Terry Baucher shows how the IRD will soon adopt a strategy to expand the taxation of capital gains without drawing too much attention

Terry Baucher shows how the IRD will soon adopt a strategy to expand the taxation of capital gains without drawing too much attention
Expect more intense enforcement of existing capital gains taxation provisions, says Terry Baucher. Image sourced from Shutterstock.com

By Terry Baucher*

“This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”  Winston Churchill, November 1942

The Election is over and those parties actively proposing a capital gains tax (CGT) have lost, badly.

So does that mean the debate about CGT is over?

No, for two reasons.

Firstly, the issues about equity in the tax treatment of all asset classes and for those who are either locked out or struggling to get into the housing market won’t go away until, and unless, housing affordability improves.   

Secondly, the debate about the merits of a CGT has shifted quite markedly in the past three years from “Why?” to “Perhaps”.

One of the more striking illustrations of this shift was the 54% of the CEOs surveyed for the New Zealand Herald’s Mood of the Boardroom survey who saw merit in a CGT. 

There was a lively debate on CGT following my last column and my thanks to all the participants.

Looking at the comments most supporters of a CGT back it on grounds of fairness and intergenerational equity. 

Opponents countered with concerns about complexity, particularly around any exemptions, whether in fact a CGT could meet the objective of putting a brake on rising house prices, or that the existing rules are sufficient. 

Complexity is a fact of life in tax, and as I noted last time, the foreign investment fund and financial arrangements regimes are hardly simple.

Ironically, complexity often creeps into tax systems as a by-product of fairness.

Overall, complexity should not be seen as a king-hit against CGT. 

With regard to the objective of CGT I share the doubts of those who are sceptical about the ability of CGT alone to slow down rising house prices. CGT should be seen as part of the available tools to tackle house price inflation, not a magic bullet in itself. Many of the countries who have also experienced rapid house price inflation already have a CGT which does suggest it’s no magic bullet.

The third group of opponents argue the existing tax rules are sufficient and what is really needed is better enforcement.

Critically, this is the view of John Key, Bill English and the re-appointed Minister of Revenue, Todd McClay.

We can therefore expect the IRD to follow their lead. Enthusiastically.

Practically speaking how will the IRD achieve greater enforcement?

I believe there will be three mutually reinforcing strands to its approach. Over time the collective effect will see a broadening of the scope of capital taxation.

First, and most obviously, there will be greater investigative work by the IRD’s auditors, particularly those in the Property Compliance Programme (PCP).

The PCP merits a separate column in itself but briefly, since its creation in 2007 it has generated a return of $6 for every dollar invested.  In the year to 30 June 2014 investigations by the PCP resulted in additional tax of over $53 million, $26 million of which stemmed from property sales deemed not to be capital in nature. I expect to see more resources given to the PCP with the aim of building on the work already done.

Secondly, and stemming from this greater audit focus, expect the IRD to start considering in detail a person’s rationale for investing. For example, could the purchase of a low-yielding and heavily leveraged rental property be interpreted as meaning the property was acquired with a purpose or intent of re-sale?  Does the investment make sense without a capital gain?

Lest this sounds fanciful, the general view amongst tax advisors is that gains arising from the sale of gold or other precious metals are almost certainly taxable. This is on the basis that only by sale can any investment return be realised. Accordingly, the intention to sell must have existed at the time of purchase. 

As part of the same trend the IRD will issue public “clarifications” or reinterpretation of existing rules.

These clarifications will just happen to have the effect of increasing the incidence of taxation.

A good example of this approach would be the Interpretation Statement on Tax Residency issued earlier this year. The draft Interpretation Statement issued in December 2012 caused a huge stir amongst tax advisers with what was seen as a dramatic broadening of the definition of a “permanent place of abode”.  The finalised Interpretation Statement somewhat dialled back this widening, but there is no doubt that the scope of residency has been widened. 

