Most New Zealanders support taxing the capital gains made on investment property but not other kinds of assets, according to a recent poll.
Ipsos NZ asked a thousand Kiwis in October whether they would support the introduction of a capital gains tax in four different scenarios.
It found 57% supported a tax on the sale of an investment property but only 43% on the sale of a business. The survey found only 13% were in favour of taxing the family home, and just 22% on taxing other assets.
Ipsos presented this result as being 65% support for a capital gain tax “in some format” although they did not appear to ask that specific question in the poll.
Support for a tax on investment properties was highest among people aged over 65 years old, many of whom will have experienced huge returns on their properties across their lifetimes.
A disproportionate number of people aged 18 to 35 supported taxing the family home, although it was still a small minority at just 22%.
If a capital gains tax were introduced, 58% of respondents thought it should be used to reduce other tax rates while 29% thought it should be used to increase the overall tax take.
The Crown currently has a structural deficit and the Government wants to cut spending or raise revenue to balance the budget and stop accruing debt.
Overall the poll does not show strong support for a comprehensive capital gains tax, but does show a willingness to increase taxes on property investments.
Labour charged a capital gains tax on any investment properties owned for less than 10 years but the Coalition has reduced that bright-line test threshold to just two years.
Labour gains
Ipsos’ monthly polls show voter concern about inflation and the cost of living has been steadily declining for the past two years but remains 55% of respondents’ top issue.
Healthcare and hospitals has risen from 31% in May to 41% in October and is now the second most important issue in the survey. This was true for both left and right leaning voters.
Another interesting result was that people aged 18 to 35 ranked climate lower in the list of issues than any other cohort in the survey.
The coalition government’s performance rating increased slightly—to 4.7/10—but the public’s assessment of the Labour Party’s capability on various issues increased significantly.
It was perceived as being the most or equally capable of managing housing, personal debt, education, drug and alcohol abuse, and immigration — whereas National led on all these issues in the prior survey.
National leads on important issues such as the cost of living, the economy, and crime. It is also seen as the more capable party on taxation, and opposes extending capital gains taxes.
See the full survey results here.
165 Comments
To me this is pretty telling. It's not that people want to tax capital, it's just that if people are making too much money from one form of capital investment, they want to tax them. Possibly driven by ideas around 'fairness'?
Ultimately the solution should be clear then, fix the issues breaking the housing market leading to:
1) shockingly high homelessness
2) shockingly high rents relative to income
3) excess capital gains year on year
And I suspect this keenness for capital gains taxes will go away.
What's frustrating, but unsurprising is the strong opposition to taxing the family home, which is currently the most tax advantaged asset in our country. If you think there is an issue with tax distortions driving excess investment into residential real estate then you have to tax the family home, or you will simply worsen these issues.
The thing with the family home is that it is mostly held by people who pay a lot of PAYE. Whereas a property investor can write off most of the rent and then make massive amounts of tax free capital gains when they sell, living off the teat of the PAYE taxpayer despite being loaded. Hence why people want to plug this one gap.
A CGT would potentially increase house prices.
If you don’t sell an investment property, you don’t need to pay capital gains tax. Simple.
The more a property goes up in value, the more you would think twice about selling and paying tax.
Less property on the market = higher prices.
People have to sell eventually, be it via death, divorce, illness, change in job location etc. They can leave it on the market as long as they wish and think they'll just add the CGT cost into the price, but eventually the opposite to what you suggest would occur. More and more property would sit and stagnate with nobody buying them at the inflated prices as we see currently. Prices would then need to eventually drop to meet the market, as previously mentioned, people have to sell eventually.
Personally I would prefer they plug the other hole. Borrowing is considered a loss (interest payments), when a big part of borrowing is actually a gain - a million dollars will be worth a lot more today than in 20 years time. By bringing money forward you have made a gain of the CPI over that period.
Interest should only be an expense after subtracting CPI. And this should apply both ways, interest paid on savings should only be a taxable gain after CPI.
The 2% isn't a tax as the value of the house also goes up with inflation. Its only a tax if you hide the money under the mattress.
Let's say houses only go up with CPI, say 2% a year (that will hopefully be the case in the future). If you buy a house with cash, after 30 years you effectively don't gain anything, the house is still worth the same in real terms. But if you buy a house with debt, after 30 years the house is still worth the same in real terms, but your debt is worth a lot less in real terms, so you have made a massive gain and not paid any tax on that (as you wrote all the interest off as an expense).
Yeah. Sorry Jimbo that doesn't make sense. First, I'd ignore the 'massive amounts of tax free capital gains' aspect, as both households are making this.
Second, when you say 'write of most of the rent' those are real costs. Interest is real. Repairs and maintenance is real. Listing costs and agent fees are real. You receive less in your pocket at the end of the day, and then pay tax on it. As for 'living off the teat of the PAYE taxpayer', well unless you bought a whole lot of property yonks ago, you aren't living off it because the margins are so thin. In which case you are more accurately a retiree.
