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@booboo said in NZ Politics:
@reprobate quick question though. Do you agree that you shouldn't pay tax on owning the house with a merely theoretical value?
Absolutely, tax should only apply after selling and income received.
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@reprobate said in NZ Politics:
@booboo said in NZ Politics:
@reprobate quick question though. Do you agree that you shouldn't pay tax on owning the house with a merely theoretical value?
Absolutely, tax should only apply after selling and income received.
Oh good - not that I necessarily agree. Was getting all conflated with that nutty Greens policy.
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How do you account for added value to a family home? You pay tax already if it isn't your home.
The insulation, the solar panels, the extra bedroom, the new kitchen? Those increase the value of the house but it isn't profit. You have already paid tax on the income that bought those items and paid GST, and now you get taxed on improving the property again?
Not to mention the improved living standards of the next tenant or home buyer.
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@reprobate said in NZ Politics:
@JC said in NZ Politics:
@reprobate said in NZ Politics:
@JC said in NZ Politics:
@reprobate said in NZ Politics:
@Kirwan firstly you cant ignore assets and just look at someone's cash position to judge their wealth, that would be absurd. If you have the mortgage, you also have the house.
You have an encumbered asset, sure. But your actual asset is only limited to the equity you have in the house, not the whole value of the house. Most people’s equity is made up of the deposit plus the principal component of any repayments they have made. If you have a 25 year mortgage with a 20% deposit you won’t have a majority interest in the house until year 16. People who take mortgages are making a choice to tie up a major part of their future earnings for the sake of security. I’m sure you know that.
You are right that many people don’t have the chance to get on the ladder or afford the repayments, but what’s the alternative? If everybody can’t then nobody can?
Secondly what I'm trying to say is that there is a significant portion of the population who are not rich enough for buying a house to be an option. Being poor excludes them from investment income, and limits them to wage income. To then not tax investment income fairly disadvantages the poor. Income is income. If you sell a house and make money, that's income, tax it like other income.
I'm not in favour of more tax, just fairer.Investment income is taxed. Always. The issue is your definition of what constitutes investment income. A profit made on your sale of your own residence, that you may have improved using your own sweat equity using materials that you paid GST on, that you paid for your out of your after-tax earnings, is not investment income.
I honestly think you are targeting the wrong thing here. What excludes them from investment income is the lack of disposable income in the first place. They’ve got nothing to invest. No amount of taxing the people with disposable income is going to change that. Education and upskilling will do that. Maybe we should be discouraging people from leaving education without qualifications that make them attractive employees.
Yes, the equity is the equity, obviously. But it isn't made up of the deposit and repayments, it is made up of these plus the capital gain. If you borrow 200K to buy a house for 500K which is now valued at 1M, what is your equity?
Your equity is $300k. Your house valuation is meaningless. Your house isn’t worth $1m until someone puts $1m into your hand.
And what does the % share owned by the bank have to do with it? Just because it's a partially owned asset doesn't mean you can disregard it.
That makes no sense. By that argument if person A and person B each have $0, then person B overdraws their account to buy a car she is immediately richer than person A.
Money is only a mechanism for exchange of credit. Saying you have $100k in the bank means the bank has a liability to you for $100k, the other side of which is your asset, a deposit with the bank. You swap the credit asset you have, your money, for a 20% share in a house. Your asset is the 20% share. The bank takes one of its other liabilities and creates an offsetting asset: an 80% share in the same house. Your position hasn’t changed at all, you have an asset worth $100k, no more, no less. Neither has the bank’s. Over time the equity ratio changes as you make payments but so long as you keep the house your position never actually changes. Every dollar in additional equity that you create is funded by you forgoing another asset. You pay off 1000 bucks of principal by swapping some of your money for it, and with it all the alternative things you could have bought with that $1000. It’s a zero sum game
The fact that it is referred to as the ladder indicates the problem. if you can't get on the ladder, you can't climb it. how do you climb it? by making money because it isn't taxed properly.