Finally, “technical” amendments which eliminate “anomalous” exemptions in the tax system. The new rules taxing foreign superannuation schemes are one (particularly egregious) example. Another recent example is 2013 legislation which changed the tax treatment of lease inducement and lease surrender payments. According to the IRD this was because the capital-revenue boundary, “became problematic in the context of certain land-related lease payments.”  (That’s IRD-speak for “We don’t like it”).

The combination of these three strands of more audit activity, clarification and reinterpretation and amending legislation has proved very effective over the past few years and should continue to do so. 

Basil Liddell-Hart the British military historian and Winston Churchill confidante, was a champion of the theory of the indirect approach.

Expect to see the Government and IRD adopt a similar strategy over the next few years as they look to expand the taxation of capital gains without drawing too much attention to their actions. 

---------------------------------------------------

*Terry Baucher is an Auckland-based tax specialist and head of Baucher Consulting. You can contact him here » 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

55 Comments

Comment Filter

Highlight new comments in the last hr(s).

You cannot dismiss the complexity argument by stating "other parts of tax are complex".
Capital gains tax is far more complex than the FIF or FA rules. The big tax consultancy firms in Australia have teams of people dedicated to deciphering capital gains tax laws.
Why should the burden of complexity fall on everyday taxpayers, simply to improve the perception of fairness?

It's only complex because it hasn't been defined yet. 
 
As soon as we define for example that properties never rented out are homes/batches and that those that are rented are subject to capital gains the complexity dramatically reduces.

Given Terry is a tax consultant, his vested interest is in a complex tax system is it not?  If the tax system was simple, we wouldn't need tax consultants.

a) The so called tax payers you mention are not paying tax, hence now will.
b) Laws are often complx in any undertaking, get with it.
c) It will improve tax take, there is no "perception" at all its actual.
d) It removes the biased nature we have in our tax laws
e) Burden, actually its actual tax payers like PAYErs paying more than their fair share of tax while others free load.
So really those paying little or no tax seem to be the ones doing the most whinning about it.
regards

a) Complexity also falls to those who don't pay tax. The burden of proof is on the taxpayer to prove they don't have a capital gain. Every small business will have to consider every major transaction to determine whether they have a capital gain ( = fees for accountants) to prove they don't have a gain hidden somewhere
b) Laws are complex - but capital gains tax is more complicated than most.
c) Property investors are the only major group who benefit from untaxed capital gains. They still won't pay tax on unrealised gains - in fact investors could go decades without paying tax, hoping that a future government will repeal (unlikely) or reform (almost certain) CGT.
d) Bias towards property against share investment? We should be encouraging productive share investment, yet both will be subject to new capital gains tax. Levying a tax to both investmetns doesn't help bias.
e) Tax burden definitely on PAYE taxpayers - $23bn. But even with Labour's wild CGT projections, it hardly raises much revenue ($1bn on $70bn total tax revenue is a drop in the bucket - excise duty raises almost $2bn!).
f) I don't own any property. I just know people are underestimating the complexity of a CGT

There's only really a burden if you are trying to prove you are not due tax. 

other way around - it's a burden when you don't owe tax and have to defend yourself against the government and IRD and all their resources.

Tax all property at lower rate 15%, will make investors like me think twice i guess

Advancment in algorithms to auto search reigsters should make it very easy to locate:
 
1. Properties bought and then sold within a certain time frame e.g within 5 years.
2. Any rental data associated with that property, tax returns associated with that property; Was it making large losses from the get go that continued until sold, and was it sold at a profit?
If answer is yet to both, then balance of probabilities points to the orginal purchase being made with an eye toward capital appreciation, which I believe is all the IRD need to prove to ask for tax to be paid on any profit arising from the sale. An accountant will give a better answer than this, but seems pretty straight forward to me.

Plus a check to see if there was an "interest only mortgage"?