Finally, where does this property investor live? Either in their own home (a whole lotta capital, see aforementioned capital gains), or in a rental themselves, which they then pay rent on. Ultimately there are additional accommodation costs there you're not quite factoring into the equation.
PAYE households can't write off their costs. When we take out a mortgage, we have to pay the interest. When a PI does, the interest is deducted as an expense. But as I point out above, the CPI component of interest is not an expense.
As I also say above, I would prefer that hole to be filled as it seems easier and fairer.
Right. But you also don't pay tax on imputed rent. And write-offs are ring-fenced anyway, so it doesn't flow through to tax deductions from PAYE income.
Let me illustrate with an example.
$1,000,000 home.
$800,000 mortgage, interest-only at 5%.
Therefore, $40,000 interest costs per annum.
$50,000 of housing services are sold to the market, producing an equivalant gross rental return per year.
$2,000 repairs and maintenance.
Property investor therefore pays tax of ($50,000 - $40,000 - $2,000)*0.28 = $2,240.
They receive a post tax return therefore of: $5,760.
If this home is owner-occupied, the owner is consuming:
$50,000 of housing services per year and has costs of
$40,000 interest, $2,000 repairs and maintenance.
The owner-occupier therefore enjoys after costs a net $8,000 of rental services.
Sorry, I would prefer to not pay tax than deduct an interest bill.
The imputed rent argument for a home owner is just utter BS. the proof of this is in two different rental properties. The properties are comparable one tenant pays $350 per week, the other pays $450 per week. Should the tenant paying the lesser rent have an additional tax burden because they pay less rent?
Home owners pay rent. It is not set by a greedy, parasitic landlord trying to profit off a trapped client needing a home. It is just that that rent is broken up into the categories you mentioned; rates, insurance, maintenance, and so on. Your rationale breaks down very quickly in the real world.
A homeowner borrows $2 million for their own residence, while a property investor borrows the same amount to finance two properties: one as a personal residence and the other as a rental investment. Both pay the same interest rate to the bank. However, the investor earns only $35,000 per year in rent, which falls short of covering the $70,000 in annual interest (assuming a 7% rate on the $1 million rental loan). This results in a $35,000 loss. Additionally, under Labour, the investor would still need to pay tax on that $35,000 rental income despite the loss, putting them at an even greater disadvantage. The PI is losing substantially for providing accommodation for someone else. Why is he doing this while he is making the same amount of future capital gain if any. So where is the hole to be filled?
If capital gain is needed, then tax the whole, home or rental.
"However, the investor earns only $35,000 per year in rent, which falls short of covering the $70,000 in annual interest (assuming a 7% rate on the $1 million rental loan). This results in a $35,000 loss."
Most people confuse the asset returns from financing decision.
If the property was 100% equity financed, the property would earn $35,000 revenue less costs of rates, insurance and repairs and maintenance. For most freehold properties (i.e not leasehold) this property is cashflow positive and profitable.
The negative cashflow is entirely due the purchasers choice to finance their purchase and is a result of the cost of financing. This person is in effect borrowing money at 7.0% to finance an asset earning 3.5% - this is a negative carry trade. When interest rates were 2.5% and the gross yield was 3.5%, there was a positive carry trade. But the interest rate moved upwards and may have caught some people out.
A 3.5% yield doesn't work with 100% LVR, when the cost of financing increases to 7.0% - it is loss making due entirely to the financing decision.
A 3.5% yielding property when the cost of financing is 7.0% might be cashflow neutral at an LVR of 40 -45%.
The property investors association with their vested financial interest have labelled this as a subsidy that landlords pay for their tenants when it is really a poor decision to finance the purchase with high levels of debt where the cost of financing can increase.
You keep saying "write-off" but it doesn't mean what you think it does.
Saying a property investor can write off most of the rent would mean that a property investor can not return the rental income in their tax return - which is tax evasion, so people 'can' do this in the same way that people 'can' rob a bank.
What I think you're trying to say is that a property investor can deduct expenses like rates and insurance against rental income - which is completely reasonable, the only reason those costs are incurred is because rental income is being earned.
For many, the idea of "home" is far more personal than, and privileged over, buying investments that happen to be house shaped.
Exempting the family home and focussing on investment gain would make a new tax more palatable and therefore politically achievable.
I wonder if it might also mean that the maintenance that Kiwis are so poor at will get done
Another interesting result was that people aged 18 to 35 ranked climate lower in the list of issues than any other cohort in the survey.
Just goes to show it is difficult to make assumptions. Maybe parents are more worried about what they will leave their kids than the kids themselves.
Young people are seeing the challenges in seeking home ownership, a core milestone for any wishing to have a family and while not required, it would be far more difficult to save a deposit and pay a mortgage when one is paying to feed more mouths and often losing one of two incomes for a period of time. They also see those who have invested in property in the last 30 years and have relatively easy lives, such as those with parents who can help them into a first house, and also the growing urgency for a need to reform the pension before they have even less money to save with due to the increase in tax take needed to fund it.
