1. If you own a home you live in but then move into the home of your partner and rent your house out to cover expenses does a CGT apply if you later sell your home for more than you paid for it?
2. Your mother becomes frail and leaves her apartment to go into a retirement home. If she rents out the apartment to help pay for the retirement home and eventually sells it for more then she paid does she pay CGT?
3. If your mother passes away while she is in the retirement home and leaves the apartment to her children in her will, do they pay CGT if they then sell it?
4. You and your partner buy an investment property. You and your two children spend a lot of money upgrading it to make it a nice rental property. Besides using contractors to do the specialist work you spend 100’s of hours cleaning, painting and scraping down the woodwork yourselves. Some time later you sell it for more than you paid for it. Does your labour get included in the overall expenses and if so at what rate per hour each can be charged for your time including the children?
5. You and a friend buy a house 50/50 between you. For you it’s your first home, and for your friend it’s an investment. Does CGT apply to one or both of you if you eventually sell it for a profit? What happens if the investor / partner lives in the home as well?
6. You own a farm that’s been in the family for generations. You want to leave a third of the farm to each of your three children and keep the homestead and a few acres. You sell at well below market price because of love for your children. Do the children become liable for CGT if they sell later on at market price? Do you have to pay CGT on your homestead if you sell it as it is a newly created property when you gave parts of it away?
7. You buy an investment property to set up a retirement fund for retirement. Unfortunately it’s a leaky home and the costs to repair are impossible to pay. You sell it for a big loss. Can you claim the loss in full as a tax deduction against your total income in the future?
8a. You own an investment property but times are tough. You can’t keep up the mortgage payments so in the end it is sold by force through a mortgagee sale. Surprisingly there is a small profit left over for you after all the mortgagee expenses have been paid. Do you pay CGT on that small profit despite it being a forced to sale?
8b. In the same case if the house is sold for more than you paid for it, but the mortgagee takes all the proceeds, do you still pay CGT although you got no money out of the sale?
9. You and your brother / sister bought an investment home together. Later you sold it in order to buy two apartments for you to each live in as your respective homes. If you pay CGT on the sale you will not have enough to buy your separate apartment homes. What happens in that case?
10. You buy a share in a large syndicate syndicate and all goes well. Later a majority of the owners decide to sell, although you voted against it. The sale goes through and you have made a profit against your will. Do you have to pay CGT on that profit?
11. Will there be a time limit of ownership before a CGT no longer applies and will inflation be taken into account?
12. If you own an investment home through a Trust of private company and later sell it for a profit, will the Trust or company be liable to pay CGT or the Trustees, beneficiaries or shareholders?
13. If you own a business and work very hard at it for years and it becomes very successful what happens if you sell it one day for a profit. Does that attract CGT, and if so how is it calculated?
14. If a CGT is brought in will it be retrospective and catch all properties bought before the tax is in place? If not, does that mean there will be two markets, pre tax and post tax so those who bought before the tax can keep all profits tax free, while those who bought after the tax will pay it?
15. If you sell an investment property and CGT is payable do you have to pay it when the deal is signed up or when it is settled? What happens if there is a very long settlement date?
16. If you buy an investment property would it be better to split the ownership up between members of the family to take advantage of lower tax rates or will the CGT be applied equally?
17. If you move overseas and leave your home rented out while you are away, but then decide to sell it, will any profit be subject to CGT?
18. If your investment property is totally destroyed by fire or earthquake, and you get paid out by the insurance company, is any profit over the original purchase price be subject to CGT?
19. If you sell your investment property one day, is CGT apply to the chattels that were included in the price, even if they make up a large part of the total money paid?
20. You feel sorry for your children who are struggling to buy a home of their own. You buy a home for them and allow them to pay you a cheap rent while they save up a deposit. They eventually buy from you at less than market price but more than what you paid for it. Does CGT apply in this case?
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Olly Newland
www.ollynewland.co.nz Used with permission.
