COMMENTARY ON THE ELECTION RESULTS
The election has shown that Kiwis will not tolerate stupid politicians and loopy policies. The most loopy policy, which undoubtedly turned off hundreds of thousands of voters, was the notion that we need a Capital Gains Tax just “because other countries have them”. When sparse details were asked for and given they were horrendously fumbled, so that the entire left including the Labour Party & Greens became a public laughing stock. This was especially so when it became clear that the tax was also a de facto Inheritance and Death Duty tax all rolled into one.
As a result this ill-thought out and stupid policy was buried in the landslide victory from the Centre Right, rightly taking with it most of its delusional promoters. It was deja vue for me, as the same tired old policy was wheeled out in 1976 by the then Labour Party only to result in spectacular failure as property prices rose even further. I railed publically against it at the time (and won) so it was with astonishment that, almost 40 years later, I found myself having to repeat the exercise all over again.
Below are extracts from a series of articles posted on my Facebook page where I showed up the stupidity of such a tax, especially when it can be shown that in other countries that have CGT, property prices have run rampant. The tax has been shown to be totally ineffective and complex nightmare, only benefiting lawyers and accountants.
Capital Gains Tax question :
What happens if you have been using a part of your home for business purpose, e.g. an office / study or renting out a couple of rooms for a little additional income? Will that portion of your home be subject to CGT when it is sold?
Capital Gains Question
From Labours Tax Policy, Small Businesses:
“Small business assets, up to a maximum of $250,000, sold for retirement, where the owner is above a certain age (e.g. 55) has held the business for 15 years and has been working in the business, will be exempt. This means that those who have saved through investing in a small business will not be negatively disadvantaged”
Does this mean that if John Smith has a small business consisting of $200,000 stock and $50,000 equipment (assets), will he have to pay CGT if he sells the stock and equipment for $250,100? What if he is sells the good will as well ? Is that subject to CGT? What if John has several businesses- does he pay CGT on all the rest? What if gets sick before he has owned the business for 15 years and has to sell? Is there any point at all in building up a bigger business?
Capital Gains Question
John and Anne get married. Over time they have 4 children and they all live together in the family home which is jointly owned. After 15 years of marriage they split up and John moves out and buys another home and puts it into a trust with his children as beneficiaries. Every month they swap children for a week. John finds another woman, Jill, who moves in with him as his partner. She leaves her family home leaving her two children with her ex-husband and they also come and stay with Jill and John, month in and month out. In the meantime, Anne, now formally divorced from John also finds another man Fred, in her life. Fred has three adult children and they stay in Fred’s home while he moves in with Anne and Fred’s oldest adult child pays him rent. John wants Fred to buy his half of the family home, but to do this Fred must sell his house to pay John out. This proves to be difficult, but eventually he does sell but for less than what he and his ex-wife paid for it as they are concerned that the Capital Gains Tax is coming into effect in the years 2015/2016
Link from Labour’s CGT policy:
THE NIGHTMARE NEXT DOOR
Read how complicated the Australian CGT rules are – they may soon be coming to a place near you.
” Capital gains tax in Australia (CGT) in the context of the Australian taxation system applies to the capital gain made on disposal of any asset, except for specific exemptions. The most significant exemption is the family home. Rollover provisions apply to some disposals, one of the most significant is transfers to beneficiaries on death, so that the CGT is not a quasi-death duty . CGT operates by having net gains treated as taxable income in the tax year an asset is sold or otherwise disposed of. If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 33.3% for superannuation funds. Net losses in a tax year may be carried forward, but not offset against income. Personal use assets and collectables are treated as separate categories and losses on those are quarantined so they can only be applied against gains in the same category, not other gains. This works to stop taxpayers subsidising hobbies from their investment earnings.
Read the rest here:
Capital Gains Question:
Will The CGT Usher In The Collapse Of Small Businesses?
Westpac’s Economic Overview May 2014 by Dominck Stephens
“But introducing a CGT in combination with ring-fencing would affect house prices by discouraging investors. We calculate that a 15% CGT would reduce the value to an investor of a given property by 23%, if rents remained unchanged. Even if we assume a 10% lift in rents, the loss in net present value of the house to a landlord is still 15%. Similarly, removing the tax-free status of most capital gains would reduce the capital value of farm land. How such a change in fundamentals would affect actual market prices is, of course, unknown. But our suspicion is that the mere announcement of a CGT would have a marked impact on farm and property prices.”
(You should carefully note that Westpac foresees a reduction of up to 23% in the value of property by the introduction of a CGT and ring fencing losses for both residential homes and farms under present conditions.) If this was the case I estimate that up to one third of small businesses will collapse within 12 months of the introduction of a CGT for one simple reason. The majority of small business secure their bank lending (overdrafts etc) by using their homes, farms and investment properties as security. Reducing the value of the security by up to 23%, will have the effect of the banks ( including Westpac) being under-secured and obliged them, to either demand repayment of the business loans, or demand more margin (extra security) . As this likely to be impossible in many cases, the business owner or farmer will either have to sell his home and investments and close his business to pay back the loan, or severely curtail his business either by shedding jobs, and dramatically shrinking down to cope.
Read all Westpacs reports here:
Capital Gains Tax Question
Janet & John and their two children, (12 & 10) buy an old run down 3 bedroom house at the cheaper end of the market and decide to renovate it and rent it out. Both Janet and John want to be good landlords and give any tenants a fair go, in a comfortable, warm and pleasant home. They have paid $375,000 for the house by using tax paid savings plus some borrowings. To achieve their goals they employ tradespeople to supply and fit new carpets, insulate the walls, repaint the whole interior and exterior, lay new concrete, and erect a double carport. The total cost of the trades was $25,000 paid from their tax paid savings. But Janet & John do not have bottomless pockets so they decide that the whole family will also help in renovating the house. John does much if the heavy work after hours and weeks ends, putting in pavers, preparing and sanding the interior and exterior walls to save on the painting work. Janet also works long hours doing lighter work such as organising and hanging the blinds and drapes, selecting the colours, and generally overseeing the project and keeping account. Even the two children pitch in after school and week ends, pushing wheel barrows, sweeping up and cleaning. In total, Janet ( who is pregnant) spends 100 hours of her time on the project. John spends 250 hours on the project and the two children spend 50 hours each working as best as they can.The house has now been revalued at $450,000 after calculating the added value from the trades, and including all the work the family has put in themselves.
How do you estimate the net taxable Capital Gain taking into account the $25,000 input from the trades PLUS the 400 hours work the whole family supplied? ( bear in mind that men sometimes earn more then women and small children have no set rate of pay)
FREE FINANCIAL & PORTFOLIO REVIEW
As part of our services we now offer a “FREE NO OBLIGATION” review of your portfolio and financing arrangements with our independent mortgage broker and team of property specialists. This not only covers a review of what you currently have but also assists you in finding out what you may qualify for should you be considering further purchases or refinancing. When was the last time you reviewed your current lending arrangements? If it was more than 18 months ago you should be doing this now as the world has changed. Banks and non-bank lenders are fighting for market share and as you may well be aware many are offering NEW clients significant incentives (Cash and discounted rates) to come aboard.
Three Questions you must ask yourself:
Have you got the most competitive financing arrangement for your current lending?
*Are your current loans securities structured correctly? *How well is your portfolio performing?
*Have you had an independent assessment?
To arrange a no obligation meeting with our team of property and finance specialists go to our contact page by pressing the button below and paste the message “PORTFOLIO and FINANCE REVIEW “
My team and I look forward to hearing from you.