Certainly when I was at the lower end of that cohort, thinking about the long term implications of policy being formed by 50+ year olds in the beehive was not nearly as exciting as watching burnouts or going skydiving. Young people live for the now, they take risks, they don't have their own kids to worry for. They've made it so far and they'll extrapolate. As they get a little older they'll start to appreciate the world isn't magic and happy endings aren't guaranteed.
The usual greedy commentators will come out as always and say CGT does not make it easier for people to enter the housing market and therefore it should not be implemented. They will put up Australia as an example of where it has not worked. Who cares! We need more tax and investors should pay tax on capital gains. Everything the government does such as health and education is groaning at the seams. More tax is needed otherwise things will only get worse. If you want national super, good health outcomes and your children / grandchildren getting a good education then CGT will not bother you.
Nah, in plenty of places there's enough tax revenue. Look at Dubai or Hong Kong, where they basically don't need income taxes because there's more than enough in the bowl already, even accounting for the graft and waste.
NZ is a very, very long way from being able to afford what we want, and we've scrimped on infrastructure at least since the 70s instead waiting for growth to make things affordable. Clearest case in point the missing southbound Terrace Tunnel in Wellington, where they decided to lay the groundwork for some future generation to build it. Still waiting...
We need less handouts (vote buying)
Politicians will continue to use this strategy to win popularity contests. Look at the numerous other strategies being used by the two candidates in the popularity contest for the position of President of the United States of America.
Six years of Labour, and they got 70% more tax revenue a year than the last National Govt did - did you notice a 70% improvement in health and education? Giving an incompetent govt more money does not mean better outcomes, but in Labour's case they simply frittered it away. Then they come back to you and demand even more tax.
Doesn't matter who the government is. The current one will be sitting on 10-20% more taxes than the final year of Labour and there's nothing yet to show for it. On top of that, we're cancelling hospitals and ferries to guarantee the near future will continue to be full of nothing.
Really? From this page I calculate a 55% increase in tax revenue. Then on this page I see that inflation increased 30% in that time. So in real terms spending increased 25%. But then population increased 12%, so we are down to spending increasing by 13% overall.
No wonder we aren't getting 70% more services.
I agree. Who cares if it hasn't worked to lower prices in Australia. As someone who lived in Sydney for just over a year the public services there put us all to shame in NZ. Stamp duty funds a lot of those services. We need a broader tax base. https://www.abc.net.au/news/2021-06-20/stamp-duty-adds-9-379-billion-to…
I am pro a CGT to balance revenues. If it is rolled out in a limited way on property speculation then so be it if that makes it politically acceptable. However, like all additional tax revenues I want to know what other taxation it is helping to reduce. If it's solely a tax grab I don't believe the politicians have earned the right to spend more money given what a poor return we currently get.
Agreed. The Crown's tax take from GST and PAYE has more than doubled since 2010 and revenue from corporation tax has tripled. Yet, the quality of public services and infrastructure has slipped noticeably over the same period.
Part of the issue is how those tax revenues have been boosted, i.e., mass migration of working-age population (more earners, more consumers), therefore more activity to be taxed.
Successive governments have had it easy to game economic growth and increase tax take without having to spend much on economic capacity and better social outcomes, allowing them to spend it large on election lollies instead.
During the 1980s evrything earnt over 48K was taxed at 60% , then bought in GST to lower tax thresholds ..Now under previous govnts tax at 39 % plus non interest deductability on property means back to bad old days . , work all your life for very little return , now talking seriously about capital gains tax as well , because they no better how to spend my money than i do ..Just isnt fair .
The purpose of implementing a capital gains tax is raise revenues to meet the rising annual costs of central government. It is politically unpopular (and increases the risk of losing the popularity contest for politicians) to reduce one of the largest costs of government - welfare payments to retirees (a large voting constituency).
Meeting the fiscal needs of the central government does not meet address the objective of affordable housing.
A non owner occupier buyer with a portfolio of over 40 non owner occupied properties stated that they would continue buying non owner occupied residential dwellings if capital gains tax on residential dwellings was implemented (i.e tax on house price gains beyond the current 2 year holding period under the Brightline test).
A capital gains tax will likely result in non owner occupier owners continue to hoard and buy more residential dwellings and not sell (and hence not pay capital gains tax).
A capital gains tax will likely result in non owner occupier owners continue to hoard and buy more residential dwellings and not sell (and hence not pay capital gains tax).
A tax model devoid of regular funding source is stupid and subject to the smarty party abuse listed above. Exactly what it should be a quarterly land tax... on everything.
Do your 'rates' not include any charges for services provided by the local council?
If they do, then it's a foolish to call it all a land tax.
However, I'm open to being wrong. Which council do you pay rates to that don't list any services being provided for the benefit of the property?
Taxation in New Zealand - Wikipedia
There are currently no land taxes, but local property taxes (rates) are managed and collected by local authorities. Some goods and services carry a specific tax, referred to as an excise or a duty, such as alcohol excise or gaming duty.
