the position of the Vice Chancellors and others is that we need to shift some of the funding currently provided to students back into funding direct to institutions.
Well, of course. When your Minister of Tertiary Education includes student loans in the overall education budget, that's quite a significant distortion on what's really available to institutions themselves.
If the lie that student loans are tertiary funding were ended, the true, woeful state of investment in tertiary education would become readily apparent.
A CGT will worsen the accommodation crisis and in my view be paid for by tenants.
What is your evidence for this belief?
I thought the evidence on the recent South African implementation was that it had done neither of those things... but I can't find the link right now.
Note that paying off your student loan is one of the best returning investments available today.
Put $1000 in a CD April 1 - earn 5%ish -> 1050, use it to pay off part of your student loan the following March, earn 10% extra govt. loan payoff - $1155 - safe 15.5% return on investment
Available to anyone with a NZ student loan.
The point I am making is that penalites are harsh and as a result tax payers don’t go out of there way to take the risk to be subject to the penalty regime.
Actually, the penalties for a mistake are pretty reasonable. You have to go well out of your way to get into the 150% and 175% penalty charges. IRD even go out of their way to help people deal with tax debt. But you do have to ask, because they're not going to offer.
Your position is pretty much that IRD say these things happen, so people comply. My tax lecturers (one of whom was Craig Elliffe, and all the others are past or current consultants to the IRD) were uniformly cynical about just how much tax actually gets paid voluntarily under our limited capital gains regime, even with IRD trying to enforce the law. And to settle your doubting mind, I studied tax in 2008 so your case about the meaning of "purpose and intent" was very much covered.
So right now you leave me in a predicament: take your word for it, anecdotal and single-data-point that it is, or take the word of tax practitioners who work for the tax collectors. In my position, who would you consider to have the best understanding of how this really works? Hint: I'm not inclined to accept your position.
Your sarcastic "Well it's good to hear”
Yeah I want to apologize for that, actually, it was unnecessarily personal. You might have had good reasons for not opting to avoid saying that your intention was to make a capital gain on the property. You'd need to go into a lot more detail about your exact reasons for how you organized things. Also, I can accept you aren't a cretin with respect to property. In my defense your tone has been entirely dismissive of many people discussing this subject, but your reasoning has mostly been an appeal to your own authority, and pointing out one tiny part of our massive set of tax laws, reading it as though it is such gospel that it's impossible to avoid. But from the IRD's advice on this issue they pretty clearly say:
"If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale.".
"Investors pay income tax on their net rental income but generally not on the eventual sale proceeds of the property. "
Now the terms "investor", "speculator" and "dealer" are labels the IRD applies in conditions they deem fit. They're not the beginning and end of using these words to describe financial dealings. It's quite possible to be labeled an investor by the IRD, and yet to be actually engaging in speculative activity. The whole thing centers around the term "intent", or "firm intent" in this case. This is an extremely hard thing to prove, highly contestable in courts.
Which is why so many (yes, finding out how many would take hours, perhaps days of research. Again, do YOU know the answer?) people don't just voluntarily put their hand up and accept "intention to profit from resale", so they can pay extra tax.
I put it to you that it's not very difficult to buy and hold, but still with the main intention of profiting from the resale - that could just be endlessly deferred, but it's still sitting there as a sack of gold at the end of the ownership, and banks will certainly accept it as basically given, and extend you more credit on the basis of it, which you can certainly use for whatever you want, be it buying televisions or more property.
I don't have any problem with people doing this, I just find the failing to pay tax on the profits part quite unfair. As far as I'm concerned, it shouldn't matter shit what your "intention" was. All that should matter is the outcome - if you profited, you pay tax. Then people can be speculators, investors, or dealers as much as they like, it doesn't matter, they're still going to pay tax. This is the loophole you have been unable to acknowledge has been staring NZ in the face for decades.
It's not the only rort of its kind, either. The other, and much more serious IMHO one is the absence of tax on the family home's capital gain. Again, I think this is unfair and also inflationary.
Oh and carrying on about toilets hasn't done your case any good. It makes you sound a bit nutty. I can accept you're not actually a nut, if you give it a rest.
