TaxBlog

There are quite a few articles out today discussing introducing a CGT to make housing in New Zealand more affordable.

This has been mentioned quite a bit lately in the attempt to make housing more affordable. In the first link below the The New Zealand Manufacturers and Exporters Association (NZMEA) say:

The almost unique absence of a Capital Gains Tax in New Zealand is one of the factors that drive this outcome. It is clear that the tax rules favour assets over activity.

Their arguments are:

“What is there to fear from a Capital Gains Tax that does not affect the family home or increase the overall tax load? We need to balance the tax treatment of all gains and income to encourage more investors into the productive sector of the economy where jobs and wealth are really created.”

“A Capital Gains Tax has long been framed as politically untenable in New Zealand, but it is difficult to see why, when it will both make housing more affordable, and help create jobs and real wealth. If the Government is serious about improving productivity and creating jobs then this would be a good place to start.”

The NBR article follows a similar path quoting the EMA, but interestingly also has an article about how other factors incuding the Resource Management Act (RMA) are to blame for the low housing affordability.

In response to the calls from the EMA Revenue Minister Peter Dunne has two press releases. He states:

“It’s a hoary old chestnut and it’s time it was put to rest once and for all – no government is going to bring it in,” Mr Dunne said.

“The idea of a general capital gains tax has been around since the 1980s but has never gained any real support.

“As I’ve consistently said, it is simply not going anywhere and the time has surely come to bury it because no government will ever implement it, so these periodic discussions on it are a waste of time,” he said.

Mr Dunne said it would be political suicide for any government to implement, and it was time that “the theorists and ideologues understood that”.

I agree with Mr Dunne that it would be political suicide for a government to introduce a CGT. This is uniquely so because of New Zealanders love of bricks and mortar investments. Part of this may be due to the lack of quality capital markets here (stocks and bonds).

However in theory a CGT would remove some of the distortions in the market that currently incentivises people to purchase property. Mr Dunne offers no reasons to refute this. Perhaps such a move would also increase investment in private equity and small business.

Links:
2nd most unaffordable housing – balance tax system
Capital gains tax would help housing affordability
People don’t like tax reveals Peter Dunne
Dunne: Mothball capital gains tax idea

Bookmark to:
          

Revenue Minister Peter Dunne announced today that more than 900,000 New Zealanders are enrolled in kiwisaver

“That’s a tremendous take-up rate for the scheme by any measure, and it’s particularly pleasing to note the very even spread across all age groups and both genders,” Mr Dunne said.

“With 46 per cent of KiwiSaver members under 35, it’s good for the country’s future to see younger people saving.”

Kiwisaver works for some people, and not for others. However one of the things that joiners are unaware of is that they can not unenrol from kiwisaver whilst still in that job. You can however take a “contribution holiday”.

It will be interesting to see how many poeple opt for this option in light of the tough economic conditions or how many people starting a new job will opt out.

Bookmark to:
          

News out on Friday that the government is considering a “crime tax”.

How it would work is that $50 would be levied on every person convicted of a crime, where they are required to go to court. These offences would range from traffic violations to murder and would be collected by the current Ministry of Justice system.

The proceeds would then be used to help victims with funeral costs, travel costs and things like counselling.

My question is: Shouldn’t this rightly be called a fine, not a tax?

Bookmark to:
          

This article out in the Herald yesterday that talks about rent to buy arrangements.

The interesting part from a tax point of view is on page 3:

Hamilton accountant Ross Barnett says his client is facing a test case over how the Inland Revenue will treat GST liability when a rent-to-own scheme is signed. Usually a trader buys a property with the intention of reselling it, so claims GST on the purchase, and pays GST on the resale profit.

If the trader finds a buyer who wants to rent-to-own the property, they account for GST on any amount paid toward the purchase price. When the tenant opts to buy, GST is returned on the sale price less the amounts already paid.

An Inland Revenue spokesperson confirmed to the Herald on Sunday that if the arrangement provided that part of the rental payments would be put toward the purchase price of the property, then it is likely that the property trader would need to account for GST “on the entire price of the property as soon as they receive any payment toward the cost of the property. This will be the case even if the amount of rent paid is not sufficient to cover the cost of the GST.”

Barnett says the hard thing for developers or traders is that they’re dealing with an option. “Fifty per cent of them would probably fall over… so they end up paying GST when no actual sale occurs.”

I would agree with Mr. Barnett. I don’t see how the IRD can class an option as anything other than a right for the tennant to purchase the property.

Watch this space, Tax Blog will keep you up to date on breaking developments on this story.

Bookmark to:
          

News out a couple of days ago reveals that Barrack Obama is going to hire Tim Geithnerger as Treasury Secretary despite not paying his taxes.

Geitnerger failed to pay self-employment taxes when he was working for the International Monetary Fund totalling $25,970, which was found during Obama’s vetting process.

Time reports:

The confusion over the self-employment tax arose from an unusual system used by the IMF. Though its U.S. employees receive W-2s, they have been treated for tax purposes as though they are self-employed.

Can you imagine what would happen here if the head of the IRD had a record of not paying thier taxes?

Bookmark to:
          

Ben Nevis & Ors v Inland Revenue

Tourism operator wins seven-year fight with IRD A tourism operator has won a case against Inland Revenue to have $6.28 million in goods and service tax paid back after a seven-year fight over a cheque that bounced.

Glenharrow Holdings Ltd v Inland Revenue

Previously The Court of Appeal had dismissed Glenharrow’s appeal and reduced Glenharrows refund.

The Supreme Court has confirmed that ruling, agreeing that the Commissioner was entitled to invoke s 76 of the GST Act 1985 and to treat the arrangement as a tax avoidance. The Court has found that the arrangement entered into to defeat the intent and application of the Act: the price was not paid in economic terms, even though as between the parties a debt was discharged. The structure adopted by the parties achieved no economic effect and nothing significant in commercial terms.

Bookmark to:
          

Another interesting Herald editorial is out suggesting that there should be some kind of tax releif on interest.

The editorial is written by a guy called Jean Albert who is a “specialist in international law and a consultant on taxation, trade and competition.

Bookmark to:
          

Business is calling for a raft of tax changes to alleviate its cash flow problems.

Furthermore there are provisions in the current system which require you to revise your profit estimates and make payments accordingly.

This seems to me to be a knee jerk reaction.

(I put the question mark above because it seems like a couple of people want an overhaul and the article claimes that these people are representative of all NZ business)

Bookmark to:
          

The NZ Herald editorial is claiming that capital gains tax is viable and perfect for the financial climate

Bookmark to: