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Tax – How Much Does It Influence Your Decisions?

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  • Tax – How Much Does It Influence Your Decisions?

    Tax – How Much Does It Influence Your Decisions?

    When you think about it, tax is the ultimate in passive
    income – right? No wonder the Wellington Commissariat
    loves it, so much.

    Seriously . . . .

    How much does taxation influence your 'business decisions?'

    Comrade Commissar Cullen has oft-avowed that he wants
    taxation to be even, equitable, whatever, in such a way that
    its application does not 'unduly' influence business decisions.

    Is he dreaming – in Fantasyland?

    An accountant once said to me that tax was never 100 cents
    in the dollar, so extra business effort was worthwhile. I have
    my doubts, when reward for extra effort is diluted in the
    way that it is.

    Taxation issues do influence my decisions. I suspect they do
    for all PIs. But how much? Does anyone (has anyone?) got to
    the point where it's a shrug-and-put-up-with-it matter. I.e.
    I'll just go ahead and if I lose a third to the W'gton
    woodenheads, that's just the way it is.
    <deep and long sigh>
    Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

  • #2
    This will be an interesting thread Perry,

    I look at it like this:

    The more tax you pay the more money you must have earned.

    So from that point of view wouldnt it be great to say.....

    "I have paid $1,000,000 dollars in tax this year"

    Wow. what must your income be to pay that.

    ps. I have not had to pay a million dollars tax as yet

    All the best,

    Niall

    Comment


    • #3
      Great point Perry. I guess the issue with tax is that if the government didn't want you to factor it in to your investing why have the IR23BS facility??
      Fact is the tax benefits in the medium term alow more people to invest. In theory Helen and the rest of the collective will get their money when those assets are realised and the cashflow is stronger.
      Resistance is futile!!

      Comment


      • #4
        When 'Working for Families' was introduced, it was possible to work harder and get less, as a result of decreased payouts and hitting a tax threashold - great incentive!

        So long as my tax saving is greater than my accountant's bill, I'll be happy!

        cube
        DFTBA

        Comment


        • #5
          It depends what you mean by extra effort.

          Most property investing by your run of the mill type investor is not a true business no matter that we all promote it to be run as such. It offers no real benefit to the economy and as seen at the moment with the struggles echoing from the Reserve Bank it can be detrimental to the economy.

          I suppose the time an investor will consider the tax issue is if they are negatively gearing, trading, developing or sitting on a large portfolio that generates an income that is taxable at the highest tax rate, even then tax consideration would not be from a business perspective it would purely be from a selfish perspective.

          Can you give an example when tax considerations would irritate your investment decision?

          Comment


          • #6
            Originally posted by ivi View Post
            It depends what you mean by extra effort.
            Extra effort = effort expended to make extra revenue.

            Originally posted by ivi View Post
            Most property investing by your run of the mill type investor is not a true business no matter that we all promote it to be run as such. It offers no real benefit to the economy and as seen at the moment with the struggles echoing from the Reserve Bank it can be detrimental to the economy.
            I'm concerned about the individaul's economy, not the Commissariat's.

            Originally posted by ivi View Post
            I suppose the time an investor will consider the tax issue is if they are negatively gearing, trading, developing or sitting on a large portfolio that generates an income that is taxable at the highest tax rate, even then tax consideration would not be from a business perspective it would purely be from a selfish perspective.
            Agreed - nothing wrong with that, is there?

            Originally posted by ivi View Post
            Can you give an example when tax considerations would irritate your investment decision?
            Not personally specific. However, as a general observation,
            once the $38k threshold is passed, effort that produces
            $1k of revenue results in just $610 of disposable, personal
            income. Prior to that, effort that produced $1k of revenue
            resulted in $780 of disposable, personal income.

            So the 'reward' for the extra effort is a tax 'penalty' of an
            extra $170 lost to Comrade Commissar Cullen & Co. But, once
            accustomed to the idea, it's simply $610 in the PI's pocket
            for every $1k of effort.

            I presume some people just shrug and "get used to it."

            Footnote
            This excludes GST, which scews and screws things, even worse.
            Last edited by Perry; 08-02-2007, 11:04 PM.
            Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

            Comment


            • #7
              Tax should be a factor in every decision as it affects cashflow. ie to compare like for like, you should be comparing the after tax position.

              The "leveling the playing fields" is all about making sure one investment isn't favoured JUST because of the tax position. Ie you would choose the same investment whehter you compared it to the alternatives on a pre or post tax basis. eg. passive index sharefunds currently (till 1/4/07) have a tax advantage over active sharefunds as capital gains aren't taxed.

              Comment


              • #8
                Originally posted by pooomba View Post
                Resistance is futile!!
                Agreed. What the Commissariat concedes at the start, they
                get back, with a dividend and interest, at the end.
                Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                Comment


                • #9
                  Originally posted by ivi View Post
                  Can you give an example when tax considerations would irritate your investment decision?
                  The decision to buy a house for either a buy & Hold or quick flick. Not only does your choice effect the entity you have to put it into (at considerable cost to set up), but under one situation, capital gains are tax and the other they arn't.

