Capital gains tax: what we know

The Tax Working Group’s report is due to come out at the end of next week, somewhat earlier than expected. What is not unexpected though is that we are being softened up for a capital gains tax. Make no mistake. The articles are coming thick and fast now, indicating what we always knew, which was that the TWG is going to recommend a CGT. Correction: the government has already recommended a CGT. The Tax Working Group is going to tell us how they will do it. quote.

It is understood the working group has held its last meeting and the report is now basically complete. The report will contain a plan to extend the taxation of capital gains, and to hand back the money that would raise through cuts to other taxes.   
Whether its recommendations are enacted will then be a matter for politicians and voters, with an ocean of water still to go under the bridge.


But chairman Sir Michael Cullen revealed in November that “a clear majority” of the 10-person working group had reached an agreement on a central package around the extension of capital income taxation ? in other words, a capital gains tax.

end quote.

Well, knock me over with a feather. Really? quote.

Profits from the sale of assets and investments such as rental properties and shares would be taxed alongside their other “income” at people’s marginal income tax rate. 
Broadly-speaking capital gains on the “family home” would not be taxed, and nor would any gains on the likes of artworks ? which could increase their relative appeal as investments.
Former Inland Revenue deputy commission Robin Oliver, who sits on the working group, has warned that defining the “family home” is not always as easy as it might appear.
But the important rule for most people is that for the purposes of taxation, they would only be allowed to have one of them. end quote.

This is where people get caught out. They think all those ‘rich prick’ landlords will be given the treatment they deserve… only to have a parent die, and then be taxed on the sale of their house. It may even be a ‘deemed’ sale. We don’t know yet. quote.

The Tax Working Group (TWG) has suggested that a broad tax on capital gains might raise $290 million in its first year, rising to $2.7b in 2026, and just under $6b in 2031. But it acknowledges that is just a guess.

Stuff

A panel of so-called experts spend a year discussing the question of taxation, and they admit they really don’t know how much tax revenue a CGT will produce?

I’ll tell you why they don’t know. The market will react to the introduction of the tax. Property prices will stagnate, which is hardly good news for Kiwibuild, which is locked into house prices for its properties. More government money will be wasted. It won’t just be the property market though. The sharemarket will also react… with the flow on effect that this will have on listed company share prices and their ability to fund their growth and activities. We are probably going into a downturn already. This will make it catastrophic.

The only way to avoid the introduction of capital gains tax is to kick this government out of office as soon as possible. Michael Cullen is achieving his socialist dream of taxing ‘rich pricks’, but the truth is that this will hurt those people who already pay the most tax. For accountants and lawyers, tax minimisation is an art form, and the calculators are already out. Nothing can alter the fact though that capital gains tax is not fair. Mostly it is tax on inflationary gains. This simply means that those who pay the most tax are going to be taxed out of existence. What else would you expect from Michael Cullen though?

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