By convincing someone to buy your property for more than you paid for it. Then using the difference for a bigger deposit on your next property.
because it isn't taxed properly
It is
it is seen as the best/only investment option in nz,
True. But you don’t make the other investment options better by making that one worse.
and by global standards, our investment in, and the >'value' of our housing is crazily high (despite it being >largely of shit quality): >https://www.interest.co.nz/opinion/106983/reminder-how-deep-economys-reliance-property-market-goes-we-ponder-labours-caution
No argument there
This is currently deliberately being exacerbated by low interest rates. No incentive to save, lots of incentive to buy property - the exact opposite of what needs to be encouraged in nz.
Agreed
the upgrade scenario is not the reality for much of the housing market. houses with no upgrades made at all have increased in 'value' by hundreds of thousands of dollars - this is a fact.
Because people are willing to pay that much for them. That’s a function of the market. If you want to discourage people from offering stupid money for shitty houses give them an alternative, increase the housing supply. Maybe the government should be concentrating on removing the barriers to building more houses.
in any case, buying something, improving it and selling it for a profit is very much investment income.
Only if you count the improvement work you did as having no value. And if you do that often so that it is your business you get taxed alright.
when was the last time you bought a car, used it for 10 years without doing anything to it, then sold it for twice the price? only if it's an investment is that the case.
if the government needs $x tax in total, then increasing the tax in one area does very much give the ability to reduce it in another.Sure it does. But the issue is with the word “needs”. The government chooses how to spend the money. It could make choices that allow it to reallocate spending without changing the tax mechanism at all.
I'm sorry but there's a clear fallacy here. Your equity in that situation is not 300K. That's not what the bank sees it as if you want to borrow further. It's 800K.
I’m very well aware of what the bank sees, which is why I told you. It’s $300k. What is a fallacy is that the banks’ willingness to extend you credit is an indication of your asset. It’s not, they don’t care. They’re only interested in the risk. If you want to know how that operates in practice try asking them for a $3.2m mortgage based on the apparent $800k equity you have in this property.
It's paper money for sure, it's not realised and it shouldn't be taxed, but the gain in theoretical value over time counts as equity. Equity is the difference between the value, and the mortgage, both current states, by definition.
Im not arguing with your definition of equity, but I am about when it can be determined. Value is only determined at an actual sale. You’ve said yourself that you wouldn’t tax based on theoretical value, which suggests you know this. Theoretical valuations may be sufficient to give a bank comfort that the risk is mitigated but that is only due diligence, it’s not a guarantee of the actual value of the house.
It is this increase in equity that is the differf ence between person A and person B in your example - it's not immediate, and I have never said that it is.
My example is, say person A buys that house - to do that they need to have 300K. Person B who doesn't have 300K can't buy the house. 10 years later, person A sells the house and has made 500K, untaxed. Person B has earned wages, and been taxed. At the start person A was 300K richer than person B, at the end 800K richer. Why are they richer? Because they were richer to start with. That extra income should be taxed, because if it is not then you are offering an advantageous tax ride to the person who was richer to start with, which is the exact opposite of what a tax system should be delivering.So really your problem is with the $300k person A started with. You can’t make that right by penalising them for the life person B could have had. Person A also earned wages. They paid off a mortgage using after tax income. After 10 years of that they had something that person C independently assessed as being worth $800k and gave them that much money. And taxing person A won’t make one damned bit of difference to person B’s position. It’s just spite.
It's just completely false to say that all additional equity is created by an owner putting more money in. Some of it is, but looking at the housing market in NZ in the last decade, it's pretty clear that a shitload of it is not.
Oh come on. I never said “all”. And if you read again what I said, it was about the asset, which is what would be taxable, being limited to the equity rather than the whole value of the house.
This is the part where you 'convince someone to pay more for it' thus making a profit, which should be taxed.
OK, that’s an opinion. But for most people it’s not profit, it’s inflation, and they are just recycling it into an inflated market.
You absolutely do make other investment options relatively more attractive by making the one massively over-subscribed one less attractive. So given that you agree that NZ is too far down this path, and that the incentive is in the wrong direction, it makes sense to address this.
