Geoff Simmons questions what exactly is the 'family home' the Tax Working Group's tip-toeing around?

Geoff Simmons questions what exactly is the 'family home' the Tax Working Group's tip-toeing around?

By Geoff Simmons*

The Tax Working Group is open for business, and will start taking submissions in two weeks. But is it even worth the bother of submitting when the biggest loophole – the family home – is ruled out of contention? And what is the family home anyway? The family home is sacrosanct as far as politicians go, but from a tax perspective the concept is meaningless.

When Labour first raised their review of the tax system, including the treatment of assets, they explicitly excluded the family home. Most Kiwis seemed to nod in agreement with that concept. We seem to buy into the idea that certain things are a sacred part of the Kiwi dream and therefore shouldn’t be taxed. We don’t want to tax the family home; at least any more than we already do through rates. But taxes aren’t based on ideas of what is sacred (unless you are talking charities, which is a whole other can of worms), they are based on black and white rules. How does the concept of the family home stack up?

Most of us have an idea of what we mean by the family home; most of us lived at one at some stage, although for younger generations that was probably as a child rather than now. But do we all have the same idea of the family home?

The average Kiwi family in Palmerston North for instance, living in their $365,000 house, are no doubt happy to keep that tax free. But are they happy to give the same free ride to the Aucklanders living in posh suburbs where the average price tag is now over $2m? Let’s take it to the extreme, the most expensive “family home” in Auckland is Deyi Shi’s (of Oravida fame) place in Orakei, valued at $46m. Are we happy for that “family home” to sit outside the tax net?

You can see the problems this starts to create. The incentive for Mr Shi would be not to buy his next property in Waitakere or Te Kuiti, but to buy the place next door and put that on the same title, so it is all tax free. It wouldn’t matter what he did with it, he could extend his house, use the existing house as a granny flat or knock it down and put a tennis court or pool or two on it, it is all tax free land banking.

Prime Minister Jacinda Ardern famously promised not to tax the family home, nor the land under the family home. What about the land around the family home? Surely Labour wouldn’t tax a modest section? Alan Gibbs no doubt thinks his sculpture farm fits that category. I can see the arguments on that one lasting for years.

Next up will come the bach. Surely that won’t be taxed. Surely. Isn’t it just an extension of the family home? Nobody owns a bach to make money.

And what about the family farm? If you aren’t going to tax Mr Shi and his $46m home, why would you tax a “family farm” worth less than that? It would be blatantly unfair. Besides, where does the family home end and the farm begin? Do you exempt the bits that you mow rather than get cattle to graze?

Again, think of all the boundary issues this creates. If we exempt the family farm there will be a massive incentive to buy the farm next door and add it to your own. Can the family farm extend across the road? If not, why not another farm a few minutes down the road?

Taxing the family farm would raise the ire of the farming lobby. After all, a large proportion of farms are subsistence lifestyle businesses banking on a tax-free capital gain windfall at the end of it all. Combined with removing foreign buyers from the land market, it could send rural land prices into freefall.

Once family farms get their inevitable exemption, all family and lifestyle businesses will quickly follow suit. Anyone living where they work will be looking for a way to get around paying tax. Countless businesses only exist to ensure their owners have high quality of life along with minimal cost of living and a minimal tax bill to boot. These types of businesses are probably the biggest tax loophole we have at the moment, and will surely find a way to keep wriggling out of paying their fair share of tax.

And finally in the age of blended families, how do you define the ‘family’ in family home? What if I meet a partner who like me already has a house? Do we now have two family homes? What if I have six homes and gift them to my children or grandchildren as their family homes? Would the tax system smile upon this massive leg up I am gifting the next generation?

Very quickly motherhood and apple pie concepts like the “family home” turn into yawning loopholes that make a mockery of our tax system. We have seen this time and again overseas with wealth and asset taxation – loopholes designed to protect the middle class end up being exploited most by the rich who can afford an accountant to find their way around the rules. The only people who end up paying such taxes are Mum and Dad investors who don’t have an accountant, get caught unaware and end up getting stuck with a massive bill.

The final question is why do we favour the family home so much? What about someone who wants to create a business that employs people and actually uses their money productively? What about someone who wants to build up assets and spend their life travelling? Why don’t they get a tax break?