I agree with Simon,

IRD need to advise what the "key indicators" are around any potential CGT Taxes are and what Asset Classes they will relate to.
You will then have Investors who will work around these indicators wether they "bow out" of investing in that class, take into consideration the tax rate they will be hit with when they "sell out or continue to invest" or if they ride out these indicators i.e. switch to interest and principle/wait 7 years instead of 5 etc etc to get around the CGT risk.
CGT exists in Australia and it doesnt stop property values jumping out of control in some states so the IRD/Government really need to define what the purpose of the CGT Tax is (rather than the political scraps during election time) that it creates.
If investors are buying property with long term rental income in mind, they are not going to be phased by a CGT because at the end of the day, if you build equity through your investment you can always borrow against that growth to reinvest in property etc.
Everyday investors should not be penalised because of their past investing habits when the laws allowed it. (No I'm not a property trader and while I own multiple investments have never sold any and do not have the intention of doing so in the future).
Also, another matter that I thought I would raise but perhaps could be used in a seperate thread - I understand that the IRD have "widened the net" around Expats working overseas, particularly in Tax Free countries like the Mid East where you are deemed to have a NZ Link - i.e. bank accounts, or a family home/investment you may have inherited on the death of a parent. Personally, if you're going to be overeas for 20 years working and not contributing to the costs of running NZ I dont believe they should be looking to tax you when you come back at the highest rate for that time spent (just because you chose to retire back in NZ). Expats who are working there don't particularly enjoy it and really only do it for the quick wealth accumilation and miss out on things like a quality kiwi life, family and friends. I think a lower level "re-entry Tax" could be appropriate as their main concern is apparently burdening the NZ Social Welfare System which to be honest if you have worked overseas for so long you probably won't have issues paying medical bills and going for private medical. (And no this is not my situation either)
I'm really interested in other hearing other peoples opinions on the above matters.
Thanks,
Sam

Doesn't really matter whattheir "Key indicators" are.  Once they get a foot in the door they change it to suit themselves

There is no need to do any of this.  If you want to tax property investors, then simply remove and reduce the deducability of mortgage interest for rental property.
 
One simple change.  No 'algorithms', 'auto search registers' or any such thing needed. It wouldn't require the addition of somuch as a single new tax collector either.

that would be unethical.
are you going to charge tax on other forms of interest? or reduce the claimability of business or share owners?

Uneithical?  What on earth are you talking about?  You can tax whatever you wish to achieve the outcomes you want.  FIF taxation only applies to internation shares outside a selected list of Australian listed ones, is that 'unethical'?  Hell, the FIF is a capital tax, where else in NZ taxtation is there a capital tax?  How do you think NZ'ers would react to a capital tax on savings, or property?
 
As I clearly stated, if the issue is proprty investors, then it is easy to increase the tax burden on property investors without requiring anything more than a slight change to existing taxation.  No CGT is required.

So you suggest writing a separate law for a business based on the type of service/goods they provide?
Financing costs are a ligitimate expense, they wil never be excluded from the accounts of a business it goes against every accounting principle known.
Closest realsitic outcome to what your talking about is ring fencing losses so they can not offset against other income, which makes some sense.

It looks like he's trying to say we should "Tax punish" 'bad' profitable investments,
and support 'good' investments that we do want.

"We" being the political group wanting to buy political influence at any given time.

And that he sees no problem in political individuals using this power to steal money from people just to futher their own political (or finacnial) agendas.

"then it is easy to increase the tax burden on property investors without requiring anything more than a slight change to existing taxation. "

Why are you deliberately picking these people for your fines?  Which crime did they commit?
 

Everything is getting digitised now days, so while a 'paper trail' could take effort to trace in the past, it is possible to spend a few K on a developer to write some code to allow this to be done without any effort or human time.  This is not a suggestion, its what is happening everywhere, and as it happens with property related transactions it opens up much better ways of applying the existing law which I think is all that is required.

and you could put something like a stamp duty on it, to pay for it's maintenance and be a tax on property transfer.

The first question that needs answering is ....
Why do we pay taxes? and the answer is of course to fund Government expenditure.............
So....
Should taxation only be sufficient enough to fund the Governments needs and more importantly What are those needs?
Viewing all NZ's constitutional documents provides and answer to both questions.
NZ'er already pay far too much in tax and most rational thinking people know that you can't tax your way to wealth.
 
