The true costs of capital gains tax

Jacinda Ardern Taxes meme

Stuff  reports: quote.

If the Government manages to push through the recommendations of the Tax Working Group (TWG), the 450,000 or so small business owners in this country will be hit with massive compliance costs.

In order to implement Labour’s controversial capital gains tax (CGT), the TWG have proposed that every business in New Zealand must be valued by a professional valuation expert all on the same day.

This is not only ludicrously impractical, if not impossible, but the cost to be piled on businesses to comply with this will be horrendous and in some cases crippling. end quote.

Because there are relatively few business valuers, although some accountants can do it, this is going to be a real problem. Most businesses will struggle to get this done but they will have to do it, because each business will need a starting point, from which to calculate the tax in the future.

It will be expensive. quote.

The compliance costs forced upon small business will run into the billions – I estimate $10,000 on average for each small business, meaning $4.5b of costs forced upon them by Labour tax policy.

These are our businesses that can least afford this cost – their profit margins are already being squeezed by the multitude of other costs they are facing today with wage increases, fuel cost increases and impact of our dollar falling on importers. end quote.

How do you value goodwill? It can be a very subjective exercise so a fair number of those valuations will be way off the mark. quote.

Let’s consider for a moment how impractical and ill considered the TWG proposal is.

The main asset most businesses own can’t be seen or touched because it’s the intangible goodwill tied up in the owner’s expertise and knowledge, making it a very hard asset to value.

Prices for this service will sky rocket. And small businesses will be forced to pay the bill – and the tax when they come to sell their business. end quote.

The best that a business owner can hope for is if they can find someone to do the valuation at all, that the value comes out on the high side. This will mean that the margin between the value at the introduction of the tax and the actual sale date will be less than otherwise. It is likely that business owners will pay too much tax on the sale otherwise. quote.

All previous governments that have looked closely at introducing a CGT have walked away from the idea once they realised the minefield of issues they had to navigate to both design the tax so it is fair, easy to understand and not too onerous on taxpayers to comply with.

This dilemma is exactly the position the TWG finds itself in now.

But that is not justification for suffocating the 450,000 small business owners of this country.

The impact on this group will be enormous, disproportionately larger than on big business. end quote.

This does not just apply to businesses, of course. All assets will have to be valued at the same time. Rental properties, holiday homes… unless you are happy to rely on the property’s CV, which can be hit and miss at best.

What happens when you inherit your parent’s home when they die? The property will attract CGT, but there will be no valuation done at the time because no one will have thought about it. Ka-ching! quote.

The TWG needs to gets real and come up with a workable and inexpensive way to implement its proposals or tell the government it can’t be done. end quote.

Sadly this government is ideologically driven so CGT will happen. And anyway. Michael Cullen hates rich pricks.


Do you want:

  • Ad-free access?
  • Access to our very popular daily crossword?
  • Access to daily sudoku?
  • Access to Incite Politics magazine articles?
  • Access to podcasts?
  • Access to political polls?

Our subscribers’ financial support is the reason why we have been able to offer our latest service; Audio blogs. 

Click Here  to support us and watch the number of services grow.

Accountant. Boring. Loves tax. Needs to get out more. Loves the environment, but hates the Greens. Has been called a dinosaur. Wears it with pride.

To read my previous articles click on my name in blue.

Listen to this post:
Voiced by Amazon Polly
62%