A much fairer resolution would be to ditch the concept of a family home and give each adult a tax-free amount of assets. How much do you want tax-free New Zealand? Half a mill? A mill? Two? Is that enough for your share of the Kiwi dream?

Before you answer that, just bear in mind that 40% of the country owns nothing. Not a sausage. Well, maybe a sausage, but they need to eat that sausage tonight. Yet many of those people are paying more tax in percentage terms than people who are asset rich (with family homes, family farms and family lifestyle businesses), but arrange their affairs to have a low taxable income.

Is that fair? No, it’s not. No tax break is fair. Not if we care about equity and the efficiency of the tax system.

So if you are submitting to the Tax Working Group, if you can be bothered screaming into the void in such a futile manner, I suggest the first line of your submission is this: “Your terms of reference are a sham.”


*Geoff Simmons is an economist and former co-deputy leader of The Opportunities Party.  

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This again (sigh).
Geoff, please be aware that you have not won the argument of the family home being in some loophole. There is no loophole. So you cannot start off the article as if that is fact. The rest of the article is therefore meaningless.
For example:
"Are we happy for that “family home” to sit outside the tax net?"
Answer: It is not outside the tax net. You have based that question on a misunderstanding of the tax system. If the house was rented out, that rent income would be liable for income tax.

Can I please suggest you reread TOPs argument on the preferential tax treatment of capital invested in owner occupied housing vs other forms of investment. I don’t think you have quite got the point they are making.

Actually more like he doesnt want to.

This is the problem Bobster and steven. The article pushes you (successfully in your case) to look at this through the lens of TOP's capital tax proposal.
By putting in place this restriction in their terms of reference, this to me means that they have no interest in any capital tax that applies to a personal residence. And as far as I know, no one has got to the stage of suggesting a capital tax that excludes a family home. Presumably this restriction was to avoid a whole bunch of Big Kahuna type suggestions.

No, my lens is any asset and its profit should be taxed and hence all profits/gains/interest/advantages at an equal rate to each other.

Doing so would probably mean our present tax rate (especially things like PAYE, or GST) would/could actually drop substantially.

Meanwhile many stupid people are perfectly happy to allow the significantly asset rich off most tax, in fact they are happy to pay that tax for the rich.

That is just retarded IMHO.

There are reasons why land specifically should be taxed, and in fact land tax comes with many advantageous economic incentives. I'm not such a fan of taxing improvements because it disincentivises development, although the same could be argued, taxing labour disincentivises working and employment, and taxing GST disincentivises trade and sales.

The only taxes with positive incentives are land tax and pigovian taxes like fuel tax, alcohol tax, sugar tax, carbon tax etc.

Land tax is also very easy and cheap to collect and difficult to avoid. Lets say we dump GST and have a land tax, the effect is? Even if that is cost neutral (say) the cost of having to administer if for businesses and the IRD must be significant.

Fine. You want a capital tax on all assets. And you want all assets to be treated equally.
What I am saying is that this restriction should therefore make you NOT submit that proposal, because they have very clearly told you that they are not interested in any proposal that would tax a family home.
That is the point of the restriction, is it not?
Why let people make submissions that they are never going to listen to?

What Geoff has done is to jump forward, and fool you all into thinking that the Govt is considering some sort of tax that excludes the family home. They haven't even got that far!

All this article is, is Geoff venting because he wants to make a submission for the Big Kahuna.

Incorrect, submitting makes it clear that the Governments artificial limitation makes no economic nor tax sense but its down to purely political. Now this is perfectly fine as long as we are upfront on this.

It's unclear what you are responding to.

Steven here is a question for you;

Two families each rent identical houses in the same street. Family A's landlord has costs and everything well nailed down and rents his property out at $200 per week. Family B's landlord for his own reasons rents his property out at $300 per week. Should family A pay tax on the "gain" they make by not renting from Family B's landlord?

This highlights how seriously flawed your understanding of basic economic and financial principles is.

Really? Steven seems to be advocating the TOP position of taxing capital gain on the family home. this position based on all i have read, is irrelevant how much or any balancing, but solely on the fact that a home owner pays no "rent". So why would it be different for two groups paying different rents for similar houses? Your responses, and implied ridicule seems that the principle is one based on jealousy, and envy rather than anything else?

