Capital Gains Tax – A case study

Labour has soft launched their plans to sock kiwi taxpayers with a?capital?gains tax through their TVNZ back channels. As is usual their soft launch is rather short on details. One thing we do know after two comprehensive tax?revenues?is that for Labour to even get close to their planned $4.5 billion in?increased?taxes their capital gains tax would?have?to exceed 30% and cover every investment out there.

A capital gains tax would need to be levied at 30% to raise the revenue Labour is talking about, he said, and it would also have to be cast much wider than investment properties.

?You could only raise anything like $4.5 billion if you have a 30-% capital gains tax on all farms, on all shares, family baches, and all investment properties.?

Because the tax is typically only levied when the asset is sold, it would take a long time before the government collected much extra revenue.

At 15%, it would be 15 years before the government collected $500 million a year, he said.

?So they?re going to have a $12 billion hold in their first three years [if Labour were elected]? he said.

?We have had two tax reviews in the last decade?- the Mcleod Review in 2001 [under the last Labour government] and the Tax Working Group last year, and both of them rejected a capital gains tax for New Zealand,? he said.

Handily Phil Goff has unwittingly supplied us with a very good case study with which to look at their plans. So far Labour?have?said that the new tax would not cover the family home but would cover any additional ones, presumably including the family bach. The tax would only apply to property investment but there is no mention of farms or industrial property, only residential real estate. It certainly doesn’t appear to cover shares.

Handily Phil Goff has unwittingly supplied us with a very good case study with which to look at their plans.

Philip Bruce Goff owns a home and land in the Auckland area, it is in Clevedon, some many kilometres from his constituency but nonetheless it is his home. That luxury property in?rural?Auckland wouldn’t be subject to Labour’s new capital gains tax.

While Philip Bruce Goff was a parliamentarian, still his current occupation of 27 years, he bought an additional property in Wellington. Initially he used this himself and latterly rented it out as an investment for his retirement which is due shortly.

“Why am I renting it out? Because it’s an investment property. It’s my superannuation,” Mr Goff told 3 News.

Philip Bruce Goff has now?subsequently?sold his rental property and you would think that under Labour’s plans which he would know intimately he would be liable for a capital gains tax. But would he? I wonder too if Phil Goff sold his property so that he could avoid paying Labour’s capital gains tax?

Look?ing at??the pecu?niary inter?ests reg?is?ter it showed that Phil Goff owned his apartment in a “company shares” arrangement:

Hon Phil?GOFF (Labour, Mt Roskill)

  • Tower Lim?ited ? life insurance
  • Mans?field Tow?ers Lim?ited ??Welling?ton?flat com?pany shares
  • Fam?ily home and farm prop?erty (jointly owned),?Auckland
  • House (jointly owned), Mt Roskill
  • Global Retire?ment Trust Super?an?nu?a?tion Scheme
  • West?pac ? term deposit
  • Bank of?New Zealand?? term deposit
  • Kiwibank ? term deposit

Since Labour’s capital gains scheme doesn’t cover company shares then presumably he wouldn’t be liable for a capital gains tax on the property?because?he didn’t sell the property, he sold?shares?in the company that owned the property. If his rental property that he kept for investment purposes as he stated to the media ?would be exempt because of some tricky ownership structure then it does raise serious questions over Labour’s bew tax and its ability to raise anything like the numbers they think it is going to raise.

If Phil Goff says that Labour’s new tax would catch this case then it opens up the likelihood that Labour’s capital gains tax will catch rather more than property investment and would necessarily have to include other super scheme arrangements like Kiwisaver,?Retirement?Trusts like Phil Goff’s own Global Retirement Trust Superannuation Scheme and other Unit Trust arrangements that make capital gains. Labour needs to clarify what will be included in their capital gains tax and they need to to do it quickly otherwise they can be charged with shooting from the hip with an ill-conceived?and un-costed policy that won’t work.

Goff soft launch of their policy raises many more questions than it answers and I suspect that Labour?have?no idea of where the opening of The Pandorica of capital gains is leading them.