47 Comments
Very odd post - I assume the assumption is that CGT is charged on all but the 'family home' - in which case it looks like the answer is yes to all, perhaps with some kind of apportionment type calculations for some.
If Olly was trying to make the point that it's all too complicated - then the answer (if a government wants to widen the tax base with this type of instrument) is to include the family home as well.
Including the family home in a CGT is more than a simplifying measure - it's common sense. Tax shouldn't be a factor in deciding whether I:
- invest a productive asset (like a business) and then rent a house; or
- own my own house.
CGT should apply to both situations or neither. Simple as that.
If a CGT is too complex, how about a land tax? Low value, broad base, stable revenue. Use the proceeds to lower personal taxes.
You would have to justify why it is the interests of the beneficiaries to sell the property to you at under market peice (in writing). Likeliy any lower price would be seen as equivalent to payment to you (eg low interest loans, the difference in interest between the listed interest rate and the market interest rate, can be considered income in almost every situation.) (side note: interest costs can only be claimed by the business party who gains the long term advantage - if you buy the property off the trust, with money borrowed from the trust, and the trust got the money from the bank at interet; then the trust cannot claim the interest paid to the bank because the trust is just lending forward and isn't the party utilising the funds - eg you end up with the property ownership rights long term. IF you pay interest to the trust, AND the property fits sole trader (eg rental) vs personal consumption (eg own home) you may be able to claim the interest paid as an expense (which you couldn't do if interest is amortised into the principle by the trust.).
I would recommend careful and clear documentation, and include in writing details about discussing it with IRD for clarification. A tax or trust accountant may help, but they aren't liable if things go wrong.
You also have to be careful of who are the Trustees and that you have the WHY THIS IS GOOD, well memo'd.
but the initial comment, why not, but the trust must have reason to accept to cover the differential.
(obNote: I am not financial advisor nor professional, I do not know you personal circumstances. make sure you personally check everything with properly qualified interviduals and don't just trust their answers. especially if you don't really understand them....) :)
Olly,
All good questions which will need answers presumably before an election where a CGT is a key platform.
Here is Wikipedia's reasonably detailed description of Australian Capital Gains Tax; which would answer at least some of the questions in the event we follow similar rules. Notably Australia ignored any assets owned at the time of the introduction of the law- it was only assets bought after 1985 when it was introduced, and that have since been sold, that have had CGT applied. Am not sure if a similar grandfathering approach is planned here.
I also note that in Oz, if an asset is kept for more than a year, the capital gain is first halved before any tax is applied. Again, am not sure of the plans here.
.....and when will this CGT start from? Imagine the issues with shares...bought and maybe some sold over any number of years, no records because jo blogs wasn't concerned with CGT. Which are the shares he still owns, the ones bought back in 1970, then sold, then some bought again, some issued and so on? Who the eck is going to work all this out...let alone audit it at the IRD?
They should just ring fence property losses and stop people using the tax system to subsidise their investment. It would require zero new IRD staff or accountants to do this, could be enacted immediately and apply to the current year, would immediately result in higher tax revenues, everyone would understand it, and in the end probably collect more than a CGT (which would certainly restrict supply in an already under supplied Auckland market).
It would also meanpeople would enter into an investment based on the return, not based on structuring their tax affairs, and property investors would have to compete on a level playing field with home owners (who cant deduct running losses on their own home - therefore making property in essense more expensive for the latter).
My UK and USA contacts report no knowledge of Americas Cup.
Only NZ had skin in the game. Ours.
And that leverage could not beat a billionaire at his own game.
Computerised Match fixing.
All them little drones imported from NZ will never change the fact that a Billionaire will beat a few NZ dollars, just for the hell of it.
I look at it as Christian vs Arab money - a big percentage of which flowed into NZ and NZers pockets. We really won, even though we lost. Congrats to each and every NZer and NZ company that had a hand in it.
I'd like to think our team were the better sailors - but we'll never really know whether or not that was the case .. which has become the real disappointment regards the tradition that is that contest.