I was referring to this completely arbitrary comment.

Two families each rent identical houses in the same street. Family A's landlord has costs and everything well nailed down and rents his property out at $200 per week. Family B's landlord for his own reasons rents his property out at $300 per week. Should family A pay tax on the "gain" they make by not renting from Family B's landlord?

Making up arbitrary circumstance just confuses the argument.

Case in point:
Family B's landlord for his own reasons rents his property out at $300 per week.
Compare at the margin, not with arbitrary "reasons". This instantly implies that the two families are either categorically different to one another, or the properties are heterogeneous.

Plus.
If Family A is paying less in rent, this is captured as tax on consumption or savings/investment.. So they are being taxed on that "gain".

Alright, but family B is paying more in rent, so their consumption tax is greater.

Your point is taken, but the underlying assumptions clearly can trip us up.

But the same can be true for the home owner; if they are saving on "rent", then they will still be paying tax on their consumption in other areas, or savings and investments. Capital Gain is only real when it is realised (selling for a profit, borrowing against the gain), until then it actually has no value to anyone. Why should that paper value be taxed, and who decides what the value is?

But the same can be true for the home owner; if they are saving on "rent"
No. That's where you misunderstand the notion.

A simple example:
Both persons need to pay the costs of occupation (assume it is priced at the margin and homogeneous).
Person A buys a house for $100.
Let's assume occupation costs (rent) to be $5 per year.
Person B invests $100 @ 5% return.
Both persons have the same costs, right - $5 per year.
Person B is taxed at 25% for his investment returns, leaving him with $4 per year for 'rent'.
Person B's costs of occupation are effectively $6 :- ($5 + ($5*0.25)). Or, 6% p.a
Whereas the homeowner has costs of $5. Or 5% p.a

It doesn't matter what numbers you use, the person opting to invest in productive enterprise penalised vis-a-vis someone who invests in a property. That is a mathematical fact when there is differential rates of taxation.

So person B is profiting @ 5% while Person A has costs of 5%? And you're advocating taxing A?

I find the assumptions you are making to be flawed - e.g. B invests before having a house (return is arguably irrelevant, it is the choice that matters).

I also suggest that the underlying premise in this argument is that you believe that the ability to make different choices, and therefore accept the consequences of those choices should be actively discouraged. So tax one person who is perceived to be profiting when another is not. This is a tax of envy.

It's a smart tax in some ways. We encourage people to have a mortgagee free home for retirement, then we means test their super with a tax on the value of the home. To make it palatable we take the tax when they cark it. That said, there’s more chance of me voting left than this happening i.e. next to none.

C'mon Murray.
We really try to make this simple for you.
Like a previous poster commented. Perhaps your brand of logic might be better suited to a Women's Weekly forum..

Given him a break, 97.6% of voters at the last election either didn't get or want it.

So that is what you do, when someone challenges your blinkers and you cannot convince them, you resort to ridicule rather than answer the questions?

That is probably why your argument keeps getting rejected.

when someone challenges your blinkers and you cannot convince them
The fact that you cannot be convinced is more of a reflection on your own abilities, than mine.

A dirt farmer can drive for 1000 miles using a GPS navigation system and walk into NASA and precede to tell them that the world is flat.
They try to convince him otherwise with an array of spherical trigonometric proofs.
Hell, they even take him up to 30,000ft and show him the curvature of the earth visually.
Farmer happily leaves continuing to believe the world is flat.

Point of the story is...If the farmer lacks the ability to comprehend the evidence, it doesn't mean that NASA are wrong.

Thinking about your example and what you haven't stated clearly;

"A simple example:
Both persons need to pay the costs of occupation (assume it is priced at the margin and homogeneous).
Person A buys a house for $100.
Let's assume occupation costs (rent) to be $5 per year.
Person B invests $100 @ 5% return.
Both persons have the same costs, right - $5 per year.
Person B is taxed at 25% for his investment returns, leaving him with $4 per year for 'rent'.
Person B's costs of occupation are effectively $6 :- ($5 + ($5*0.25)). Or, 6% p.a
Whereas the homeowner has costs of $5. Or 5% p.a"

Person A has purchased his own home for $100. his occupation cost of that home are $5.
Person B chooses to rent, but invests the cost of a home ($100) at a return of 5% ($5)
He pays tax on that return at the rate of 25%

You state that both have the same costs - $5. You state that both have the same costs ($5 per year). I assume that this is for accommodation.

