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Opinion: Cathy Odgers picks apart the exemptions in the CGT for collectables, the family home, gambling winnings, family trusts and Maori land

Opinion: Cathy Odgers picks apart the exemptions in the CGT for collectables, the family home, gambling winnings, family trusts and Maori land

By Cathy Odgers*

One of the funniest exemptions in Labour's Capital Gains Tax plan is that under "collectables".

Here's the policy:

Collectables, such as jewellery, antiques, artwork, rare folios or stamp collections and the like will be exempt from the CGT.

A CGT that included collectables would be intrusive, result in high compliance costs, and would not raise significant revenue.

It is important to note that if a person trades regularly in these items they will be subject to tax on the income from their capital gains tax as is already the case at present.

Advice from the Expert Panel will be sought on how to control any avoidance issues that might arise.

ACT supporter Jenny Gibbs lays claim to one of the most expensive collections of art in the country.
Apparently it "would be intrusive, result in high compliance costs and would not raise significant revenue" in applying CGT to any sales or CGT events (undefined precisely as of yet) occurring on her artwork.

I see a boom in valuable works of art from the CGT policy and Mrs Gibbs to celebrate her close shave with Labour's tax policy by investing in a Picasso.

The family home

John Key has already mentioned how silly this exemption is.

"Budget 2010 and Budget 2011 actually made it much more difficult for people to speculate in the property market, removing everything from depreciation right through to beefing up the capability of IRD to clamp down on those who do speculate in the market."

Mr Key said if Labour wanted a capital gains tax they should do it properly and excluding the family home cut out 80 percent of the residential market: "it's not going to work". 

For most New Zealanders the equity in their home is their biggest asset, they live in the home and will be tax exempted from capital gains tax when they sell it and move. The last estimates suggest around 66% of New Zealanders actually own their own home. This would mean we are only talking a possible CGT event for a third of houses.

I know people who have moved house 3 or 4 times in the past decade, pocketing tidy tax free gains of a few hundred thousand dollars a time from doing so. They can keep doing this as long as they are not buying for the intention of resale (a "trader" as Labour calls them here) and it is their primary property therefore worthy of an exemption.

The family home is somehow sacred, yet for example shares in a family business are not?

What may I ask is the difference?

Exempting the family home is purely a political decision designed to appeal to the Labour voting electorate. It encourages people to still pour money into property and profit from moving home if they wish, rather than for example investing in a small business which is then taxable if it doesn't meet the $250,000 exemption.

And in a blatant envy grab, the family bach is not excluded. Because you know, only rich Aucklanders own them.

Gambling OK, just not on the NZX

The following assets will also be exempt from the CGT:

·         Lump sum compensation (e.g. for redundancy, ACC or court awards)

·         Life insurance policy surrendered or sold

·         Winnings or losses from gambling

·         Medals

Here is an interesting one (well two here - I will post on life insurance when I have time). There is an exemption for winnings or losses from gambling. Why?

Surely gambling should be discouraged as a policy decision? Why is it so god damn awful to profit from the sale of your business or property which is then taxed but when take your money and stick it on the roulette wheel the winnings are tax free?

This is from the political party that wants to take GST off fruit and vegetables because it plays nanny state but here it is encouraging gambling as a form of investment in their policy design of CGT.

Why?

Have a look at Sky City every night. Labour could hold branch meetings in there. The gambling demographic are their electorate. It is another political decision.

But I ask what is the difference between placing $1,000 on a roulette wheel, and buying $1,000 in shares when you are Joe Punter and know nothing about the New Zealand stockmarket? Answer - nothing.

A crazy anomaly in the policy design.

The Hotchin exemption

Main residences in Trust

The Expert Panel in cooperation with the Law Commission will explore mechanisms to ensure a family home can be protected from liability without giving up the main residence exemption.

Some people will have their main residence in a trust in order to protect the asset from liability fromthings such as law suits, where the trust has no income and has no existing tax liability, rather than out of a desire to minimise their tax liability.  Our view is that people who wish to protect their main residence from legal liability (and have no other tax implications) should be able to benefit from the family home exemption.

I have completed plenty of prior analysis of the register of interest for MP's and many have family trusts for their primary home.

I am more interested here in the wording of the policy design.

This carve out recognises that trusts can be used "to protect the asset from liability from things such as law suits" but cannot be used for the purposes of "minimise their tax liability". Oh dear. So as long as taxes are not being tampered with the Labour Party has just recognised trusts are legitimate tools for asset protection. Hallelujah, thank you for coming finally.

