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A music moment: I’d Like To Teach The World To Sing (In Perfect Harmony)
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Dedicated to certain Labour Party candidates…
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National spins BS to undermine Labour’s Capital Gains Tax
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The Nats have been at it again; spinning their misleading bullshit to discredit Labour policy.
This time, Revenue Minister Todd McClay, has been busy issuing media statements that there is no need for Labour’s proposed Capital Gains Tax because, well, evidently, we already have one.
On Sunday 25 May, McClay was quoted as stating,
“Where somebody buys a property or buys shares with an intention of the capital gains being accrued … if their intention is to make a gain from the capital, their normal income tax rules apply, and therefore there is a capital gain.”
Earlier in the month, McClay had made the same assertion,
“When people say New Zealand doesn’t have a capital gains tax on property it’s not true – we do have a capital gains tax, and it applies to speculators.”
Which is strange, because when Labour first released it’s CGT (capital gains tax) policy in 2011, the following were in favour;
The Dominion Post
NBR
Herald on Sunday
Gisborne Herald
Waikato Times
The Greens
The IMF
The OECD
and columnists and commentators,
Paul Little
Mike Hosking
Gordon Campbell
Anthony Hubbard
Patrick Smellie
Vernon Small
Corin Dann
Andrea Vance
John Hartvell
Matthew Hooten
John Roughan
Duncan Garner
John Armstrong
Bernard Hickey
Gareth Morgan
plus Academics, tax experts, economists, and Treasury.
Those opposed to a CGT were National, ACT, and Landlords. Unsurprisingly, really, when you think about it. National, ACT, and Landlords represent the capitalists and speculators in our society and they would welcome a tax on capital gains like turkeys look forward to Christmas.
So if we already have a Capital Gains Tax – why were so many in favour of introducing a law specifically for it?
This blogger would hazard a guess that National and ACT oppose a CGT because it would make up for the seven tax cuts since 1986. These seven tax cuts have seriously reduced government revenue and constrained center-left governments from implementing social policies that would return this country to being a decent social democracy.
Imagine if a CGT in five or ten years would deliver sufficient revenue to fully fund a free tertiary education system in this country. It would drive another nail into the coffin of the neo-liberal policy of user-pays.
Hence why National and ACT absolutely loathe Labour’s policy.
If a CGT was introduced, the catch-cry of right wingers – “but where will the money come from!?!?” – will be muted – if not silenced forever.
But is McClay correct? Do we currently have a Capital Gains Tax?
The answer is, ‘Yes’. And ‘No’.
The current taxation policy on capital gains is haphazard; ill-defined; and open to interpretation. This IRD web-page illustrates how vague the law is on this issue,
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Residential property Whare nohoanga
.Mistaking property dealing for property investment
Property investor is a collective term for property speculators, dealers and investors. However, they are each treated very differently under tax law.
- Factors to consider when determining your status
- What is an investor, a speculator and a dealer?
- If you are not clear on your intentions for buying a property
- How long do I need to hold the property to make it a capital gain?
- How many properties can I sell before it is considered taxable?
Factors to consider when determining your status
Three main factors can determine your status as a property buyer for tax purposes:
- your intention when you buy a property
- the patterns of your previous property transactions
- your association to a builder, property dealer or developer.
The category you fall into isn’t determined by what the property is called or how the activity is described. For example, it may be marketed as a “rental investment” with strong “capital gain” potential, but your firm intention or prior pattern is the factor that determines its tax treatment or if you’re involved in or associated with someone in the business of building, dealing, developing or dealing with land.
If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. The property is a capital asset and any later profit or loss from selling the property is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable).
The rules may be different if you’ve been associated with a person or entity involved in the business of building, dealing, developing or sub-dividing land.
If you buy a property intending to:
- resell it, or
- you intend to sell it after making improvements to it
you’re likely to be a speculator or a dealer. Renting your property temporarily doesn’t change your tax treatment either – you’re still a speculator or a dealer.
What is an investor, a speculator and a dealer?
Investor
If you’re an investor you buy a property to use it to generate ongoing rental income and not with any firm intent of resale. The property is a capital asset and any later profit or loss from selling the property is capital and isn’t taxable (apart from clawing back any depreciation, which is now recoverable).
Property investors sometimes refer to a “buy and hold” strategy. This approach is most likely to mean you are a property investor for tax purposes.
Investors will investigate and analyse future revenue streams, and any gain made on the sale of the property is incidental. Their investment is soundly based on a return from the rental income.
Investors pay income tax on their net rental income but generally not on the eventual sale proceeds of the property.