Yes the government chooses how to spend money, they also choose how to collect it. They should look at both, particularly when NZ is out of step with most of the developed world and has a clear and acknowledged problem in this area.Agreed on the need to increase housing supply, and addressing the cost of building in NZ would be a big help on this front.
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@JC said in NZ Politics:
and they are just recycling it into an inflated market.
Yep, and if you want to own another house that is where the "profit" goes. It is never actually realised in terms of income or cash. You never see it - it is just absorbed into another asset because you need somewhere to live. So you can rent off an investor who is paying tax, or reinvest the capital and it is capital, not profit, so shouldn't be subject to tax. I like @JC saying that it is inflation, because that is in effect what it is. Things generally go up in price over time. Simple as that.
Housing fluctuates too. So do you get a refund on CGT housing if you sell at a loss? Bought a $1m place spent $200k on it and sell for $800k? What happens there?
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@Snowy said in NZ Politics:
@JC said in NZ Politics:
and they are just recycling it into an inflated market.
Yep, and if you want to own another house that is where the "profit" goes. It is never actually realised in terms of income or cash. You never see it - it is just absorbed into another asset because you need somewhere to live. So you can rent off an investor who is paying tax, or reinvest the capital and it is capital, not profit, so shouldn't be subject to tax. I like @JC saying that it is inflation, because that is in effect what it is. Things generally go up in price over time. Simple as that.
Housing fluctuates too. So do you get a refund on CGT housing if you sell at a loss? Bought a $1m place spent $200k on it and sell for $800k? What happens there?
Yes, of course you do get tax credit in that situation, that's exactly what happens in capital gains tax.
It's inflated sure, but it's a far cry from what most would consider inflation. It is out of all proportion to the increases in wages or anything else - that is the whole problem, and the reason why something needs to be done to fix it. -
@JC
You don't tax on theoretical value, but you do calculate equity on that basis. The former is the opinion of just about everybody bar some of the Greens, the latter is fact rather than opinion.
As for ascribing me the position of having a problem with someone having money, that's just crap. It's not spiteful to tax all of someone's income, it's just wanting it to be fair. Why should someone who starts out more wealthy have access to a more advantageous tax system? That's crazy. It's the very epitome of the rich getting richer.
In my example, person A does not necessarily even have to pay any principal (until the sale) on the house, but they still get richer and don't get taxed on that part of their income, whereas person B is taxed on all of theirs over the same period. It is not fair that some of someone's income should be tax-free simply because they were able to afford a house. And as I said previously, it is quite possible for a government to increase its tax take on CGT and reduce their tax take elsewhere - so it is not true to say that fixing the tax system doesn't help person B - it absolutely should.
I get that you are, as a property owner, opposed to capital gains tax and you think that the government would just take the extra money, increase the total tax taken, and waste it. Maybe they would, I certainly don't have a lot of faith in their decision-making, which has made the housing situation worse. But I am talking about what makes sense from a taxation perspective, what is fair and does not disadvantage the poor, and can help to address the ridiculous situation that NZ finds itself in re housing. CGT is common worldwide, it makes sense and increasing that tax take could provide lower income tax elsewhere for example, which would stimulate the right areas of the economy. -
Further to the inflation argument - it's quite possible to deduct inflation from a capital gain, not that I think you should. Essentially that would be special treatment unless you are doing the same for anyone's savings in the bank etc etc, and special advantages for buying and selling property in nz is exactly the opposite of what we need.
Tax can be a lever to change things in a desired direction. If you were to implement proper CGT, then provide exceptions / tax breaks for anyone building new for example, you would have a decent incentive to create new housing supply, take heat out of the existing housing market, and improve the quality of housing in nz. Do that and address the cost of building materials and it would be a major positive step for the country as a whole. -
@reprobate said in NZ Politics:
Do that and address the cost of building materials and it would be a major positive step for the country as a whole.
Australia has a CGT and massive house price headaches. CGT are important, but I don't think a major contributor to prices. Fundamentally, buyers want to pay as little and possible, and it's the supply/demand imbalance that causes this.