I wonder how they would feel however about a certain family home being built on Paritai Drive? They may wish to have a looksie at this one again in terms of their anti-avoidance provisions....

Maori Land

By far the most generous of all possible exemptions in the structure of CGT is potentially that for Maori.

Multiply-owned Maori land is "unlikely to be appropriate for CGT coverage". What about multiply owned non-Maori land?

In terms of a CGT event, the definitions are not set as of yet and Labour have copped out not giving us anymore details as to how Maori land is to be covered with respect to CGT. They are throwing that over to the committee to deal with.

Interestingly Tariana Turia appears to have already come out against CGT. In doing so she has redefined the Maori Party definition of "struggle" and "wealthy".

Labour "thinks it's only wealthy people who have accumulated more than one home", she said.

"In actual fact, I know quite a lot of younger people who have become involved in understanding investment and own two or three homes as well.

"Most of these people have struggled to get their first home and then used their first home as collateral."

Turia said she was "ambivalent" about capital gains taxes, which should apply only to people who had "substantial assets". 

Anyone with enough collateral to own three homes surely has to be wealthy by a Maori Party definition prior to this confusion.

"They are people who are trying to build an economic future for their families."

Nice aspirational politics from Turia. Shamefully she very rarely practises what she preaches when it comes time to vote unless it is for her own benefit.

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*Cathy Odgers is a lawyer based in Hong Kong who blogs as Cactus Kate. She is an ACT candidate in the November 26 election. Here's her philosophy on tax.

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22 Comments

Don't know about that correlation, Hugh - as California and Texas, for example have the same level of State/local tax according to that chart.  And Florida and Arizona (where I thought RE prices had skyrocketed, and hence lead the way in foreclosures) have lower State/local taxes than Texas.

As for the highest State/local taxes - they seem to be concentrated in the New England States and Illinois and Wisconsin - where you have concentrations of Wall Street/financial services sector type commercial activity. 

 

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Well....it took less than 24 hours and Labour's CGT pipedream is a dog turd on the footpath of political ambition.

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I am disheartened Hugh to read crap in the Herald today from BH. He seems to have embarked on a mission to put respectable clothing on a pile of socialist drivel. 

"This week Labour touched that rail and received only an invigorating tingle rather than the shock of their lives." BH in the Herald.

Let's remind BH that this shite pack of policies from Labour cannot deliver the funds for many years and then only if the "rich pricks" fail to divert their wealth out of the grasping fingers of a thieving Labour govt. Fat chance of that. BH as far as I know has a vested interest in this very website and no doubt the site has built value. Deduct 15% from the sale price BH...but prepare to see that socialist CGT quickly hiked to 30% once the swine get to control the pig trough.

The truth about CGT is that it screws the life out of any desire to make a go of something. Bugger investing in building something that might create employment and wealth when you know a bunch of thieves in the Beehive will grab what they want when you sell...or indeed decide to grab a % of what they say is the value gain each bloody year. Better to just sit back and take the benefits in exchange for voting in the swine every three years. Stuff the economy.

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We are having a good laugh at your terrified histrionics Wolly!

Before this whole CGT thing came along you were so full of smarm because you were convinced that your investment property rorts would go unchallenged and so would the Nats, but now all of a sudden that's all falling apart for you.

The groundswell of public support for ending the property rorts has taken you by surprise and shaken your faith. The Nats are on the back foot over this as the electorate says "Yes!" to Labour's proposed rort-busting while National feebly tries to dismiss it and fails.

All you're left with is blustering on about bloody socialists and spreading the usual dumb arse FUD. Mind you that's all the Nats have left too! HARHARHARHARHAR!

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He's most likely bought an investment property himself, it seemed whenever there was a comment from him a while back it was complaining about the lack of property tax. Now he's gone full circle, to the biggest detractor of property taxes.

Isn't self interest a wonderful thing, brings into questions someones credibility at being a self appointed expert on what's good and what's not for the economy, when all your comments just relate to your own personal circumstances.

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It is not '15% of the sale price..." that's deducted. It is 15% of any capital gain after a known valuation date, upon sale. If it's increased in value, "BH" or whoever, get 85% of that increase in value only if they sell. What better way to keep investment capital empolyed than to keep it invested ( no CGT if it's ploughed into another group business) and the income derived is the reward, not the CGT. Would Charlies, say, have been sold if 15% CG went to the IRD? Or would the proprietors have continued with their investment and growth plans internally?