                  So you cant jump into a deal quickly and decide what you are going to do with it once the dust has settled.

                  Comment


                  • #10
                    Originally posted by Perry View Post
                    [i]
                    Not personally specific. However, as a general observation,
                    once the $38k threshold is passed, effort that produces
                    $1k of revenue results in just $610 of disposable, personal
                    income. Prior to that, effort that produced $1k of revenue
                    resulted in $780 of disposable, personal income.

                    So the 'reward' for the extra effort is a tax 'penalty' of an
                    extra $170 lost to Comrade Commissar Cullen & Co. But, once
                    accustomed to the idea, it's simply $610 in the PI's pocket
                    for every $1k of effort.

                    I presume some people just shrug and "get used to it."
                    whatyoutalkinboutwillis?

                    I thought it went

                    < 38k: 19.5%
                    38k - 65k: 33%
                    >65K 39%


                    In summary:

                    Comment


                    • #11
                      Originally posted by stacrafty View Post
                      < 38k: 19.5&#37;
                      38k - 65k: 33%
                      >65K 39%
                      You're right. I got the figures wrong, missing the middle
                      bracket. However, the 'ACC earner premium' (a stealth
                      tax) does add a small amount to those figures you give.

                      How does this look:

                      As a general observation, once the $38k threshold is
                      passed, effort that produces $1k of revenue results in
                      just $660 of disposable, personal income. Prior to that,
                      effort that produced $1k of revenue resulted in $790
                      of disposable, personal income.

                      So the 'reward' for the extra effort is a tax 'penalty' of
                      an extra $130 lost to Comrade Commissar Cullen & Co.

                      The figures are illustrative and I should've checked them
                      more carefully - sorry. However, the general principle
                      remains the same. There are thresholds at which reward
                      for effort diminishes. How far does one go?

                      Last edited by Perry; 09-02-2007, 08:16 AM.
                      Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                      Comment


                      • #12
                        And there are diminishing returns of having more money as well. An extra $1000 means a lot to someone earning $15000 much less to someone earning $150000

                        Fortunately I'm not convinced financial incentives are the only or the most important factors motivating human behaviour...

                        David
                        New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

                        Comment


                        • #13
                          Originally posted by Perry View Post
                          You're right. I got the figures wrong, missing the middle
                          bracket. However, the 'ACC earner premium' (a stealth
                          tax) does add a small amount to those figures you give.

                          How does this look:

                          As a general observation, once the $38k threshold is
                          passed, effort that produces $1k of revenue results in
                          just $660 of disposable, personal income. Prior to that,
                          effort that produced $1k of revenue resulted in $790
                          of disposable, personal income.

                          So the 'reward' for the extra effort is a tax 'penalty' of
                          an extra $130 lost to Comrade Commissar Cullen & Co.

                          The figures are illustrative and I should've checked them
                          more carefully - sorry. However, the general principle
                          remains the same. There are thresholds at which reward
                          for effort diminishes. How far does one go?

                          You gave me a fright is all. Trashcat is now happy.

                          To answer your OP tax does not influence my decisions for property. Thats because the way I see it, it always stays the same, you get a [insert personal tax rate here] discount on your expenses, and if your expenses > income for that property, you get a refund, if not you get a discount on the tax you pay.

                          Comment


                          • #14
                            I don't know that it is a matter of being used to it Perry, and as Monid indicated consideration needs to be given to the many motivations of human behaviour. In addition there is also the realisation that apart from manoeuvring your investments through different structures to achieve a beneficial tax position there is sweet bugger all you can do about it except vote in a different tax structure.

                            Tax has always been there so effort/reward appreciation needs to be more holistic, beyond the individual consideration. It is why it is thought to have a mindset to be happy with paying more tax as it means you are earning more.

                            I can only see retirees putting effort away for the realisation of a reduced reward once general societal milestones such as level of tax on income has been achieved.

                            Are you thinking of retiring Perry?

                            Comment


                            • #15
                              Originally posted by ivi View Post
                              I can only see retirees putting effort away for the realisation of
                              a reduced reward once general societal milestones such as level
                              of tax on income has been achieved.

                              Are you thinking of retiring Perry?
                              Damn - I thought I already was!

                              My question is, to an extent, when is enough,
                              enough? And how much influence does taxation
                              have on determining that?

                              My wife works in elder care. She has oft-commented
                              on how sad it is to see retirees, who 'believed' that the
                              gov't was going to provide for them in their retirement,
                              bewailing the fact that they don't have enough money
                              to visit the (NZ-resident) children and grand children,
                              unless the children pay the transport costs;

                              that assorted festivals like Xmas are dreaded, because
                              buying presents for all the grand children is a financial
                              impossibility.

                              Everywhere I look, I see questions and so few answers.
                              (Perhaps I should stop asking them?)
                              Want a great looking concrete swimming pool in Hawke's Bay? Designer Pools will do the job for you!

                              Comment

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