Housing affordability has many issues and we know about the actions of Councils who have deliberately restricted supply. So remove Councils foot from the throats of the people......they are nothing more than an oppressive dictatorship.
 
In regards to taxation and housing and the affordability issue then the Government should treat all housing interest and costs the same across the board. 
The simple fact is that interest and costs are tax deductable for investors and not for ordinary wage and salary earners buying a home.  There has to be a one glove fits all approach......you cannot treat parts of the housing sector differently......this is a lunacy. Would the lunatics think it is OK to tax interest and costs on milk and meat on Auckland farms while exempting all other areas?? Yet this is what we do with housing when we have a percentage who can claim and percentage who can't !!!
 
We know we can't tax our our to wealth......so the other option is to apply across the board equal footing tax-relief to all people who hold property......this would mean allowing all owners to claim back interest, rates, insurances against their income. So we are now left with repairs and maintenance.......and if we want a good standard of housing then make these tax deductable also!!
 
This is going to leave the government with a shortfall in their overall tax-take......so they are going to have address the expenditure.........remove WFF and other accommodation supplements.......sell off housing NZ stock......and get rid of all non-essential spending there is plenty of it.......
 
The Government is now incentivised to keep its costs under control so they won't want to have inflationary policies which cause interest rates to rise. 
The PCP under the IRD gathering in $53million......I am very curious as to who all these evaders of tax were and where the worked?  We hear much about the extra tax collected but nothing on those who evaded.......is there an element of name protection going on here?
 

Very true.

That's questions aren't being asked at the right levels, and there's no transparency for the answers.

It's just a rort, and interested parties are lining their own pockets with the status quo and backed by legalised violence - they have no understanding or ethical/moral care about the harm they do as long as it's justified by paperwork.    That's why Brendon got shot down over that "social contract" of his ..... if there really was a social contract, he would have done me the decency of an appropriate reply.  Just as these rort-ers would be transparent and accountable.

Complexity is a fact of life in tax, and as I noted last time, the foreign investment fund and financial arrangements regimes are hardly simple.
 
If such complexity is a fact of life, why don't they just expand the FIF to cover all assets?  Then it's all equally complex.

Australia moves
Foreign buyers face tougher penalties for breaching real estate laws

Foreign buyers face tough new penalties for flouting property ownership rules, as well as loss of capital gains and data-matching with immigration records.
 
Foreign investment in residential property has been the subject of an inquiry, which has delayed handing down recommendations until late November to allow time for consultations about introducing a national property owners register

The inquiry was also likely to recommend that foreigners who are forced to divest a property lose the capital (gain) they have accumulated in the dwelling between buying it and selling
 
http://www.smh.com.au/foreign-buyers-face-tougher-penalties-for-breaching-real-estate-laws

The invisible elephant in the room
 
New Zealand is a Tax Haven
 
No mention of the fact that the absence of a CGT establishes New Zealand as an attractive tax haven for both overseas money and also idle hot money looking for a home
 
Property and multiple properties are a simple conduit for laundering hot-money
 
Buy a property with hot-money, then mortage it locally, and walk away with the mortgage money and hey presto - cleaned

Is there any mention around changes to this? I'm sure I heard something about them clamping down on Shell Companies to discourage Internationally organised crime? But I'm sure a CGT won't discourage Hot Money because wouldn't you still be happy to pay some Tax for ill-gotten gains?

Good point, but is it a significant amount?
Anyway even legit overseas businesses in effect wont pay tax and they should if "operating" in NZ.

My problem is that I don't think its fair to tax inflation.

Fully agree with you on that AJ !!! 
The system is stuctured to revolve around inflation for a reason. Governments, bureaucracies and central bankers love it !!!  Lot of people think they are doing well when it is inflation that increases their nett worth.........it just tells me people can fall through the cracks on both sides.......(low income or high nett worth)......
When government officials talk about efficiency.....what they really mean is how efficiently they can transfer money from your pocket to theirs........it's the two market economy......on the one side there is business and on the other side Governments.....big business knows what is going on so they are just as threatened as the rest of us but because of their size they can flex some muscle hence the corporate welfare.....SME's and those that work in them are the worker ant colony!!!