BUT then you state that B only has four dollars from which to pay his rent from. So initially it reads to me that there is a differential in income;
A spends $100 to buy his house and then faces additional costs of $5. It is assumed he has the income to cover it.
B Invests his $100 but does not have the extra $5 income to pay his rent, and instead has to rely on the return on his investment to pay it. Thus there is a $5 difference in income before any of this starts.

To me this reads that B has made a choice as to how he places his resources. The consequences of those choices are his and his alone.

But lets discuss what you have not written A's income to pay his accommodation costs? Are you implying it is from Capital Gain, and therefore it should be taxed? Why? you do not state that A has borrowed against that capital gain or in any other way realised it. Thus in effect it means nothing to him. Instead owning the house produces a liability of $5.

Putting both on an equal footing; Assume that both have an income of $5 to meet their costs. A uses that to pay his ownership costs, B uses it to rent a property while he takes his $100 and invests it providing a cash return of $5 of which he is taxed at 25% leaving him $4. Thus he generates a income of $4 more than A.

Tell me again why A's home should be taxed?

murray,

Like I said, I tried to make this extremely simple.

Think of it this way....
They are both investing $100.
Who is paying more for accommodation if both have costs of $5?
Is it the home owner, or the alternative investor?
You cannot argue your way out of this. This is a mathematical truth.

I am sorry Nymad, but i don't get it. Maybe I am being obtuse, but your example doesn't place them on an equal footing. There is a clear implicit differential in income. Both have a $100 to spend (note i do not say invest). A chooses to spend it buying a house to live in, B invests it. Both face accommodation costs of $5, A through ownership. B through renting. But B also earns a return on his investment that A does not get. You fail to explain where they meet their costs from in your example which is exactly why i don't buy it. You suggest B must meet his accommodation costs from the return in his investment, but make no statement about how A meets his ownership costs. You imply they begin from an equal position. Does A borrow to meet his costs, have income to cover them or what? If it is borrowing then his debt increases, while B continues to get better off as his $4 after tax accumulates? Because you are failing in your argument, you are resorting to ridicule which is demeaning of yourself.

Okay. Again, very simply.
It doesn't matter what their alternative incomes are - we are only examining the relative return of two investment options.

Person B needs to pay an extra $1 in order to cover his costs. This effectively means he is paying $6 in costs p.a. - he needs to top up any return he receives from his investment to cover accommodation costs.
Person A only needs to pay $5 in costs.
Thus, person A's return on investment is effectively higher than person B's.

Try another angle, A's cost means annually his expenditure of $100 is costing him $5, reducing his initial investment value to a total of $95. He derives no income from it in any way. B on the other hand, his investment doesn't incur a cost, but returns him net $4. as you say he must still provide funds to provide accommodation, but in purely monetary terms he is better off, while A only faces costs. To argue that A is better is using a form of double speak to support a fundamentally flawed premise. To ignore their respective incomes only increases the problems with your argument. If they are equal, then neither have the additional income to cover their costs, but B generates an additional $4 to meet the required $5. While A only faces an increasing debt as he derives no income from his $100, but does incur costs. B remains better off as the short fall is 80% less than A's ($1 v $5)

IMO your argument that the family home should be taxed is about the quality of choices people make. I accept the premise that investment in property is unproductive, but the family home in a purely level world only incurs costs. If my family home has depreciated or appreciated in value, it means nothing to me unless I borrow against the appreciation, or in the event it depreciates I have to sell and cannot meet the mortgage settlement. The other impact is any change in value, assuming i have kept up with the maintenance, will be reflected in the overall local market. So the relative value will not have varied, but if the market as gone up, if i want to move up in property, then the cost will be much greater than if it had stayed static, or less if the values had depreciated.

The other point about a family home that is important to many is that it provides security. So long as you meet all your costs, no landlord can rock and hand you notice to move. That security for many people is very important.

If a tree falls in the forest and no one hears it does it make a sound ?

