Capital Gains Tax: 2014’s Political Football by Craig Savage CA
John Key has announced the election will be held on September 20. Between now and then many policies will come and go, statements will be made, fingers wagged, and babies kissed.
The introduction of a Capital Gains Tax (CGT) is something we will undoubtedly hear a fair bit about. Both Labour and the Greens have the introduction of CGT as a main plank in their policy platforms. Their reasoning includes things like making the tax system ‘fairer’, responding to speculation in the housing market , thereby making housing more affordable for young buyers.
The Greens in particular make the argument that a CGT ‘sends a signal to investors to place their capital somewhere other than housing’. Of course, a proper capital gains tax is not just on housing, but includes shares, bonds, artwork – anything really, so while it would have an impact on housing investors, they are not necessarily going to move into shares as the same tax will be applied there. Tax is often less of a motivating factor than other things such as risk profile, market understanding and personal comfort.
It would end the current system where investors can claim to ‘intend’ to make rental returns (in some cases where they make losses year after year) and then pocket the ‘incidental’ capital gain tax free.
A few years back I worked in Australia which has had a CGT system since the 1980’s. One thing I really noticed was the large amount of paperwork, record-keeping and compliance costs involved. Any CGT is going to be complicated – with exemptions, loopholes and provisions for all sorts of situations. While it is not certain how much extra tax a CGT would raise, there is no doubt that accountants and lawyers will be much busier as a result!
The introduction of a Capital Gains Tax (CGT) is something we will undoubtedly hear a fair bit about. Both Labour and the Greens have the introduction of CGT as a main plank in their policy platforms. Their reasoning includes things like making the tax system ‘fairer’, responding to speculation in the housing market , thereby making housing more affordable for young buyers.
The Greens in particular make the argument that a CGT ‘sends a signal to investors to place their capital somewhere other than housing’. Of course, a proper capital gains tax is not just on housing, but includes shares, bonds, artwork – anything really, so while it would have an impact on housing investors, they are not necessarily going to move into shares as the same tax will be applied there. Tax is often less of a motivating factor than other things such as risk profile, market understanding and personal comfort.
It would end the current system where investors can claim to ‘intend’ to make rental returns (in some cases where they make losses year after year) and then pocket the ‘incidental’ capital gain tax free.
A few years back I worked in Australia which has had a CGT system since the 1980’s. One thing I really noticed was the large amount of paperwork, record-keeping and compliance costs involved. Any CGT is going to be complicated – with exemptions, loopholes and provisions for all sorts of situations. While it is not certain how much extra tax a CGT would raise, there is no doubt that accountants and lawyers will be much busier as a result!