Now how's about some real data matching: a simple tweak to the title registrations could possibly do this. Prolly possible via a Regulation, which can happen by lunchtime.
My brainfart:
- Require that, for every interested party to a title or other registrable instrument, a valid, current IRD number be supplied as a condition of registration.
Instantly, one has a host of implications: mostly useful, some very much so.
- The question of citizenship or otherwise can be answered (IRD # matched to person and status)
- Ditto age, gender, etc for natural persons
- A locus for any applicable taxes is established
- Companies etc are able to be cross-matched to Companies office registrations
- Real RE data, instead of the waffle and conjecture which is the basis for so much 'debate' on this subject.
I'm sure common taters can think up many more implications, and their pros and cons (which I've not thought much about - that may show...).
Not sure, not in that biz. But near-certainties, judged from the occasional Cautionary Gubmint Advertisement:
- IRD to DIA for passports etc.
- DIA to WINZ for benefit etc controls
- Justice to all of the above.
But you have to remember three things about Govt.
- Highly silo'ed - patch protection rules, and shared/common services is a very recent concept.
- High variation in systems - IRD staggers along with mainframes running COBOL, tended to by rapidly aging boomers - whereas Health has tended to orient around (last I heard) Oracle financials, Orion data hubbing and messaging, and so on. Getting all these disparate systems to do nice talkies in near real time is a significant technical challenge.
- Privacy Act. Two little words that have a host of implications.
But on the bright side, most every Act has a little clause squirreled away near the end which allows Regulations: the Land Transfer Act 1952 has the following, f'rinstance: (a most useful site here)
236 Regulations
(1) The Governor-General may, by Order in Council, make regulations—
(a) regulating the practice and conduct of business under this Act:
(b) prescribing periods of time for the purposes of giving notices and other matters under this Act:
(c) prescribing the manner in which instruments must refer to the register:"
and so on.
So, requiring the IRD or GST rego would be simply 'prescribing' the content of an 'instrument', by reference to a required attribute of the 'proprietor'.
Is that rustling the faint sound of an OIC being rushed across to the GG?
I'd be entriely comfortable with this and think it would drag some much needed sunlight onto parts of the economy, but then I don't personally drive financial benefit from anonimity via hidden trusts or shell companies. I could see people who do have such interests objecting to the nanny state regulatory burden making commerce impossible.
Reposted from another thread:
Why won't the politicians look at some sort of stamp duty or financial transaction tax on property transactions? Even if it does nothing to curb house prices it would be an easy source of revenue that would catch foreigners, would not be overly complicated or costly to administer and would not fluctuate with down turns in the housing market like capital gains would.
Say a flat 4% tax was applied to the purchase price of all residential property payable by the purchaser before the title could be transferred.
Give owner occupiers a rebate/exemption of up to $20K to give them an advantage over investors. Link property titles to IRD numbers to track which houses have been registered as owner occupied and whack cheaters with 100%+ penalties if they try to play the system. Have a seperate rate for bare land and exempt new builds/homes to encourage investors to provide quality accomodation to their tenants.
Will probably generate a couple $100M that could be pumped back into other housing inititives. Might not be quite as fair as a capital gains tax, but would be a lot easier and cheaper to comply with. The main drivers for capital gains tax are accountants and lawyers anyway.
Part of the Documents which make up NZ's constitution framework is the Universal Declaration of Human Rights.
Article 25.- (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
Now Labour and the Greens have some explaining to do as to how they can achieve the affordable housing side while marketing their policies of CGT to the voting public.
Is the Labour party Product (policy on CGT) able to achieve affordable housing? If not will they stand behind their product and allow consumers (voters) a money back return.
The only thing required from any Politician is to stick to the fundamentals of "everyone has the right to housing" and then remove impediments that Politicians have created through the legisltive process and policy. Remove the Councils stranglehold that you previously handed them to them. Remove the RMA, stop allowing anti-competitive behaviour.
Sustainable policy grants people the freedom to act in accordance with the Universal Declaration on Human Rights and the Bill of Rights and any other document which makes up the constitutional framework for NZ and there is not one Politician or Bureaucrat who seems to understand what sustainability is really about.