Glad to see the taxonomy of this conversion moved on to bigger issues, like the sun coming up in the morning, and self combusting toilets.
The other, and much more serious IMHO one is the absence of tax on the family home’s capital gain. Again, I think this is unfair and also inflationary.
I know a couple who bought up houses, lived in them as they did them up, and then flicked them off for a profit. It was a business for them. It may have changed recently, but I seem to remember that at that stage you had to have lived in the house for at least two years to attract no interest from the powers-that-be. However, as this couple had had a succession of two-year-long stays, they were feeling just a little scared that someone at IRD would notice.
The solution to that is to set an arbitrary time limit, say five years, during which the house must be the primary residence, in order to be the "family home". Sell before that and justify the extraordinary circumstances that required it before having the CGT waived: relationship ended, partner died, illness, retrenched, moved to another town, etc, with supporting evidence required.
The "family home" waiver doesn't have to be absolute, and shouldn't be for precisely the reason you identify: it's not impossible to be in the business of property development while still only owning and residing in one house at a time.
I put it to you that it’s not very difficult to buy and hold, but still with the main intention of profiting from the resale – that could just be endlessly deferred, but it’s still sitting there as a sack of gold at the end of the ownership
It's recognised by IRD that there's almost always an underlying expectation of resale, unless you're buying a unit at a retirement village for your own use. At some point the majority of investments are disposed of by the owner, and you buy expecting to sell at some point. It gets very grey about where the purpose and intent of purchase became profit from resale rather than enjoyment (such as an art work) or income (such as a rental property), which is one of the biggest problems with the law as it stands.
it's not impossible to be in the business of property development while still only owning and residing in one house at a time.
I'd be tempted to leave these hardy souls alone for the sake of simplicity. How many can they be, and at the end of the day they live in a house at a time for long-ish periods and can't possibly sway a market. Unlike serial house flippers.
It does seem putting a universal tax on the family home could have some serious implications for some people. Like widows/widowers, people who retire, downsize to the semi-detached, apartment or retirement village, and want to release some cash from land capital to pay the bills. CGT in those situations would seem a bit like death duties, but for the living.
I guess having been in the situation where the value of a first property, ex-state house, rose sufficiently to move up the ladder at just the right time when three children arrived on the seen, makes me think we would have struggled had such a tax been in place. Depending on how significant it was, of course. Mind you, perhaps if there were such taxes, the overall house prices would have stayed lower, allowing greater flexibility in any case.
I’d be tempted to leave these hardy souls alone for the sake of simplicity. How many can they be
How many might there become if the loophole remains? I'm sure someone said about the family trust tax issue before Labour raised the personal rate - "Leave them. How many trusts can there be?"
Give an inch, and people will take it a mile. Buy, reside, flog, move on. If the requirement is simply that you lived in the house for the period of ownership, that gives a lot of inches. There has to be some kind of hard test, otherwise people will take the piss as they do currently.
There has to be some kind of hard test, otherwise people will take the piss as they do currently.
I'll happily trade a class of traders and speculators who own ten-plus houses at a time with one of serial renovators who flick a single one off every couple of years.
Mind you, perhaps if there were such taxes, the overall house prices would have stayed lower, allowing greater flexibility in any case.
Which is pretty much my argument. If the benefit of buying for capital gain is significantly reduced, property turnover rates are reduced which reduces the upward pressure on property prices.
When you're incentivsed by the tax system to sell for the highest possible price because you get to keep it all, of course you're going to seek the greatest possible gain. Which puts pressure on the values of surrounding properties, etc etc ad nauseum.
I’ll happily trade a class of traders and speculators who own ten-plus houses at a time with one of serial renovators who flick a single one off every couple of years.
I'm not willing to give even that much. Property ownership is still a dream for me, even with a top-bracket job, and my position is very definitely "Fuck y'all!"
Nauseam. Sorry, I keep having to say it: it's not the museum of feeling whoozy.
Isn't it 'woozy', though?
(I would go to that museum.)
Isn't it 'woozy', though?
Too right. I think it's a good arrangement: you guys get to correct my English and I your Latin.
(I would go to that museum.)
It's on a plane, you wouldn't like that.
which is one of the biggest problems with the law as it stands.