Yet as items in the shops "appreciate" in value more GST is collected.
As you earn interest in a deposit account, that is taxed gross of inflation.
etc
etc
regards

AndrewJ
When calculating the Capital Gain under the Australian CGT regime, the cost price (base price) is indexed up by the Quarterly CPI, effectively neutralising the inflation component. Almost, but not entirely, because the CPI excludes housing inflation costs, as in New Zealand

I've said it before and I'll say it again.
There is no need for an additional "CGT".  Simplify and rewrite existing tax legislation to mean what it says.  INCOME TAX - if it's income it gets taxed.  No special rates, intention to sell exemptions and remove all deductions so that everyone is on a level playing field.

The problem is those who can afford a tax accountant will pay little of it.  A CGT should be hard to dodge in this manner. Which is also why I like Land tax btw, though that should be accompanied/balanced by a income tax reduction.
regards
 

If there are no deductions, not distinction between capital and revenue source, no exemptions then there is very little for a tax accountant to do.

So if I buy a house now, pay 400k.
then in ten years sell it for 420k.   You think I should be taxed?

But if I buy the nieghbouring similar property for 500k - have I lost or gained income?

Yep, it's 20k income.  Who cares how much your next property cost.
You haven't gained or lost income - you've chosen to buy a more expensive property.

that's where you're wrong.  The property next door, as I explictly said, is similar. that is to say the same value, and in almost the same location.

the asset value is 500k as shown by my "at market" purchase.  My own asset has devalued by 80k.   that's an 80k loss, not a 20k profit !

A similar process happens with raw materials and retailing.  If I constantly have to buy or produce new stock at a higher price than I'm selling for then I'm actually making losses.

start $100. buy stock $50
sell for $60.

buy replacement stock for $70.
sell for $85

buy replacement stock for $90.

How much profit have I made, how much money do I have in the bank?
100 - 50 = 50
50 + 60 =100  but 100 - 70 = 30 
30 + 85 = 115 looks like I've made $15 ... until I buy stock 115 - 90 = 25

I actually have $25 less in hand cash wise and the same assets in stock.
This is why inflation adjusted accounting needed to be invented.
Otherwise it _looks_ like you've made a taxable profit of (GP  = (60-50) + (85 - 75) + 90 closing val - 50 open)   = _65_   which would be nice trade on 100

but as you can see over time the trader has actually lost wealth.  they have the same buy-in stock but they only have 25 in hand.  If this operation was liquidated then that stock is likely to fetch 60% of value (ie it's real world value is only 60% of book value! until sold under normal business conditions) .  their net worth is 90*60% + 25 = $79 a loss of $21 after 2 trades !   their GP closer to ( 60 - 70 ) + (85 - 90 ) + (90 val - 50 open ) = (-10) + (-5) + (40) = _25_ which is might look good... but that's a shrinking amount, that -10 and -5 had to come from somewhere...cash in hand has dropped to $35.  And if we follow that trend, the 90 will sell for 110. cash in hand is 35+110....until we have to rebuy stock which is now 130 in those trends...  145 - 130 = 15 cash in hand... ok we sell at 135 we have $150!  (that's 50% profit right?)  until we buy stock to replace our original $50 stock investment... which is now $150... and we have $0 nothing!! in hand !!!  So we flog the stock for $160. phew we're in the money, lucky no wages, tax or gst to pay... and our replacement stock is....$170...... WAIT... our money is 160, and our stock bill will be 170???  but we made all that historic costing "profit"    . We made "profit" on each turnover...we even have money in the bank $160 but we're out of business???  ...and you want to tax us on the success??

