Correct & if something like a wealth tax is introduced then that will disincentivise those types of people to stay in NZ. CGT Iām all for, however a wealth tax would be a very bad idea for our countryās future.
The reason the Greens and the
mÄori Party like a Wealth Tax is that the government gets an immediate rise in the tax revenue theyād receive while a CGT or an inheritance tax and/or gift duties is that it takes time to flow through to the government as it requires an asset to sell or someone to die or an asset to be transferred before the government receives any money. The other issue with a wealth tax is they are an extremely inefficient way to collect taxā¦ which is why most countries have abandoned them.
The problem with a CGT is it doesnāt just target the very rich but right down to a FHB using KiwiSaver to save for the deposit for their home. Labour has tried to win elections with it as a policy but there wasnāt enough information available about what they were proposing. Labour made no allowance for inflation over the time someone owned the assetā¦ other countries do this. They didnāt say what the tax rate to work out the CGT was or if it would be the same as the tax payers personal income tax rateā¦. and what would happen if that capital gain pushed them up a tax bracket. Nor did they say what would happen to assets that had been improved.
CGT and KiwiSaver. This last week, it was reported that the average KiwiSaver balance is just under $40,000. Labourās proposed CGT from a few elections ago included the capital gains from shares and managed funds including KiwiSaver.
I just received my Annual Statement from my KiwiSaver account. It had an 18% gain in the investment over the last year from rises in the value of the shares and dividends (which are already taxed) and very little from interest because itās in a growth fund. It meant that although the balance had grown by over $12,000 in the year, the provider had only deducted less than $400 for tax. The CGT Labour proposed would have reduced that gain to $8,000 a year if it was taxed at my tax rate. While I can cope with that, why should a couple saving for their first house have to save 1.5 times longer for their deposit? Why should someone who can barely make the savings for their retirement have their savings when they finally retire reduced by 33%?
CGT and Inflation. Most countries with a capital gains tax take account inflation by allowing a deduction in the capital gain for inflation or they reduce the tax rate charged for a CGT to take into account inflationā¦. so if the personal tax rate the tax payer usually paid was 33%, the CGT rate was set at 30% to take into account inflation. Labour dismissed both as they said it would make the system āmore complicatedā.
CGT and Improvements. Most countries recognise that improving an assets, adds value to it so they allow taxpayers to deduct the cost of improvements off the capital gain. For example, I purchase a three bedroom house with one bathroom for $600,000 as a rental property. Three years later, I improve the property by doing an addition and, for $150,000, add a master bedroom with an en-suite and WIC. Six years later, I sell the house for $900,000, meaning thereās a capital gain over the purchase price of $300,000 which Labour would have taxed the full amount while most other countries would only tax $150,000 because Iād be able to deduct the cost of the improvements.
And, it guess worse if someone was to buy a property with space to put additional rental houses on it. Say, Jack buys a property in South Auckland with a 1/4 acre section for $400,000. He then spends $1,000,000 putting two new houses on the rear of the property to rent them out. Ten years later, Jack sells all three houses for $900,000 each. Under Labourās CGT, Jack would have to pay tax on a $2,300,000 capital gainā¦ but overseas, he would only have to pay tax on a $1,700,000 capital gain because of the improvements heād made when building the two additional houses would be deducted.
Personally, I favour an inheritance tax on estates over a certain amount except it wouldnāt be required to be paid by a surviving spouse or partner or on money donated to registered charity. Iād also like to see the introduction of a annually adjusted Gift Duty to stop assets being distributed before someone died to try and avoid the Inheritance tax.
While we need to address generational transfer of wealth, after spending a lot of time reading about what tax systems are used overseas and the proposed ones here, I personally donāt favour wealth taxes or capital gains taxes.
and that goes to everyone