My rates go to a variety of services that are not specific to my property. Including a rainbow pedestrian crossing on K road, a weird toothpaste sculpture in wellsford, the pruning of overgrown trees on private lots in Remuera, the upgrade of the Warkworth wharf where Mayor Brown parks his boat, drag queen book readings in libraries, and much more.
Like i said, rates, like taxes, pay for a variety of services. Some i make use of and some i don't. The only difference between rates and land value tax is the branch of government it is directed towards.
"I would guess the addition of a GCT would incentivise productive investment at the expense of renting existing houses to people."
Perhaps best to ask this guy why he would continue to invest in residential real estate over a productive business.
https://youtu.be/eUMWssA2ugw?t=831
Perhaps he prefers some of the benefits of investing in real estate by non owner occupiers buyers (compared to a passive investment in a business):
- leverage,
- interest deductibility,
- known and relatively stable revenues,
- relatively consistent revenue growth,
- an asset that is tangible,
- based on historical prices there is an expectation of stable house price growth in the future,
- lower probability of loss compared to an investment in an economic enterprise, lower volatility of outcome compared to investing in an economic enterprise.
- relatively little management time (it can be outsourced whilst they are earning income in their occupation (e.g doctors, nurses, teachers, etc) ?
I think many more households are more comfortable investing a large proportion of their household wealth in residential real estate than a business - a business can go bankrupt and result in the entire loss of their investment - most households don't think that they can lose their entire investment in residential real estate and the probability of gains is higher relative to an investment in business.
If there is a capital gains tax implemented, what is the probability that most of these non owner occupier owners reallocate a large portion their capital into non real estate related economic enterprises? https://www.stuff.co.nz/life-style/homed/housing-affordability/30041526…
I guess it comes down to how long RE Investors can maintain their social licence to operate as they are.
A CGT is an attempt to either re-orient investment to a better use or as an extra tax to fund greater public services / waste or a combination.
I think people are starting to realise the status quo is bidding up the cost of housing meaning people spend a greater proportion of their income on accommodation rather than saving for retirement, consuming, investing, starting businesses etc.
"A CGT is an attempt to either re-orient investment to a better use or as an extra tax to fund greater public services / waste or a combination."
Most likely as an extra tax to fund public services / waste.
Re-orienting investment to a better use is probably more impactful via more specific investment incentives such as tax benefits for the area being targeted.
Something to consider, CN ....
If the taxes raised by a CGT are 100% offset by reductions in PAYE, what does the PAYE earner do with the tax cut?
They could choose to save it. Govt collects a bit more tax on the interest.
Or pay down the mortgage faster. No tax from OOs. But more tax from property 'investors'.
Or they could spend it. And govt directly collects GST. While potentially collecting more income taxes from businesses.
re ... "Re-orienting investment to a better use is probably more impactful via more specific investment incentives such as tax benefits for the area being targeted." ... History shows that government's picking 'winners' is usually not very successful. (Case in point? Our current government.) So no. Just NO!
"If the taxes raised by a CGT are 100% offset by reductions in PAYE, what does the PAYE earner do with the tax cut?
They could choose to save it. Govt collects a bit more tax on the interest.
Or pay down the mortgage faster. No tax from OOs. But more tax from property 'investors'.
Or they could spend it. And govt directly collects GST. While potentially collecting more income taxes from businesses."
It depends upon the groups of PAYE income earners affected. Most low income earners are consumers covering basic living costs compared to those at higher income levels who tend to be savers due to the excess of income over living costs.
I'd like to see it reverse the Prince John scam where they upped GST but gave high income earners a relatively larger PAYE cut (and now echoed by this disgusting government albeit to a much lower extent). The Prince John scam was friggin' outrageous!
So yes. Into the lowest tax bracket is where it should go (with a slight uptick for higher income earners, including me, so they get nothing. [evil grin])
A CGT is an attempt to either re-orient investment to a better use or as an extra tax to fund greater public services / waste or a combination.
As I and others have recently commented here, with the banks starting to suggest a CGT, it's a pretty useless attempt on either front and they know it. It could if it was collected on unrealised gains each year but usually a CGT is only collected at sale. Also, it ideally would be on all houses but usually isn't.
An annual land tax is still the best option to get owners building/selling underused land/houses and raise regular predictable revenue streams for central government that could be used to offset other regular taxes such as PAYE/GST.
Simplest doesn't mean it cannot also be the best though Chris.
In my case, best means making housing more affordable and rewarding work (lower taxes here) over landholding (LVT here). It encourages productive use of a limited resource (land).
A CGT may be the best option for your objectives. But for mine, a land tax will do plenty of heavy lifting and as you acknowledge - it's simple.
This was discussed in the AFR today - https://www.afr.com/policy/economy/australia-has-passed-peak-property-i…
It doesn’t help that high prices mean investment is increasingly limited to a shrinking pool of wealthy retirees.
Boomers, born between 1946 and 1965, are Australia’s most avid investors, having displayed a higher propensity to punt on property throughout their lives compared with other generations.