Labour and Greens are selling snake oil products.
Question 21.....some fat boomer grabbing properties as far back as the seventies, leveraging the bejeesus out of them to aquire more and more property including commercial, all the while uses to the leverage position to avoid taxation over half of someones lifetime. Then sees an opportunity to really cash in on a flood of foreign money needing a home and willing to pay any price to find a clean laundry basket .
Should he cop a CGT after a wet nursed hay ride like that..?
Too bloody right he should...cough up Olly , pay your fair share.
Hey Hey come on Big D....discuss...? I have the books , all primarily allude to tax avoidance through this mechanism.
Just because we don't agree does not mean I have not read Olly's literature, it just means I don't want to be a deciple of his teachings for the sake of ....more money.
You have a nice evening.
Am I missing something? Where are the answers? Or doesn't the poster know themselves. Or is the answer yes at certain degrees to all?
I was under the improession that for a house that you purchase to intend to live in, then you don't pay any CGA at all, even if you later move overseas, and keep it solely for renting out. But maybe not? But how many people are actually paying tax an most of the situations above, probably hardly anyone.
Rob
You have misunderstood the questions.
At the moment there is no true CGT so there are no hard and fast answers to the questions.
What Olly has done is to ask important questions should a CGT be introduced, as many predict.
Any political party that promises to introduce a CGT should explain very early on, how it will work by answering these ( and many more) questions for a start.
As the election is next year everyone should demand right now, a detailed explanation from the parties that support the idea.
At the moment all we know is that a CGT is a major party policy, but we have idea how it will work in reality.
In any event it is almost certain that a CGT will hit everyone hard, unless they live in a cave with no family, job or cash.
.....I imagine that a certain amount of pre-plannng is already taking place e.g. selling investment properties at market price from one entity to another (most likely trusts) and so an future CGT will be mimimal ... and more than likley capital losses received if the market comes off the boli. CGT would be a very risky step.... those promoting it make no mention of the downside, that being the ability to claim losses.
'Any political party that promises to introduce a CGT should explain very early on, how it will work by answering these ( and many more) questions for a start.
'As the election is next year everyone should demand right now, a detailed explanation from the parties that support the idea.'
I assume your demand only applies to Labour Party policies?
Iv'e been waiting for 5 years for a detailed explanation on many of Nationals policies.but all we get is a shrug and a smirk.
If you are genuinely concerned, about the details of a CGT, check out how they managed to stave off the end of the world, when it was introduced in Oz.
Ollie, more considerations for you.
Same Q's above but this time involving Matrimonial Property.
eg if you split and the settlement is valued more than before?
eg if you split and one partner dies?
eg if you split and the property is joint owned as perpetuity rental, then sold as repairs are an issue?
eg if you split and one partner has spent up large on the mortgage (consolidating credit cards, loans for education, business loans)?
eg if one partner wants to sell and the other refuses?
eg vandalism from one or both partners affecting the sale value (evasion?)
eg partners split, but place property into Trust with children as bennies. what is the price of the property, and who pays?
Why people with half a brain want to support a Greens/Labour (H20Melons) who wish to impose yet another beneficiary bonus (CGT) on its people is beyond me, it WILL come round and kick them in the behind. I sure will be putting rent up when rates rise, if it came down to selling one day, it would be price + CGT...
You might put the rent up........ and the guy down the road might............ not............bye bye your quality tenants. It's a market place only............you fail to recognise that. Real business investors pay taxes on shareholder dividends so.............please tell us why you should be exempt? Sounds like YOU want government charity
Re quality tenants, a bit of reality for you, three properties put up for rent in the last 4 months, two had 1200 hits and had people bidding with only seeing add on TM, similar story for the other one however didn't even have to advertise, was being offered $100 more per week, I kept the rate as is, maybe not the case when rates rise, I am not a charity.
That how it is now, city is growing, people require a roof over their heads, end of story.
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