If family A doesnt know family B, and they are unaware of each others circumstance, are they responsible for each others outgoings ? If Mum Family A and Dad Family B have an extramarital affair producing Family C and have to rent a third house, Should Dad (formerly Family B but now C) pay child support or skip the country leaving fatherless children C and B that the state now supports.

Back to the tree.

..nice try murray 86, but an asset test based on a deemed minimum return would nail this.

TOP has it sorted...which is what scares your lot.

Bobster... I've carefully read TOPs' argument and my view is that it is a nonsense.

I can see why economics is the dismal science... Come up with a kinda "Alice in Wonderland" logic to justify what you want to do ....and call it economics..
A Capital Gains Tax makes sense to me ( an actual, real cashflow $ gain ) but the idea of taxing pretend ( imputed) earnings that never exist in reality , seems like Alice in wonderland stuff to me..
TOP would be more honest if they simply said we are going to tax "perceived " Capital values..... because we want too.. and we think it is fair.

I hate to think what impact this Capital tax would have on Capital intensive business startups.?? These startups would be stung before even earning $1 of cashflow..??

your view that it is nonsense is meaningless unless you explain why.

Answer this. $500k in the bank, i get taxed on interest and paymy rent from tax paid income - no deductions anywhere.

$500k invested in a home, I pay no tax (the income this time is the free rent, not interest which would be taxed). Explain why this is not a tax loophole?

Living in your own home cannot be described as "rent free". The rent is the accumulation of rates, insurance, maintenance and service costs. TOP has a distorted perspective of reality that ignores the fact that ownership also accrues costs. Renters pay these costs plus a profit to their landlord. It is the profit that needs to be taxed. There is no profit from owning a home. Capital gain only becomes a profit when the home is sold, and there is a left over when it is replaced by an similar house, or the change in capital gain is borrowed against. A perceived change is not real, but TOP want to take real money from people based on a perceived value that hasn't been realised in fact.

You are simply not wanting to see?

If the rent on your home is $550 a week (the average I believe) or $2200 a month (roughly) what is the rates cost etc on that? My rates and insurance are roughly $300 a month. What we dont know is what is the cost per month for building maintenance? Services and grass cutting would be paid by a renter or an owner so are really NET zero.

So its simple its quite likely I am seeing $00s a month in untaxed gains.

refer to my question above please Steven - why is the costs of home ownership any different to two people renting similar houses for different amounts? Is this the tax of envy? jealous of people who have gone through the hard yards of owning their own home and thus punishing for it?

jeeeeez murry. You might be better off on the women's weekly chat pages.

murray86...More comment now, think later sort of stuff.

TOP has a distorted perspective of reality that ignores the fact that ownership also accrues costs.
Exactly when have they ever even slightly hinted at this?

TOP's tax policy was the only policy at the last election that would have slowed halted or reversed gains on land and property depending on how hard they taxed assets. The point of the policy was to use tax as a way to even the load. Home ownership is an advantage anyone mortgage free is better off. Pushing prices up is a fools game only banks win. Ownership is shifting to the wealthiest away form the working class kiwis.

I use terms like "nonsense" and "Alice in wonderland" simply because the "perceived" income that you want to tax is imaginary.. ie.. there is NO actual cashflow income.

Rastus,.. with the logic that TOP uses , a stay at home Mum could/should be taxed on her imputed earnings.
https://en.wikipedia.org/wiki/Imputed_income

In my view, the proper taxation use of the concept of imputed earnings, is in helping to determine if someones intention is actually to avoid paying tax , on actual cashflow earnt income.
In reality, the intention of homeonwers in owning their own homes, most likely has nothing to do with tax avoidance.

TOP have created a can of worms with their promotion of this.. A kinda political poison pill.

Keep in mind .. this is my view.. I respect your view, and disagree with it.

Why on earth couldn't TOP have focused on a Capital Gains tax, or a land tax which is based on first principle economic ideas.

eg. A land tax is based on the idea that land ownership is a govt granted licence on what is a "natural resource", and which as a "natural resource" belongs all generations of a nation. It is fair and resonable that a small tax is paid on any govt. granted licence... etc.

Gareth Morgan may be bright but this idea of a land tax is stuff from stories where a pretty girl looses her shoe at midnight and tries to have you believe she was not drunk .

Its the most impractical form of taxation ever , and is more suited to my grand-daughters bedtime story reading than anything we should take seriously .