In 2000, when boomers were 35 to 54 years old, the under-40 age group was the biggest cohort of investors, making up 33.2 per cent of the total. The next largest group was 40 to 49-year-olds, at 28.1 per cent of all investors.
As boomers have aged, so too has the average property investor. With boomers now aged 59 to 78, over-60s have become the largest pool of investors, followed by taxpayers aged 50 to 59.
Coates says there is a generation of investors who bought investment properties in the post-2000s and are now retired but aren’t selling them, potentially to avoid paying capital gains tax. “If you bought a property for a pittance in the early 2000s, your capital gain is now pretty sizable, that lock-in effect gets bigger and bigger the longer you hold the property.”
It’s also consistent with evidence that the elderly tend to live needlessly frugal retirements, holding on to assets and simply living off their earnings. “People might be living off the rent they’re receiving from their properties, but they are certainly not liquidating the capital to fund a more extravagant retirement,” says Coates.
Hmmm. There is a new class of young property 'investor'.
These are the ones that buy a rental before buying a home for themselves. As JJ mentions above, this allows them expense most costs and to roll over losses thereby escaping tax at a later stage. (Owner occupiers obviously can't do this.) These younger 'investors' even get help from the bank of mum and dad to do this.
Have I mentioned our tax system is pretty screwed up?
Ipsos’ monthly polls show voter concern about inflation and the cost of living has been steadily declining for the past two years but remains 55% of respondents’ top issue.
The most interesting insight from the Ipsos Tracker is that all the age demogs except for the boomers are feeling DGM about inflation and the cost of living. It's the single biggest issue and you can see the correlation with other related factors such as economy.
However, everyone 'reckons' that the Ponzi is ready to make up for lost time. Goes to show how shallow the dialogue is across the nation.
BTW, I don't think the Ipsos Tracker is given much attention in Aotearoa. Not sure why. Their data was quite telling in describing the demise of the Ardern regime.
Support for a tax on investment properties was highest among people aged over 65 years old, many of whom will have experienced huge returns on their properties across their lifetimes.
This tells me that those who are comfortable with their lot are genuinely concerned about how much underfunded the next generation look. Those who complain about a CGT are more likely to be of the selfish variety.
Even though I'm not a Boomer myself, I fully support a CGT on those precious providers of an essential public service. Houses are for living in and not speculating on.
Agree - and putting taxes on property speculation would not just raise money but it would be good mid-to-long term governance as it will drive investment into productive and innovative export businesses. Which would be an investment in our kids futures not a drain.
It will also drive kids to seek emplyment outside of real estate, banking and trades... another bonus
There isnt much arguement against. I reckon if they sell it right it will win the next election for labour.
The funny thing is that to win the next election Nats need house prices to rise so the economy booms.. which will fuel property investment and immigration... which will upset the majority of the voting public who will vote labour. Catch 22.
"Houses are for living in and not speculating on. "
Get non owner occupiers buyers buying newbuilds or building new - that way there is new supply of housing for residents. They can speculate on house prices as much as they want in that market.
This is what can happen when non owner occupier buyers are prevalent in the existing dwelling market. An example of out of town non owner occupier buyers, having been priced out of their own geographical market and moved to other geographical markets, have outbid local owner occupier buyers / residents in the existing residential dwelling market.
This went nationwide in most geographical locations so that house prices for many owner occupier buyers (especially first home buyers) were priced out of the ownership market.
I would support a cgt if it was twinned with a sizeable reduction to income tax. But seeing as that hasnt been muted i am against it. The government in this country already gets enough revenue without another stream. The fact that minimum wage earners are near the top tax bracket is shameful.
Cullen's tax working group plan was and it was rejected by labour almost immediately. In order to achieve tax neutrality it proposed the most severe cgt in the world. 33% on all asset classes including the family home. Artwork was the only exemption. It would have made NZ a feudalist state overnight.
The biggest single issue with the working group's proposal was that it was an annual CGT paid each year on unrealised CG.
From a purest economics perspective it would be brilliant. At a practical level it was never going to fly - so it crashed and burned. (I suspect that was the outcome that some members in the working group wanted.)
It is far better IMO - although this is seldom done - to backdate the tax 1900 and calculate the CGT tax payable, on sale, to be from the date the seller purchased the asset. Doing it this way means a revenue stream is immediately produced so that PAYE can immediately be reduced.
Funding tax from a CGT is reliant on a) properties selling for a profit and b) people selling properties.
Better off with a Land Value Tax added to the rates bill, and a simultaneous reduction in Income Tax. You could in theory knock out a good chunk if not all of income tax through an LVT. Problem is people with little income are then overburdened with LVT and their "income tax cut" is measly.
My rates bill this year is $9,400. Say I earn $100k a year, a good income, that makes my rates 10% of my gross income already. Then I still have to pay income tax. Who can afford to pay a land tax on top?
In Australia, my rates bill for a similar valued property would be around $3000. If you want a capital gains tax or land tax, then Council rates need to be substantially reduced. NZ Councils are out of control - as evidenced by the fact that Australian councils deliver the exact same services for a fraction of the amount NZ councils charge ratepayers.