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Hugh - lots of good points here in your comment, this article and this thread. However, what has the present government done, effectively, in relation reversing the problems cited? Pretty much SFA, of any real effect, in my view.

So good on Labour for making, more, steps in the right direction. The first step they made that switched my vote from right to left was Labour abandoning the cross party concensus on Monetary Policy. Much else I've seen (or rather not seen) from NACT has only served to confirm my new voting preference in November. 

Labour are adapting, albeit slowly, while NACT are simply clinging to a position that only supports the status quo. It's amazing, because John Key has oddles of political capital to burn. Maybe it's just a question of courage? However, the same cannot now be said of Phil Goff and David Cunliffe, David Parker - well done you guys. Also Bernard, NZMEA's John Walley and PEC's Selwyn Pellet for 'icebreaking' in this important policy area.

 

Cheers, Les.

www.nzmea.org.nz

 

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With all due respect to you Hugh, you are starting to sound like a one trick pony, obsessed with the idea just freeing up more land will solve every problem in the universe.
It might help slightly, but you are vastly overestimating how much it can help, when tax incentives still bend heavily towards property investment.
Also ignoring whether for the country as a whole it is cheaper or not, I think probably not.

I think it will cost the country vastly more, with how much more the country would be paying in fuels, roads, and transport costs if all we every do is keep building the same big sized sections further and further out, especially as fuel prices look to be doing nothing but going into the stratosphere.
.
It's just impractical to expect everyone to keep living in big suburban sections, eventually you have to go higher density and also build up, if you you want to increase populations like we seem to be doing.
Theres' plenty of much richer countries than ours that have much higher density living than we do, and it is probably much more efficient.

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Mate he just wants the land use rules stripped away so that he and his mates can pile in and go slumlord all over everything.

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Cathy, the difference between the non family home and other sources of investment such as  jewelry, antiques, artwork, rare folios or stamp collections and the like, is that the owner of the property can borrow money from the bank and leverage the purchase.

This creates stress on primary home buyers because they are forced to compete against business people who can and do set up trusts and loss attributing qualifying companies and other such  means, these people should be taxed as per CGT on capital profit.

Instead of fighting the idea Cathy you should in-brace it and fix the problems with Labours rough version.

This along with John Key wanting to sell public assets will I think be a game changer for ACT because it divides the two important camps — the haves who want to hold onto their money at all costs and the have-nots who want a fear system and an equal playing ground.

Currently ACT is in the haves playground and why vote for ACT when in-fact by proxy a vote for ACT is a vote for National.

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Cactus has done some stellar work on this.

To her points I add my own, unless someone who has read the policy can correct me:

Own Our Future Seems to be Based on Take My Past -

http://tribelesshispursuitofhappiness.blogspot.com/2011/07/cgt-own-our-…

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So, Kate, is shuffling the deck of Beneficiaries (Trust, not t'other sort) a Deemed Sale?

And, by extension, shuffling them to - why - a buyer-by-any-other-name's choices?

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Money is thrown at welfare beneficiaries and the poor in this country. They get a free house, free money, free health care, a free education, and free infrastructure. (Thank God for GST, that’s all I can say)

But what do they give us, and their country, in return? What should their ‘fair share’ be when they don’t pay any money to better the nation, but take a hell of a lot of it?

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No David B, the real money is thrown at corporate welfare.  $100 billion on ETS subsidies to dirty industries and to farmers for example.  South Canterbury Finance speculators for example.  Untaxed capital gains for example.  Unaffordable personal income tax cuts  for example.  

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Your points are easily rebuttable, but that is beside the point.

You haven't answered my question.

What do welfare beneficiaries and the poor of this country give back to the nation in exchange for their generous welfare?

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Children. For a variety of reasons the birth rate of low income earners is much higher than middle and upper income earners.

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Please rebutt his points DavidB, it should make for an interesting read...

I suspect you're about to tell us only the rich contribute to this country and therefore should get preferential treatment from the governement. Everyone else just bludges right?

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Rent?

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taxpayer subsidy to the landlords via the accomodation supplement?

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Maddalay  - good Q. If you hadn't asked, I'da.

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So given labour wanting to bring in a CGT that no one wants and national saying a vote for us is a vote for asset sates. It would seem that labour really wants asset sales but is pretending otherwise.

Because CGT the way labour envisions it is going to drive people into the National camp.

I can't see the disenfranchised/disillusioned labour voters going the whole hog and voting ACT

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