Note
The rules may be different if you’ve been associated with a person or entity involved in the business of building, dealing, developing or sub-dividing land.
Find out about special tax rules for associated persons.
Speculator
You might think profits from selling property are always capital gains so you don’t have to pay tax on them. But, this isn’t always true. If one of your reasons for buying a property is to resell it, whether you live in it or rent it out, you’re speculating in property and your profit is likely to be taxable. And, if you sell that property at a loss, the loss may be tax-deductible.
If you’re a speculator you buy a property always intending to sell it. The property is treated like “trading stock” and your profit or loss from selling the property is taxable. Speculating can be a one-off purchase and sale of a property. Speculators may also receive rental income from the property before they sell it.
Property dealers or speculators will try to determine and analyse the property’s future price movements because that’s what the deal rests on. Any rental income is secondary.
To be a speculator, you need buy only one property with the firm intent of resale.
Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.Dealer
If you’re a dealer you are similar to a speculator buying properties for resale, but you have established a regular pattern of buying and selling. This includes rental properties.
Some property buyers refer to a “buy and flick” strategy. This approach is most likely to mean you are a property speculator or dealer for tax purposes.
Dealers and speculators must pay income tax on any gain they make from reselling their property. If they declare a loss, it may be tax-deductible. They must also pay tax on rental income they may earn from the properties.
If you are not clear on your intentions for buying a property
Read our guide Buying and selling residential property (IR313)
If you’re buying and selling property other than a private family home, we recommend you get advice from a tax advisor with expertise in this area.
How long do I need to hold the property to make it a capital gain?
There is no time limit. If you buy a property with the firm intention of resale, it doesn’t matter how long you hold it – the gain on resale will be taxable (and any loss may be tax-deductible).
Example
You buy a property with a firm plan to resell it for a profit. The property market falls and you decide to hold onto it instead. You rent it out for 15 years and then sell it when the prices are again rising rapidly. Any gain on that sale 15 years later is likely to be taxable.
How many properties can I sell before it is considered taxable?
There is no set number of properties you can have before they become taxable. In some cases the first property bought and sold may be taxable if you bought it for resale. In other cases there could be a number of factors to take into consideration, such as having a regular pattern of buying and selling property, before a property is taxable.
The factors that may be looked at will vary because each taxpayer’s circumstances are different. For example, buying one property every two years may be considered a regular pattern for one individual and not another.
Find out more about what tax you should be paying
Date published: 30 Jul 2010
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Note the difference between Investor, Speculator, and Dealer;
- Speculators and Dealers are liable to pay tax on gains made from selling property.
- But an Investor is not liable to pay tax on realised gains.
The difference is open to interpretation, behaviour, and intent. Though how an IRD official can know the intent of someone purchasing a property remains a mystery. Telepathy? Time travel? A hot-line to one of our gods?
The issue is not made any clearer on another IRD web page;
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Selling property
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The things you need to consider when selling your investment property, selling your rental property or selling the family home.
What happens when you sell your family home
Selling a family/private home usually has no tax consequence. However there are some circumstances where you may have to pay tax.
What happens when you sell your investment property
Generally, you don’t need to pay tax when you sell your investment property except for any depreciation recovered. However, each time you sell a property it is important to consider if you are still a residential investor or are now a dealer.
What happens when you sell your rental property
Generally, you don’t need to pay tax when you sell your rental property except for any depreciation recovered. However, each time you sell a rental property it is important to consider if you are still a residential rental investor or are now a dealer.
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Obviously, there is no one-law-for-all. (Something which the ACT Party might like to consider, in it’s “one-law-for-all” policy, as it insists on dumping Treaty of Waitangi settlement claims.)
When John Key gave justification to amend statutes governing the GCSB, and extended the spy agency’s powers so it could spy on all New Zealanders and Permanent residents, he claimed that the original Government Communications Security Bureau Act 2003 was “not fit for purpose“.
When a tax law is so ill-defined that it is open to interpretation of “behaviour” and “intent”, then I submit that the current law on capital gains is “not fit for purpose”.
The National government can squeal all it likes, but the time has come for a capital gains tax and to close the Homer Tunnel-sized loop-holes that bedevil the current law.
After all, if we already have a Capital Gains Tax as Revenue Minister Todd McClay insists – then he won’t mind terribly much if the law is tightened up. We’d be formalising what McClay says already exists.
Right?
That’s making it “fit for purpose”.