If you wanted to raise the country's entire tax revenue ($120b) on just a Land Value Tax against only urban areas:
- NZ Urban Area = 8,100km2
- Rate per m2 = $14.81
- Rate per 1000m2 section = ~$15k.
You would do away with income taxes. So in my household, our PAYE would go from $60k p.a. to $15k p.a. LVT. But it wouldn't work for the pensioner living alone making $20k off Super.
No stress! Farmland would be a difficult one because I think it should be on economic output rather than a flat rate, paying full tax (fractional on the urban rate) on a bad season's crop would bankrupt them.
But think about people that live in apartments. A 100m2 apartment in a 5 story unit would pay $300 per year as their share of LVT. Might hurt land bankers though.
Farmland would be a difficult one
I don't see why. Farm (land) values have risen a lot in the last 30 years. More productive land already sells for and is valued higher than less productive hill country. Land values may alter (lower) with the introduction of an LVT but basically it would sort itself out. Already a bad year does what you describe which is why farmers have overdrafts/savings to cover this risk of doing business if they are concerned about it.
An LVT just means the next generation would pay less for the farm due to its higher running costs (the LVT). No one is giving away land due to the high running costs that I know of at this stage...
"Farmland would be a difficult one ..."
Not really. All asset values should come down to the return that can be gained from them.
Quite a few 'farms' distort the true value because they can be turned into the next 'new subdivision' on which dwellings can be built so people can drive further to the places they have to go each day.
"I'd give it 12 months before the rates increase is passed on to tenants."
That depends on market conditions in each market. Rents are based on market demand and supply not a cost plus basis for landlords as many landlords believe. It seems that there is a tenant's market in some rental markets (and a shift away from a landlord's market).
Rents have fallen to an eight month low. They're still up just 1.6% from this time last year here
Inflation adjusted - they're falling on a pa basis and given the times this is to be expected. Landlords are struggling to pass on the increasing costs.
There’s a few reasons driving the surplus supply, including record numbers of people, particularly younger people, leaving the country while others are choosing to stay at home longer or live with relatives while unemployment and the cost of living both remain high.”
if really targeting residential property, it might be more easy and straight forward to implement to tax on sales price using a flat rate. this will apply to all residential properties, investment or not.
the main challenge of CGT is how to calculate the real 'gain', a flat rate sale tax might be easier and more predictable for everyone. and the flat rate should be a small number, and remove the bright-line test period.
and if this new tax eventually makes housing more expensive, so be it.
a cut-down version of CGT on residential properties is not a real CGT, it will only muddy the waters and missing the point.
10 year bright line was almost a capital gains tax correct? I hope there is just no unintentional consequence of higher rent because you know they will blame the landlord and not govt or add a wealth tax then it will be even higher rent, as long as tenants know the envy is from the govt and the votes they receive
I think we should introduce a "comprehensive income tax" instead. You receive income, you pay tax on it. This could be PAYE, Gifts/Inheritance, Capital Gains on an asset.
There could be tax free limits (in terms of Gifts/Inheritance) or pro-rata the amount of tax you pay on capital gains depending on how long you have held the asset (i.e. hold a property for <2 years, you pay 100% of your income tax rate on the gain, hold it for 8 years, pay ~20% of your income tax rate on the gain)
As you are broadening the tax base, you should be able to go to lower rates.
How much overall tax we take is a separate discussion from which streams those tax takes come from.
I've always thought similar. If you made a profit (after CPI) tax is due, on anything you sell. A house, a car, golf clubs, art, bitcoin. Zero exceptions. Very easy, simple and fair. Everyone pays.
But set at a very low rate to compensate. And yes you deferentiate between short term (20% tax), medium 15% tax and long term (10% tax) capital gains.
Very little incentive to try and game the system. Huge broadening of the base. PAYE reduced to compensate.
They said the same thing when GST was introduced. I am only 38 but I am cynical.
Whenever they introduce a new revenue stream they momentarily reduce the traditional tax rates for a while, but they go back to their historical levels within a few elections. We all end up paying more tax with nothing to show for it.
If their farm appreciated by more than the CPI adjusted level when they sell it, they will be over the moon. Income is Income is Income. Just like lamb prices going up this year for whatever reason - they pay tax on a higher Income. Do you reckon they'd be happier if the resale price of their farm fell?
"57% supported a tax on the sale of an investment property"
And guess what? That % is only going to increase until both/all political Parties feel that it's safe to go in the GCT water and not get eaten alive at the ballot box.
So hang on to your portfolio by all means; add to it if you like, but Change is coming on the GCT and other fronts.
"But that means Property is being treated to other businesses! That's not fair". So what. A lot of things in Life aren't fair. Go and do something else with your resources and access to Debt, if you have the skills.
Just don't be surprised WHEN it happens.
""But that means Property is being treated to other businesses! That's not fair". So what. A lot of things in Life aren't fair. "
Policy settings change depending upon the circumstances and needs of the nation and wider community (in this case more affordable housing).