How many people dont have a mortgage and live at home for 'free"

And how do you tax those who do have a mortgage and the bank owns 90% of the equity (value) of the home or land?

Do you tax the Bank ?

Boatman,
I know basing your comments on anything other than hyperbole is a difficult pursuit for you. But..please. Give it a go.

https://www.victoria.ac.nz/sacl/centres-and-institutes/cagtr/twg/publica...

Boatie, you didn't realise that NZ had a land tax, and it was used precisely to get land into the hands of more average Kiwis and reduce the domination of domestic and foreign land-bankers?

It's one major reason why you have land of your own today.

Those who forget history are damned to repeat it eh. Hence the harking after 19th century policies instead of the 20th century policies that fostered the growth of middle classes and a high rate of home ownership in NZ.

Well that $500k invested in the home could be from Tax Paid Income. I could fill pillow cases with $500k worth of $100 notes, meaning i have $500k invested literally invested in pillows and pay no tax on it.

dah. But if you live in it it aint liable for tax. The 'imputed ' rent is not taxed. But if you had the same value in the bank and rented, the rent is from tax paid income and the interest is taxed. Not that hard to follow the inequality really? Sit down, take a breath and read.

Cool. Get it, but I disagree. Leave it at that then?

If you get it then that's the main thing. But it does demonstrate how home owners have it so much better than non home owners (and why landlords can always pay more). When you also add in working for families which disqualify anyone with cash of $8,100 from receiving it, but exempts all the equity in the home, you see how unfair the sytem is.

If taxing capital is such a panacea, then why have house prices in the likes of Sydney which has a comprehensive capital gains tax gone through the roof in recent years? Simple, it is a supply/demand issue, anyone whom has developed knows how hard it is to get through the red tape. That is the #1 reason why we are having housing issues. Other issues like divorce where families go from 1 to 2 family homes are another leading cause as it soaks up demand; some of these ‘experts’ aren’t capable of deep thought behind the cold stats which only tell half a story.

There's a big difference between taxing capital and taxing capital gains, just to help that "deep thought".

This is a failure of logic, ie you appear to be confusing CGT, a selling tax with land tax, an asset tax.

All profit on assets should be taxed at an annual rate equally.

Now that might make a political party un-electable but the soundness and fairness of the concept is still valid.

@property king ............ its not a panacea for anything , and the only reason the family home is exempt is (a)_ because you will have to allow mortgage repayments as a tax deduction and (b) many of us "over-capitalize" on our homes with improvements so when we actually sell we seldom make a "profit" ( other than in Auckland )

So the house is exempt because anything else would like cause it to become a tax deductable allowance if sold at a loss .

Its simply a minefield for the tax authorities to try and tax your home on sale

The coalition is going about things the wrong way.
Considering taxing housing more that is providing shelter to people that don’t own property is totally flawed!
It will only drive the negatively geared owners out of the business and therefore there will be a shortfall of rentals especially Auckland and developers won’t take the risk of building!
The truth of the matter is that we do t need to increase the tax take at all, what we need to do is reduce our spending!
The welfare payments to the many unemployed and also the retired are a huge drain on the country’s coffers that is not going to be possible in the years ahead.
How about encouraging people to get off their butts and achieve rather than just giving handouts out to generations.
No we can’t do that can we, because it is everyone’s right to do nothing and the taxpayer should pay!

10
up

Ah that's right - forgot how houses magically disappear from the face of the earth when a landlord has to sell it and it might otherwise transition from a rental property into a privately owned family home....could somebody please explain how this magic trick works? I've never seen a property vapourise before...

There's a couple of ways. I've heard while everyone is sleeping, Landlords go around setting fire to properties they no longer want to rent out. I've also heard they dismantle the property piece by piece and sell the bits on Trademe.

TM2 - could you please explain to the readers how you personally are improving the productivity of New Zealands work force? Or do you prefer to abuse the positions or others, while being guilty of the same thing that you're abusing them of?

IO, there would be no productivity from NZ workforce if they had no shelter!
By providing good quality housing at realistic levels the people are able to be productive.
Not abusing anyone at all IO!
Thing is it is extremely possible to,own your own home in NZ and we encourage our tenants to do so.
Thing is that we can always retenant our properties as they are great quality and well maintained.