Secondly, the building materials/cost of building is what attracts all the attention, but frankly isn't a huge contributor to the cost of housing. It's all about the land, and having land with services that can be built on. That's where the expense and barrier lies. Seriously, check these guys out: https://www.builtsmart.co.nz/ based in Huntly, and building around $2k/m2. And yet a 2 bed unit in Auckland (Ellerslie) goes for nearly 800k ... why is that? It's the constriction of supply for a few decades with the RMA, and the stimulation of demand with inflow into Auckland.
The housing market in Auckland in particular, and NZ in general is a national disgrace. We have not had anyone taking it seriously, and this Government just found out how hard it is to actually densify or build at any scale. If you aren't doing greenfields, you're rebuilding infrastructure in a massive (and costly way) to enable house building to take place. And, if you don't do the infrastructure, you literally can't build any additional housing at all.
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@reprobate said in NZ Politics:
@JC
You don't tax on theoretical value, but you do calculate equity on that basis. The former is the opinion of just about everybody bar some of the Greens, the latter is fact rather than opinion.
As for ascribing me the position of having a problem with someone having money, that's just crap. It's not spiteful to tax all of someone's income, it's just wanting it to be fair. Why should someone who starts out more wealthy have access to a more advantageous tax system? That's crazy. It's the very epitome of the rich getting richer.
In my example, person A does not necessarily even have to pay any principal (until the sale) on the house, but they still get richer and don't get taxed on that part of their income, whereas person B is taxed on all of theirs over the same period. It is not fair that some of someone's income should be tax-free simply because they were able to afford a house. And as I said previously, it is quite possible for a government to increase its tax take on CGT and reduce their tax take elsewhere - so it is not true to say that fixing the tax system doesn't help person B - it absolutely should.
I get that you are, as a property owner, opposed to capital gains tax and you think that the government would just take the extra money, increase the total tax taken, and waste it. Maybe they would, I certainly don't have a lot of faith in their decision-making, which has made the housing situation worse. But I am talking about what makes sense from a taxation perspective, what is fair and does not disadvantage the poor, and can help to address the ridiculous situation that NZ finds itself in re housing. CGT is common worldwide, it makes sense and increasing that tax take could provide lower income tax elsewhere for example, which would stimulate the right areas of the economy.Well clearly you know a lot more about this than me. That economics degree and the 30 years in banking were clearly wasted.
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@JC said in NZ Politics:
@reprobate said in NZ Politics:
@JC
You don't tax on theoretical value, but you do calculate equity on that basis. The former is the opinion of just about everybody bar some of the Greens, the latter is fact rather than opinion.
As for ascribing me the position of having a problem with someone having money, that's just crap. It's not spiteful to tax all of someone's income, it's just wanting it to be fair. Why should someone who starts out more wealthy have access to a more advantageous tax system? That's crazy. It's the very epitome of the rich getting richer.
In my example, person A does not necessarily even have to pay any principal (until the sale) on the house, but they still get richer and don't get taxed on that part of their income, whereas person B is taxed on all of theirs over the same period. It is not fair that some of someone's income should be tax-free simply because they were able to afford a house. And as I said previously, it is quite possible for a government to increase its tax take on CGT and reduce their tax take elsewhere - so it is not true to say that fixing the tax system doesn't help person B - it absolutely should.
I get that you are, as a property owner, opposed to capital gains tax and you think that the government would just take the extra money, increase the total tax taken, and waste it. Maybe they would, I certainly don't have a lot of faith in their decision-making, which has made the housing situation worse. But I am talking about what makes sense from a taxation perspective, what is fair and does not disadvantage the poor, and can help to address the ridiculous situation that NZ finds itself in re housing. CGT is common worldwide, it makes sense and increasing that tax take could provide lower income tax elsewhere for example, which would stimulate the right areas of the economy.Well clearly you know a lot more about this than me. That economics degree and the 30 years in banking were clearly wasted.