Policy settings benefitting the nation & wider community vs policy settings benefiting a few at the expense of government (accommodation supplement) and end users of existing houses?
Bernard is onto it 'Happy to watch your grandkids grow up in Australia via WhatsApp?'
Debate growing about exodus of young New Zealanders to Australia and beyond, but the penny has yet to drop for older home-owners: unless they surrender to wealth taxes, they will lose their grandkids
Why wouldnt the grandparents just move to Australia as well? There are no age or health restrictions, and they get citizenship after 4 years.
Its not just young people moving over to Australia, there are three generations of familes going - Mum, Dad, the kids, and the elderly parents.
Easy answer: Remove any and all tax deductions for property related items, whatever they are.
If you do the improving or borrowing, make sure that at sale time it's recouped by the outlay amount plus whatever you want as a profit margin. Oh, and don't forget to factor in the CGT that will apply as well. "But that will devastate the commercial property builders!" No it won't. It will make them careful with exactly what they do.
Can't we hear the thinking from here? "I know how I can get around that....!"
Can't we hear the thinking from here? "I know how I can get around that....!"
There will be players / participants that will always look to game the rules.
Will a capital gains tax on non owner occupied residential dwellings result in bigger houses being purchased and built for owner occupied homes by the wealthy? (as this will not be subject to capital gains tax assuming owner occupied homes are exempt)
"Most New Zealanders support taxing the capital gains made on investment property but not other kinds of assets, according to a recent poll. "
I do not think so, we already have CGT people, move on, the greed tax is not popular.
Any party who even mentions the Communist Greed Tax (CGT) will bee booted out, history lesson for Labour.
Quite correct. National will not implement this type of taxation, so the greedy can argue as much as they like for the next ten years at least. Then if Labour do get back in again, they have no clue how to implement one, and it is political poison anyway. As soon as they announce it, they are un-electable as the stories of taxation of super, private homes and all sorts of things are talked about and people will realize/think that it will actually be them that are the target and the whole thing will crash and burn again. So, say what you like people, there will be no CGT anywhere on the horizon, any time soon.
Why would I panic. I have no investment properties here, and my other investments are safely out of the country. So, I'm sorted CGT or not.....and why would one panic over something that was already ruled out today, and last week, and last year and for the last ten years. You are dreaming.
If a CGT ever came into force, I would be selling all of them and stop providing accommodation to others.
It just would not be worth all the effort I put in to running the business.
I would be far better off investing the money into something passive and put my feet up!
My net income would be massively more as well selling the properties at market value rather than what we paid for them.
Think you would find that it would put even more pressure on tenants being able to afford rents.
"If a CGT ever came into force, I would be selling all of them and stop providing accommodation to others."
Extremely simple maths clearly isn't your strong point?
Your b.s. assertion has proven false ... every ... single ... time .. a fool re-gurges it.
Please do sell. Everyone will be better off.
So you believe that landlords should be providing housing and subsidising the tenants costs and then if they sell shouldnt be able to make any money to recover the loss?
Does not seem a very viable business, but then there are so many that has an attitude that think they should be given everything,!
How things have gone down hill over the past decade.
"So you believe that landlords should be providing housing and subsidising the tenants costs and then if they sell shouldnt be able to make any money to recover the loss?"
The reason that most rental properties are negative cashflow is that landlords have chosen to taken on too much debt relative to the revenues generated. Rather than reduce the debt, the vested financial interests and property investor association lobby have chosen to keep the debt levels unchanged and characterised the negative cashflow as "subsidising tenants" for their own lobbying purposes.
Reduce the mortgage to 0% LVR and the rental property becomes positive cashflow.
So you believe that landlords should be providing housing and subsidising the tenants costs and then if they sell shouldn't be able to make any money to recover the loss?
If you make an investment, which carries risk, and circumstances change and that investment begins making a loss, you would rationally offload it. People hang onto loss makin properties in such circumstances only because they believe that they will make this back via rent and capital gain in the longer term. Remove capital gain or lessen the gain and more would offload the investment. The key word is risk, if you can't take the risk and realise that you sometimes have to eat a loss as nothing is guaranteed, and you can't pass the entirety of your own risk to the tenants, then sell up. We all take risks, and understand the potential consequences.
It just would not be worth all the effort I put in to running the business.
So you're saying that you are buying rentals for the tax-free capital gain - therefore, you are liable to pay capital gains tax under the current regime aren't you?
Or do you tell the IRD something different to what you post here?
Incorrect.
I used to buy to rent out and still rent out those properties.
When Robertson brought in the non deductibility of the legitimate expense of interest, and the 10 year brightline, many decided to buy and renovate.
Yes we do pay tax on the profit as there has been no economical sense to buy and rent out over the past few years.
Investors will not bother if they are paying tax on increased sale prices when they have been propping up the tenants accommodation costs.
"Investors will not bother if they are paying tax on increased sale prices when they have been propping up the tenants accommodation costs."
Most rental property is negative cashflow entirely due to the owners financing choice. Could the rental property have too much debt relative to the revenues earned?