Yes, it seems totally unnecessary to me. If you profited, you profited. Pay tax!
Profit should certainly include some kind of inflation adjustment. If you purchased a house in 1965 for $10,000, and sold it in 2010 for $1.5 million, that doesn't really mean you made $1.49 million profit. $10,000 in 1965 was worth a hell of a lot more than it is now. I'm pretty sure this is how CGT is usually done, definitely it's how they do it in Oz.
Property ownership is still a dream for me, even with a top-bracket job, and my position is very definitely "Fuck y'all!"
Exactly my position. When it's fucking hard even for someone on my income to afford to buy even a cheap property in a poor suburb, I can only imagine how impossible a dream it is for most of the young/poor end of the population. I had to come up with a $60,000 deposit to buy a $300,000 house, which was below the national average price, let alone the Auckland average. That's not easy money to save, even on a high income.
I have been thinking recently that it might actually be worth just getting out of property altogether. Not because it doesn't have great returns, but rather because the entry to it is too rich even for my blood. Do I really need to owe the fucking bank this much money to live in this dead average house in this poor suburb? Wouldn't I be better renting, with all this capital in something more liquid? But it's a hard sell to my wife, because as far as she's concerned, we're living the dream, it's a much nicer house in a much nicer suburb than what she grew up in.
Then I remember the stupid capital growth I've been getting even during a recession, and realize that this is the trap that so many householders have been drawn into in NZ. So long as we continue to believe en masse that this is awesome, it will continue to give awesome returns. Which will continue to price more and more people out of the market, which will in turn makes us feel even richer. But I'm still living in an average house in a poor suburb, and beholden to the bank on a monthly basis, and subject to the winds of interest rate fortunes when it comes to having any disposable income left. It's not really that awesome. It's a strategy that makes nothing, rewards nothing but patience and privilege, and impoverishes our children. Well, actually I mean other people's children, I'm still going to look after my own, in fact they have considerably more savings than I do. Saving is something that makes no sense at all for me, compared to paying down debt.
death duties, but for the living.
Um. Death duties are for the living. The recently-dead can be taxed no more.
serial renovators who flick a single one off every couple of years.
Who don't pay taxes, mind.
The psychology of it is a little puzzling to me I confess. People say you throw your money away if you give it to a landlord - what, as opposed to a bank? In the end we bought at a time when the balance of our savings, average rents and house prices meant our repayments were on a par with what we would have spent on rent. If they are, buy, if they're not, rent and save. I refuse to think it's actually possible to time the market unless you are loaded.
In the end we bought at a time when the balance of our savings, average rents and house prices meant our repayments were on a par with what we would have spent on rent.
It's true that the bank makes a fine profit out of lending you the money, but getting the mortgage paid off is the aim. X years of paying rent: money gone. X years of paying mortgage: money gone, but you own the house. Yay!
People say you throw your money away if you give it to a landlord – what, as opposed to a bank?
Well, when you give it to the bank you are buying back a little more of an asset that will, very likely, appreciate in value. If you give it to a landlord, you’re helping them buy back a little more of an asset that will, very likely, appreciate in value.
That said, if renting keeps your outgoings lower than they would be with owning, and you’re smart with how you use the difference, you can end up with a large cash surplus that gives you significant flexibility in your accommodation arrangements in later life.
That’s the thing that people don’t quite see. If you rent for less than a mortgage but you consume the difference, then you’re worse-off because you have nothing to show for it. But if you invest the difference wisely you still end up with an asset, albeit with less capital in-flow to the value of the difference between your total mortgage repayment and your rent payment.
X years of paying rent: money gone. X years of paying mortgage: money gone, but you own the house. Yay!
That's only if you don't separate interest payments from the principal. The rent is like an interest payment - it goes to the landlord, or the bank, and stays with them, and you get absolutely nothing in return, except the privilege of occupying a dwelling that you don't own. If you're paying a lot more in interest than you would in rent over a long period of time, then on average you'd be better off renting. With the money you save and what you don't spend in principal repayments, after X years you still buy a house. (This is based on the fact that historically house prices have risen only marginally above inflation. We've just been through a bubble so it's easy to get enthusiastic about capital gains.)