Aren't the welfare payments going into your pocket in the form of 'rent' - so in reality you're the one living off the government (while doing nothing productive)?

No they aren’t!!!
We haven’t got any beneficiaries at all!
All are working, which is what we like, as the beneficiaries are often problematical.
Only beneficiary we had moved out at the weekend. She was elderly and got behind in her rent over the last few weeks so all of her bond has gone!
Not always beer and skittles being a landlord but sure beats working for wages.
No such thing either as unearned income when it comes to being a property investor.

So you kicked out an old lady because she was no longer giving you all of her pension? You really are the heros of society....

Actually wrong and in fact I'd argue that this wouldactually improve things as a) Some homes are held without occupation ie off the market as a home, empty. Remove the tax breaks and tax free gain and these become available. This could be something in the order of 10,000 houses from guesstimates I've seen

b) Driving the neg geared out of the market is the very idea. With them out of the game (plus foreign ownership, see a) those houses are now available for FHBs (or ladder movers) at a lower price, ie affordable, hence the NET change on available accommodation is ZERO worst case and could easily be positive.

"but from a tax perspective the concept is meaningless."

The same could be said about everything. Maybe we should have a tax on people called "Geoff"?

The tax system wouldn't care. But if it eases my tax burden I am all for it.

If we aren't going to tax the "family home" then let's not tax the "family income" and the "family house bills". By ruling out not taxing wealth we left with taxing income and consumption. Labour claims to be concerned with inequality. If it wants to do something about that then it needs to shift the tax burden away from income and more on to wealth e.g. land.

2no fax ........There is a major problem taxing land , esp productive land , when the landowner has a mortgage on that land .

So you tax the mortgaged owner who may only have 5% or 10% equity in the land , and you tax him on 100% of the value , when 90% of the value is debt and is an asset on a Bank balance sheet .

So what do you do ?

Tax the Bank as the owner of 90% of the land 's value ?

Cant be done without leading to major collapse in our banking system .

I dont know how land taxes would work , but I can see major problems in implementation

Rubbish, Boatman.
How is there a major problem taxing land, esp productive land, when the landowner has a mortgage on that land ?

The choice of him financing the land is his own, and one that must be made respective of the productive potential of the land - this is the whole idea of the tax. So as land value remains anchored to fundamental values.
It doesn't matter if there is any money held against the title, at all.
Nor does it matter if properties decrease in value.

You could argue that current mortgages are essentially a claim on future personal incomes. Except we quite easily tax those. Plus, we don't get any tax rebate when our incomes decrease...do we?

What's not to understand ?

The family home exemption proposed is not for any altruistic reason whatsoever .

The only reason your personal home is going to be tax free is because a Capital Gains Tax has to allow for Capital losses and expenses of a Capital nature .............. on the family home !

So if you sell your family home in a town where the meat works has closed or a place where an earthquake occurred and you sell at a loss................. the system has to allow you to offset the capital losses as a deduction ..

Or , if you put in a swimming pool , tennis court or add on a cottage for Nana after Grandpa dies , it would have to be allowed as a capital expense .

Frankly the taxation of the family home becomes a bloody nighmare to manage , it costs a fortune to collect and leads to endless disputes with the Tax collection authorities

Lets not forget that this tax is being proposed as something that will miraculously " reduce house prices " and solve all other ills such as homelessness and poverty .

I have yet to come across a situation anywhere where a new tax is introduced on something , that it will miraculously make that item cheaper or more affordable.

Its oxymoronic to even suggest that a new tax could make something cheaper .

Anyone who has ever experienced the introduction of this insidious form of taxation will know that it a left-wing envy tax designed to hammer anyone who is careful with money and wants to save for a rainy day or retirement , or ensure they are never dependant on State welfare .

Quite simply , you might as well ban investors from supplying housing stock to the rental market , and leave it 100% up to Housing New Zealand ............. and see how far that gets us .

Many of the things you said are true and that's why I don't think we need a CGT but rather a land tax as proposed by TOP at the last election. Unfortunately, TOP started to get into areas that they didn't need to and the message got diluted. Taxing land is a simpler way of tax capital.

Agree, I'd prefer a land value tax and a drop in income taxes (both personal and company). Encourages more productive use of land, and encourages more productive investment overall.