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References
Radio NZ: Parties at odds over capital gains tax
MSN News: IRD targets `high end’ tax dodgers
Tumeke: John Key’s dagger and his 4 Horsemen of the Capital Gains Tax
IRD: Residential Property – Mistaking property dealing for property investment
IRD: Residential Property – Selling property
National Party: Draft intelligence community legislation released
Previous related blogpost
A Capital Gains Tax? (14 July 2011)
ACT intending a “serious assault”? (17 July 2011)
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Above image acknowledgment: Francis Owen/Lurch Left Memes
This blogpost was first published on The Daily Blog on 26 May 2014.
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Radio NZ: Focus on Politics for 30 May 2014 – the Mana Internet Party Alliance
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– Focus on Politics –
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– Friday 30 May 2014 –
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– Demelza Leslie –
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A weekly analysis of significant political issues.
Friday after 6:30pm and Saturday at 5:10pm
The contest for votes on the left is heating up with the announcement this week of an alliance between the Mana and Internet parties and the reappearance of former Alliance Party MP Laila Harre.
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Click to listen: Focus on Politics for 30 May 2014 ( 16′ 57″ )
- Mana Party, Internet Party, Laila Harre
- MMP, “coat-tailing” rule
- Sue Bradford
- Kelvin Davis
- Hone Harawira
- David Cunliffe
- John Key, Epsom, Ohariu
- Winston Peters
- Gerry Brownlee
John Key;
@ 10.49
“If you look at those places like Epsom and Ohariu, those people actually won their seats outright, in their own right…”
@ 12.28
“He can go on and on and on all he likes that there isn’t some deal and there isn’t something going on. But you just take a step back and you say well what sort of person puts up three or four million dollars, has absolutely nothing in common with the party that’s there, has actually no interest in politics, lives in a twentyfive million dollar house and is arguing he’s there for the poorest New Zealanders which is what, you know, Hone Harawira talks about and Laila Harre talk about. It’s not really a plausible or believable story…”
Power Play, by Chris Bramwell
Acknowledgement: Radio NZ
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Letter to the Editor: The ‘Darth Vader’ of Deal Making! (v.3)
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FROM: "f.macskasy" SUBJECT: Letters to the editor DATE: Fri, 30 May 2014 12:37:12 +1200 TO: "Dominion Post" <letters@dompost.co.nz>.
The Editor Dominion Post . How does one define panic? Answer: when a Prime Minister launches into stinging attacks on two tiny political parties that, between the two of them, barely register at 2% in every poll conducted. I refer to John Key bagging the recent alliance of Mana and the Internet Party, asserting; "You've got a guy who can't buy a house in New Zealand, but he can buy a political party." Realising that people will draw comparisons between between his criticism of the Mana-Internet Party Alliance and National's stitch-ups in Epsom and Ohariu, Key lamely added; "Those people win their seats outright, in their own right. Their motivations are the beliefs of those parties. That's not the case here." What garbage. With talk of a National-Conservative Party stitch-up before the election, the 'Darth Vader' of deal-making - John Key - is drawing attention to his own party's shonkey "arrangements". How else to explain the Nats freaking out at Mana and the Internet Party working strategically together? They must feel very threatened by a party with a combined poll rating of only 2%. The 1% fearing the 2%? Appropriate. -Frank Macskasy
[address and phone number supplied]
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References
NZ Herald: PM accuses Dotcom of trying to ‘buy influence’
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Above image acknowledgment: Francis Owen/Lurch Left Memes
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Letter to the Editor: The ‘Darth Vader’ of Deal Making! (v.2)
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FROM: "f.macskasy" SUBJECT: Letters to the editor DATE: Fri, 30 May 2014 11:02:22 +1200 TO: NZ Herald <letters@herald.co.nz>.
The Editor NZ Herald . John Key must be panicking. How else does one explain his bizarre statements about the recent Mana Internet Party Alliance; "You've got a guy who can't buy a house in New Zealand, but he can buy a political party. I think most New Zealanders would look at that and be pretty cynical about it. No one should be under any illusion." No, Mr Key, we are not "under any illusion". Especially when the Prime Minister lamely insists that the National-Peter Dunne stitch-up and the National-John Banks stitch-up in 2011 were obvious examples of deal-making from the Right. And coming soon, for this election, as well as stitch-ups in Ohariu and Epsom, voters can now look forward to a deal between John Key and the Conservative Party. But according to the Prime Minister, deal-making between Right Wing parties is ok; "Those people win their seats outright, in their own right. Their motivations are the beliefs of those parties. " Yeah, right. Well, I have a deal for John Key, the 'Darth Vader of deal-making'; how about he stops trying to influence voters and leave those decisions to us? In return, we won't call him a hypocrite. -Frank Macskasy [address and phone number supplied]
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References
NZ Herald: PM accuses Dotcom of trying to ‘buy influence’
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Above image acknowledgment: Francis Owen/Lurch Left Memes
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Letter to the Editor: The ‘Darth Vader’ of Deal Making!