Now that's using favourable figures (revenue is rising and rising faster than cost)
 

Correct me if I'm wrong but don't the costs of your new stock offset gains and vice versa for tax purposes? You don't get taxed on each individual profit you make during the tax year...you pay tax if at the end of the year your incomings have exceeded your outgoings over the period.... If your new house costs more than your old house then you sold too early in a rising market, or you should have cleaned up before your open home....

No.  Because this is all on GP so everything tax related comes after this.  
So "yes" everythign is tax-accountable, it that:

Historic accounting which is what the person was using with the house "profit", you appear to be realising a profit each time you sell for more than you bought.

BUT. 
If the market price of what the new stock has lifted (inflation) then that means that the stock you sold should have been valued at market valuation at the moment of sale.  
So a 400k house, ten years later the houses of that type are all valued at 500k from inflation (i.e. your replacement stock).  

so if you sell you're actually selling a 500k house for 420k.   

The 400k -> 500k rise in stock value looks like "capital gain" but it isn't, it's inflational gain which is an environmental factor.

So if you sell your now 500k house for 420k, you didn't make 20k in capital gains, you just made a 80k capital LOSS !

Which is why the likes of government and Fonterra have to be very careful using inflation to flush away their problems, it is likely to make tomorrow so much more expensive.  So it's a trade off between inflating away debt, and inflation which causes capital devaluation (price inflation) 

Winston Peters is wrong. What is unfair is that there are types of gains that go untaxed, and that distorts investment decisions.
 
Whole industries of property spruiking companies have grown up to take advantage of the unfairness. The distortion is particularly pronounced in the 'property investment' sector, which is a normal commercial activity.
 
I suspect the expected new IRD focus on that sector - sidelining 'intent' and going after those who seek profit in the sector but don't want to pay their fair share as everyone else does in all other sectors - will be effective for society and very uncomfortable for those who have thought their rort was a normal advantage they are entitled to.
 
The new IRD approach will mean capital gains will be effecively taxed at the regular marginal rates. My money is on the IRD to win, and investor behaviour changed significantly. The demise of the get-rich-quick property advice spruikers will be good too.
 
Owner-occupied housing does actually not need to come into it - it is not a commercial activity.
 
I agree that the Labour/Greens approach wouldn't work. But this new Bill English/John Key approach will.

No David you are wrong - what is unfair is to make a living I end up working 70hrs a week, and paying 20+ hours of that in tax.  Others get more cash, so work less hours, and contribute less hours of their lives in tax.

what is unequitable is that the government and IRD create inflation to reduce their debts, then want to charge others tax on the inflation that causes their holdings.  mislabelling it "income"/gains.

If owner-occupied housing is not commercial then who do they pay their rent to?   They don't pay rent because they put the money into the mortgage, it is therefore a commercial action.   Whats more...what about owner-occupiers who draw against their dwelling to fund business or other investments (even rentals) are you trying to slip it past everyone that theirs' is not a commercial activity?

It isnt unfair because the one way street is (or will be) a published fact.  So in effect you as a property investor know that you will be taxed if it goes up but cannot write off the losses if it drops.  So you know the frame work you operate in.
In terms of the CGT losses from the L/G I am pretty sure as above they have stated there will be no tax refunds if you make a loss.  I also think they stated that the tax rate will be 1/2 the income tax rate so around 15% to allow for such losses.  Valuations are in effect already done, you have the CV.  Now if you as a property owner wants a more acurate cost, yeah sure pay for it.
regards

Just frame the property within a business entity and claim the loss from the business entity rather than the sale.   Not recognising losses is unethical

Ok so you're proposing a move to a fair value accounting model?

There already exists various methodolgies for "mark to market" accounting practices each having it's own ups and downs.  Importance is consistancy of use.

I mentioned it here, thinking most people are familiar with it (or their businesses would run them out of equity and debt capitalisation) , in order to point out that what might on the surface look like a capital gain, (eg 20k)  is often a loss !   Therefore taxing that 20k is only going to hurt those most in need (again).
 Those familiar with the principles involved have the knowledge to avoid that trap....and they're also the ones who have the skills to avoid the worst of any CGT.

