Relying on Capital Gains

[Don't believe the Hype]

Many years ago I built a house - total cost to build was $300k including section.
8 years later I sold that house for $635k - nice wee gain that.
I built a replacement house in the same area, of a similar size and quality.
It cost me $630k to build including section.
So did I make a gain of $335k on the first house? I did if I didn't want to replace the house.

why is what you intend to do with the proceeds of sale determine if a gain was made?

If you built a house for $300k, sold that house for $650k then built a similar house for $650k = no gain

If I built a house for $300k, sold that house did $650k then used that to fund my retirement = gain

[Wayne]

why is what you intend to do with the proceeds of sale determine if a gain was made?

If you built a house for $300k, sold that house for $650k then built a similar house for $650k = no gain

If I built a house for $300k, sold that house did $650k then used that to fund my retirement = gain

In the first case I had to use all the money I 'gained' to get back where I was.
In the second case I can use the $350k to have a holiday etc.

In both cases there was a gain - one is more useful than the other - for me.
A gain on a secondary, discretionary, house is more useful TO ME than a gain on a house I need to live in.

[Don't believe the Hype]

The test of the tax is not usefulness.

But there is a great idea in that. If money is more useful to me than to the next person I should get the money.

BTW - I’m not arguing for a CGT I’m challenging the notion of CG being a mirage.

I have (on paper at least) a significant amount of gain defined as surplus funds to my contributions inflation adjusted (in real terms) now Perry or others may challenge the calculation of inflation but IF I were to cash out today in real terms I’d be ahead by multiple of what invested (as i should be or why would I have put time and effort into my investments.)

I don’t believe I should be taxed on that gain as by the intentions test I’m classified as a buy and hold investor and based on the rules as they stood when I made the investment the risk return profile suited me. A retrospective tax I believe is unfair, particularly unfair for a government proclaiming to be about fairness.

Should they introduce a CGT now I would assess potential returns under the new conditions and invest according. But I’d be well informed on the impacts and tax obligations.

The reality of adding a CGT is that it will make getting ahead harder for the next person than for me. If I wanted a clear $1million in funds for my retirement today I would need to make a CG on my investment of $1.04m. If I was an investor starting out post a CGT to achieve a $1million retirement fund I’d need a CG of $1.36m

[Wayne]

A retrospective tax I believe is unfair, particularly unfair for a government proclaiming to be about fairness.

Should they introduce a CGT now I would assess potential returns under the new conditions and invest according. But I’d be well informed on the impacts and tax obligations.

Yip - it isn't retrospective in that you get to decide, from valuation day, if you still like the game or not and keep or sell accordingly.
You would only pay a CGT on the valuation change from then - when you were able to reevaluate.

[Don't believe the Hype]

Yip - it isn't retrospective in that you get to decide, from valuation day, if you still like the game or not and keep or sell accordingly.
You would only pay a CGT on the valuation change from then - when you were able to reevaluate.

Quite true. And a justification to sell the lot and get around the IRD claiming my intention was to sell all along.