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FROM: "f.macskasy" SUBJECT: Letters to the editor DATE: Fri, 30 May 2014 10:28:19 +1200 TO: "Sunday Star Times" <letters@star-times.co.nz>.
The editor Sunday Star Times . One can tell when the Right are in a panic - they start making silly noises about parties on the Left. Take for example John Key's recent silly utterances about the strategic alliance between the Internet Party and Mana that "You've got a guy who can't buy a house in New Zealand, but he can buy a political party. I think most New Zealanders would look at that and be pretty cynical about it. No one should be under any illusion" - is laughable. I take it that Key excludes the Epsom deal between himself and John Banks in 2011? On the Epsom cup-of-tea deal, Key says, "Those people win their seats outright, in their own right. Their motivations are the beliefs of those parties". Really? So why the need for the "cup of tea" arrangement with John Banks if ACT could "win their seats outright, in their own right"? One would think the Right would be fine with this kind of “arrangement” because it validates the Epsom stich-up; the Ohariu stitch-up; and the coming Conservative Party stitch-up… When it comes to stitch-up deal-making, the Left have learned their lessons from National - especially from John Key, the 'Darth Vader' of deal-making. -Frank Macskasy [address and phone number supplied]
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References
NZ Herald: PM accuses Dotcom of trying to ‘buy influence’
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Above image acknowledgment: Francis Owen/Lurch Left Memes
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National-ACT supporters – not the brightest lights in the night sky, eh?
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Reading some comments on the Campbell Live Facebook page, soon after the investigative story on the GCSB was aired on 20 May, I was struck by the sheer lack of informed comment by some right-wing Facebook users. Take for example, this statement was a user identifying himself as “Jack Peters“;
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(Note: the profile appears to be fictitious and nothing more than a right-wing troll. According to his Profile, “Jack Peters” has ‘Liked” the Green Party, a somewhat clumsy attempt to smear the Greens by association with his blatant trolling.)
“Jack Peters” made a reference to “the GCSB was created under Helen’s [Clark’s] watch“.
This reminded me immediately of a story back in 2012, which linked right-wing/conservative/racist beliefs with low intelligence;
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Following up on this story last year, Goal Auzeen Saedi (Ph.D), wrote in Psychology Today,
Hodson and Busseri (2012) found in a correlational study that lower intelligence in childhood is predictive of greater racism in adulthood, with this effect being mediated (partially explained) through conservative ideology. They also found poor abstract reasoning skills were related to homophobic attitudes which was mediated through authoritarianism and low levels of intergroup contact.
What this study and those before it suggest is not necessarily that all liberals are geniuses and all conservatives are ignorant. Rather, it makes conclusions based off of averages of groups. The idea is that for those who lack a cognitive ability to grasp complexities of our world, strict-right wing ideologies may be more appealing. Dr. Brian Nosek explained it for the Huffington Post as follows, “ideologies get rid of the messiness and impose a simple solution. So, it may not be surprising that people with less cognitive capacity will be attracted to simplifying ideologies.”
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Why do I raise this point?
Because right-wing troll “Jack Peters” slammed critics of the Key government by stating that “the GCSB was created under Helen’s [Clark’s] watch“.
In fact, the GCSB was created by then-National Prime Minister, Robert Muldoon, in 1977, as the GCSB itself pointed out on it’s own website,
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Created by a National government.
Powers increased by a National government.
Misinformed beliefs from National supporters.
Who then vote in the next National Government.
That, people, is what is commonly known as a vicious circle.
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To view the Campbell Live story on the GCSB and the murky goings-on behind the scenes, I present a link here (click on the image to take you to the TV3 website);
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It is, quite simply, one of the best bits of investigative journalism this blogger has witnessed for some time. Campbell Live and Maori TV’s Native Affairs are simply Must Watch tv.
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References
Facebook: Campbell Live – Jack Peters
TV3: Key’s meeting with GCSB boss revealed
Facebook: “Jack Peters”
Daily Mail Online: Right-wingers are less intelligent than left wingers, says study
Psychology Today: Do Racism, Conservatism, and Low I.Q. Go Hand in Hand?
Government Communications Security Bureau: History of the GCSB
TV3: Campbell Live – Key’s meeting with GCSB boss revealed
Previous related blogposts
The real reason for the GCSB Bill
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Above image acknowledgment: Francis Owen/Lurch Left Memes
This blogpost was first published on The Daily Blog on 25 May 2014.
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