC, how are they going to validate your cost claim?

[Don't believe the Hype]

Does a CGT negate the negative impact of ring fencing? If you ring fence a loss on a property then sell for a gain you can offset the losses against the CGT bill.

[Beano]

I would be curious to see how many investors actually have sold investment properties over the last say 30 years.
We may find that most investors have not sold any investment properties in the last 30yrs and do not intend to ever sell.
So the tax collected may be very little
With the record high rentals and record low interest rates the net profitability will mean there is no need to sell!
(Talking about investors who have steadily and constantly purchased over the last thirty years)

[donna]

Does a CGT negate the negative impact of ring fencing? If you ring fence a loss on a property then sell for a gain you can offset the losses against the CGT bill.

That's my understanding all loses since you owned the property can be offset against the gain made since the valuation done in 2023. I can not see how the TWG arrived at such a huge CGT tax grab.

cheers,

Donna

[Bob Kane]

That's my understanding all loses since you owned the property can be offset against the gain made since the valuation done in 2023. I can not see how the TWG arrived at such a huge CGT tax grab.

cheers,

Donna

My 'back of an envelope' calculation reveals the TWG expect every investment property to have a $200k gain on sale.
After deducting expenses.
Any comments from anyone?