Capital gains tax: What we don’t yet know

What we don’t yet know is exactly how this tax is to be implemented. Michael Cullen will squeeze every cent out of it that he can and the results will be very damaging for those that already pay the most tax..

Since it published its interim report, [the TWG] it has decided people should be taxed on assets they already owned, but only on the gains that they make after April 2021 – the so-called “valuation day” approach. 

That means if people bought shares in a company or an investment property in 2015 and then sold them in 2025, they would pay tax on any increase in value from April 1, 2021.

This is fine for shares in listed companies but not so fine for a property, unless you are happy to go with the CV that applies at the time, and it’s completely impossible for businesses. Michael Cullen can play this down all he likes, but there will be some serious inequities if all businesses are not valued on or around ‘valuation day’.Michael Cullen might be prepared to accept a reasonable estimate, but the IRD will not..

CGT is a good incentive for people to hang on to houses and shares. As this tax is being signalled a long way out, people will take the opportunity to structure their portfolios so that sales will not be made for some years after the introduction of the tax..

A policy choice on which the TWG appears to have made progress is over “rollover relief”.

Rollover relief let investors defer paying tax on capital gains when they reinvest profits.

Cullen says the TWG will recommend such relief be “narrow”, though rollover relief would apply on death – so, for example, an investment property could be

passed on to a family member without triggering a tax bill on inheritance.

But sell the property, as most people do in that situation, and the tax must be paid. This merely postpones the tax collection date. quote.

In theory capital losses should not be ring-fenced – so if investors make a loss they should be able to offset that against a capital gain on which they would otherwise pay tax.

But the more Inland Revenue allowed rollover relief, the more it would need to ring-fence capital losses to “protect the integrity of the system”.

Taxpayers will pay CGT at their marginal rates. Think about this though. Let’s say you are a superannuitant with a rental property, but no other significant income. You sell the property and make a profit of $100,000. Your normal marginal tax rate would be 17.5%, but because the capital gain has increased your income for that year, you will be paying tax at the top rate of 33%. Not only that, but IRD may even assess you as being liable for provisional tax too. That depends on the remit to IRD, but the TWG is not concerned with such piffling details.

All sounds extremely fair and equitable, don’t you think?

I’ve just recently spent a huge amount of money having my building painted.

I was gutted to find that a few weeks later some little Cretin thought it appropriate to tag the building.

Once again I find it disappointing as that certain elements within our community spoil it for others, it’s really a shame because we have such a great suburb to living in the council has given us good amenities and all the shops are full unlike other areas of Lower Hutt

I could be bitter and twisted about this, so many times in the past I’ve found that people who have done me wrong, received their just deserves in the end, I suspect this culprit will receive their justice in the end .

HAVE WE GOT YOU THINKING?

Give us a call on (04) 563 6965 or email: dennis@taxman.co.nz or shawn@taxman.co.nz

Keep an eye out for February’s article!

TAX DATES TO REMEMBER

• 20th February. 2019 - monthly employers PAYE payment…
• 15th February. 2019 - Bi monthly GST Return for Dec/Jan 2019…