I like the idea of a tax on an imputed return on equity value as per TOP rather than a flat land tax, but yeah the key to this is that it’s revenue neutral and is balanced by a drop in income tax.

Go Boatie, bravo, commonsense rules the waves!

I don't want to pay more tax to subsidize immigrants overloading our infrastructure that we had already built and paid for.
Stop the population growth and the housing shortage will fix itself quite quickly.
Stop the population growth and we can try and catch up on our infrastructure and services for the enlarged population.
Stop asking me to pay for it! Shut the door now!

Thats exactly what Winston Peters ran for in the last election .

Yeah, and thats why I voted for him.
Trouble is, now he is part of the winning coalition his minority 7% of the vote leaves him without a voice.
The true irony being that whichever party he supported put him in the winning coalition with no voice.
So now those of us who want to stop this uncontrolled population growth don't have a party representing us.
I believe its the end of NZ First and a new opposition party will have to be formed if we want a voice to challenge the two main parties globalist agenders.

While Cullen faces a tricky political balancing act he will , true to his socialist instincts, instruct the committee to implement a capital gains tax of some sort. Asset owners will be forced to pay expensive consultants to find ways round or mitigate the effect of his confiscatory regime. The same tedious conversations that occupy so much productive time across the ditch will become the norm here.

Investment asset allocation to businesses in expansion mode with high capital gain potential will become less popular, in favour of high dividend yield holdings where income can be more readily offset. While Geoff Simmons has a political axe to grind, his prediction of more complexity, more bureaucracy and unfairness of outcome, is accurate.

I've already advised the other half that we may have to divorce and one of us change our address to an expensive 'main residence' at the beach. But we'll need to keep a weather eye out for Cullen squads in dark cars and sun glasses, monitoring our living arrangements.

Extraordinary, socialist instincts to die for, working class hero, cloth cap, die hard opponent of the privileged classes, etc etc etc ad nauseum. But “Sir,” how does that then fit ?

You can take the boy out of Christs college but you can't take all of Christs out of the boy.

Great article Geoff.
I couldn't agree more.

Everyone be it estate agents, so called rich investors, association and all along with foreigners will go all out to stop ban on foreign buyers and tax on speculation.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1200...

Will labour government gets cold feet and will back off

Just makes the agents, investors, association etc. look like a pack of liars, insisting as they were previously that foreign ownership makes no difference.

Independent Observer, no we didn’t kick,her out at all.
She had a partner and they decided to move in with someone else. She had had a difficult life but was a fighter.
She was a couple of weeks behind but then didn’t pay after she told us she was leaving.
We are extremely fair landlords IO!
We are the ones that will be out of pocket on this occasion as we are having to get someone in to clean it as it was not left in the state that we require ,

I am not the best landlord but I wouldn't be kicking any tenants out. Just let her stay and have a heart TM2.

I'll admit I'm not the most clued up with financial matters or taxes etc so my logic may be too simplistic. However I would akin this proposed tax to say taxing all car owners because they are enjoying the benefit of not needing to pay for a taxi or other forms of public transport.

Taxation based on a deemed rate of return sounds good and all but let’s start by applying it to human capital. Ie. create a deemed rate of return based on age and tax individuals based on that fixed rate. It would simplify our tax system sooo much!

Geoff Simmons pushes his argument by trying to over-complicate the meaning of "family home". As for his supposed difficulty with the farm house, he pretends not to understand the concept of "cutilage". This feigned ignorance is just so he can offer us a reheated serving of the TOP policy that no one wanted at the last general election.

So you want the Government to Tax my only home? That I'm still trying to pay off? Will you Tax the bank too if I sell my home and pay off the mortgage? After all I paid the bank massive amounts of interest (which is basically just another tax anyhow) on the loan. So you're taxed my shopping my power my phone bill my petrol my food my income my entire life's work is being taxed! Anytime I spend a penny I'm taxed for it!! Every time I earn a penny im taxed for it! But you seem to suggest why not throw in the whole house as well? & this is all because the National Government brought in immigrant voters & let the majority settle in Auckland which created a housing crisis in Auckland but you want me to pay for it on my $38k salary and 240k house? & I haven't been to Auckland since Xmas 2010? Seriously???