And to David again,
What also is "unfair" is tht averged waged public struggle to put billions into a public kitty, only to have the protected organisers help themselves to the lions share (and at no risk).
Perhaps it is time we introduced a "low-risk" tax channel as those on low risk earnings are obviously making more than if they were risk-taking to produce the same earning.   That's only fair, says the prospective farm buyer...

This of course means... that if you think your property is in an inflationary environment, that you get an independant professional sign valuation before sale, so you know it's actual stock valuation.

however...if you suspect that it has dropped in price since the last valuation (from highest recent valuation or from historic purchase price) then don't go near a valuation and claim the loss in capital value as well as environmental movement.

Although if you have done significant changes (added rooms or buildings, or significantly changed the nature of the building) then the valuation will reflect the capital gain of improvements (which you can use the cost of the improvements to offset)).

As for the new house/old house comment you make:  not everyone is in the Auckland market.  And we don't all turnover houses in a single or adjacent property cycles.  It is very likely that a house purchased _before_ 2004 (over 10 years ago, before previous cycle) if sold today then replacement stock will indeed be much higher than the <2004 purchase.

Some business actually operate in the death spiral.  buying more expensive and living on the cashflow difference, expecting that they'll die or retire before the final "can't pay the cost of new stock" point is reached.

One-hundred-percent correct.. It's an issue of enforcement of existing rules. Not hard

"With regard to the objective of CGT I share the doubts of those who are sceptical about the ability of CGT alone to slow down rising house prices"
However who sayss this?
Papers I have read on a CGT suggests it has a cooling effect, the big stick is LVR controls.
Where I like it is when I see people buying property purely as a way to reduce tax aiming for a tax free retirement gain. Like the farmer or plumber buying a rental its not really part of the main business endevour.
regards

The papers I have read suggest there is a cooling effect. The point is anyway to take away the tax distortion on investment decisions, a CGT will do that.
regards

it discourages new entrants and small holders - those to whom 20k is a significant deal...you know...all the regular folk.

Complexity? What complexity? What's complicated about it? Explain

Having worked inside the AU CGT system - here is my experience
 
The CGT becomes a disincentive for a family unit with investment capacity to invest in investment properties when the family home is not subject to Capital Gains Tax. What it does do, is it incentivises them to spend heavily on their existing home by extending, renovating, adding another floor, garage, swimming pool, 3 metre-high fencing etc etc, in other words investing in an un-taxed activity. They get it back eventually. In many cases people go overboard and over-capitalise.
 
So no, it does not cool down the prices people are willing to pay for a house that will be a principal residence. It's just more targetted and focused

What does slow people and house-prices down is Stamp Duty. Stamp Duty is paid up front, at the time of purchase. It is unavoidable. People dont change their residences as often. On a $500k house stamp-duty is about $40k, so if you were to change houses every year you soon price yourself out of the market. So people stay put, stay out of the market, dont go chasing the market. They upgrade their existing house. See above. They become less mobile or as PB would say less auto-mobile

What! Taking a few thousand houses out of an undersupplied market to lower prices! Increasing the cost of something with a new tax to make it cheaper. Yeah, right.

We can really see here the raw nerve that some have about CGT.
Currently the discussion is relevant to the hot property market in Auckland.
Suggestions that making interest not deductible would obviously curtail the benefits of using the bank's(other peoples money!) to gain a benefit.
I would say that stopping or at least reducing the interest deductions would allow a buyer to buy outright without tax penalty and even up the field with the buyer who wants to live in their property. Hence the market would tend to equalise (Fall) and make things better.
An annual tax like a land tax would help also but how to apply it is the problem.
Overall we have a totally ineffectual tax system that allows some to benefit and worse they believe it is their right to continue what are effectively rorts.
FIF can have one positive. It assumes your asset makes 5% .
If you make less you are overpaying.
If you make more you get the benefit.
I know of one overseas investment that yields 8% with 10% of the income taxed at source so that when the IRD see it here the tax due is only 1.5% (17.5% tax rate) to 13% (30% rate)