Take the negative cashflow rental property, reduce the mortgage to 0% LVR and the property becomes positive cashflow. Voila, problem solved.
So you bought for the yield but you're making a loss? I can only guess you're expecting to start making a profit from the yield in the very near future, in which case the capital gain is simply a bonus should you decide to sell many years in the future, and subsequently foregoing that solid income stream.
So it should be inconsequential to you whether or not a CGT is introduced, because it doesn't change your primary reason for investment at all - your capital gain in the wash-up will be a little smaller but it's still a bonus. Selling out completely because you may have to one day pay a tax on something that you never factored into your investment strategy in the first place seems like a strange reaction.
Do you truly believe that being a property investor in NZ is some sort of public service or in some way useful to society? That's hilarious....
If you value being useful to the country sell your other house to a FHB and put your money and effort into a business that employs people, is productive and exports stuff....
Rolling stone used a phrase during the GFC to describe Goldmans.. that I reckon would be quite apt for a lot of nz property investors...
Of course we are providing s public service!
Accommodation is a service and it is to the public!
Reality is that if there is no profit then why would investors continue to lose money?
Building new housing is not the answer as it costs too much to build and provide a worthwhile return.
"Building new housing is not the answer as it costs too much to build and provide a worthwhile return."
These institutions believe it is worthwhile to do so.
https://www.propertynz.co.nz/media-releases/build-to-rent-housing-surge…
Do these profit motivated institutions ever mention anything about "subsidizing their tenants" and that they're doing a "public service"?
If a CGT ever came into force, I would be selling all of them and stop providing accommodation to others.
Great! The effect of the CGT would have it's intended effect then. More supply for FHB leading to cheaper house prices and then with the ensuing rental shortage there would be greater incentive to build new housing or condense to greater density. Winner winner chicken dinner
Even if house prices dropped by 50%, many people still wouldn’t be able to afford to buy. Additionally, some who can afford to buy still choose to rent. This group will continue to need rental housing, and the government alone cannot meet the demand, so private investors are essential.
If investors all sell off their properties, the resulting shortage in rental housing would drive rents through the roof—leaving no winners in the end.
"If investors all sell off their properties, the resulting shortage in rental housing would drive rents through the roof—leaving no winners in the end."
Really?
It is more likely residential property prices would drop fairly quickly, thereby allowing the existing tenants to buy out their landlords using what they'd otherwise have paid in rent.
That would be a terrible thing, right? /sarc
It might help the palatability of new taxes to fund government if:
- there's a commitment to the de-politicisation of the public service by all parties,
- some kind of assurance is made of competent, data-driven decision making via independent oversight,
- and there's a return to the probity that has dropped out of public sector under the assault of corporate thinking over the last decades.
Because government behaviour has led to a low trust environment, that trust has to be rebuilt to enable the continued social licence to tax and spend.
I buy a house to live in, not as an investment. If it made 1 or 2 % a year to keep roughly level inflation that's good. This imputed rent. Have no idea what that is about. I pay rates and taxes to Council for services, not as a rent. I'm not renting anything from them.
I buy a second property to rent out to earn an income with interest amongst other expenses as a tax deduction. If I sell any capital gain needs to be taxed. While I'm on about it how about taxing unrealised capital gains on the investment property. Many shares are so let's try and level the investment playing field.
It's not really a solution to expensive housing. In fact, it will just disincentivise people from selling houses. Which means they will remain in the ownership of non-optimal owners. The only solution that ticks every box is to bring back land tax and use it to offset other taxes like income tax and GST.
How does 57% become 'most' people supporting CGT (on investment property) when it is in fact an only narrow majority?. Ipsos presenting the collective responses to their biased questions as indicating 65% general public support for a CGT regime on capital assets, is misleading. Only one category (rental properties) got over 50%, with the others trailing well behind that.
There are three major elephants in the room with capital gains tax:
- They don't actually raise that much revenue, so it wouldn't make a difference to PAYE payers even if it were a direct replacement of revenue.
- They don't lower house prices or increase affordability - Australia, Canada, and America all have CGT, and have affordability issues exceeding NZ.
- Imagine it did work, and all of a sudden house prices drop - well that means there's no more capital gains, so no more CGT - so we're in the same position we're in now with a deficit.
What you're really saying is the CGT taxes in other countries - which are all different btw - are poorly designed. (Mainly because they were designed by politicians.)
Another thing you're saying - but probably don't know it - is that the CGT rates are too low (see OECD, IMF, etc. papers) in almost all countries because rich people have far to much sway over government policy.
Btw, a well designed capital gains tax applies to all types of assets, not just houses.
I have no problem with a CGT as such-many countries have one and I regularly dealt with CGT for clients in the UK. However, It would only be fair if it related to non-inflationary gains-gross gain less inflation over the period in which the asset had been held-and that would significantly reduce the tax raised. It should cover all assets other than the principal dwelling place. There should also be tax-free annual exempt amount-say $10,000 per person.
No CGT will be implemented under this government.
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