Yeah, well, it was a nice place to eat your lunch, all the same
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@reprobate said in NZ Politics:
Yes, of course you do get tax credit in that situation, that's exactly what happens in capital gains tax.
Whose CGT? The fictional one that we don't have?
Whose model are you using to come up with these assumptions?
Aus also have a 12 month rule would we have that?What about stamp duty so that you effectively pay tax when you buy a property. Should we have that too, and make it even harder for young people to get on the ladder?
Aside from the economics there is also the psychological side of owning your own home and raising a family there. Doing improvements, etc, on something that you own. It is ingrained in a lot of Kiwi's and making it less attractive as an option, is political suicide. Labour realised that and bailed out.
Most homeowners in NZ start with a fairly modest house, do it up a bit, build some equity and move on to something bigger/ better. You remove, say 1/3rd of that equity in tax, they can't move. That 7.4 years that most people own for becomes over 10 years. Maybe the extra child can't be afforded. It has a large affect on quality of life. It is the family home not an investment for profit. That has always been a distinction here.
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@voodoo said in NZ Politics:
Just to be clear, Australia does not have CGT on the family home, just investment properties.
... and I recall the proposed CGT from 2017 in NZ would exempt the family home as well. They almost alwyas do, as it's political suicide to have tax on the family home.
That that distortion becomes a major headache - people move into their investment/home for 6 months to bypass the tax, as it's worth it.
Also @reprobate the allowance for inflation is non-trivial, and the challenge of 'fair pricing' for assets is really hard too. How much fo a discount can you sell it for to family members? What happens if it is owned by a trust or company? From what I see, it rapidly becomes a massive complex nightmare that often doesn't raise as much money as folk want.
In the UK they had stamp duty on house sales - kind of a CGT in another name. Low rated, but applied to every property transaction.Just looked it up (https://www.gov.uk/stamp-duty-land-tax/residential-property-rates#:~:text=You usually pay Stamp Duty,when you bought the property) - free up to GBP500k, then 5-12% above that!
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@voodoo said in NZ Politics:
Just to be clear, Australia does not have CGT on the family home, just investment properties.
Sorry, I wasn't very clear there when I mentioned Aus.
We have already have covered the NZ tax regime and investment properties are taxed, like Aus. We just don't call it CGT. It is investment profit and taxable.The family home is exempt for good reasons.
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@nzzp said in NZ Politics:
That that distortion becomes a major headache - people move into their investment/home for 6 months to bypass the tax, as it's worth it.
That is still taxable in NZ. "Intent". Wording of our tax laws are quite clever. You can't have two family homes. My accountant would never let me get away with that sort of thing. There is tax avoidance and tax evasion. One is legal one is not. Brightline also clarifies things.
Aus actually have a 6 month restriction where you can own 2 homes -whilst you "move" after that, which ever one gets sold is taxable, the other is your family home.
The rules are already there on both sides of the ditch and people who try to flout them end up like Al Capone.
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@Snowy said in NZ Politics:
@nzzp said in NZ Politics:
That that distortion becomes a major headache - people move into their investment/home for 6 months to bypass the tax, as it's worth it.
That is still taxable in NZ. "Intent". Wording of our tax laws are quite clever. You can't have two family homes. My accountant would never let me get away with that sort of thing. There is tax avoidance and tax evasion. One is legal one is not. Brightline also clarifies things.
Aus actually have a 6 month restriction where you can own 2 homes -whilst you "move" after that, which ever one gets sold is taxable, the other is your family home.
The rules are already there on both sides of the ditch and people who try to flout them end up like Al Capone.
Shit don't tell the ATO. We had an overlap of 9 months...
... mind you they probably owe us money given the inflation/expenditure/"increased" value argument...
Bought at the top of the market and sold in the doldrums ...
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@booboo said in NZ Politics:
inflation/expenditure/"increased" value argument...
That is why some of us don't like CGT. It's complex even for rentals, but family homes become even more messy. The winners are accountants not homeowners.
@booboo said in NZ Politics:
Shit don't tell the ATO. We had an overlap of 9 months...
They are renowned for their compassion and understanding. Should be fine...
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